Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to TFI International's first quarter 2019 results conference call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question and answer session. Instructions for entering the queue will be provided at that time. Before turning the call over to management, please be advised that this conference call will contain several statements that are forward-looking in nature and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. Lastly, I would like to remind everyone that this conference call is being recorded on Wednesday, April 24th, 2019. I will now turn the call over to Alain Bédard, Chairman, President, and Chief Executive Officer of TFI International. Please go ahead, sir.
Well, thank you. Good morning. Thank you, operator, and thank you everyone for joining the call. Yesterday, we completed our annual meeting and released our first quarter results after the close of trading. If you need a copy of the release, please visit the investors section of our website. This year is off to a strong start for TFI, and our first quarter results reflect our unwavering commitment to execution of the basic fundamentals of our business so that we can drive strong and consistent free cash flow regardless of the economic cycle. We know that you, the investors, appreciate the tangible nature of free cash flow, and we value the flexibility it provides in optimizing our approach to the business. During the first quarter, we stayed true to our goal of creating and unlocking shareholder value and whenever possible, returning excess capital to our shareholders.
Throughout the quarter, our team sought operating efficiencies, we pursued an asset-light business model, we maintained our strong balance sheet, and we sought accretive business acquisition in a highly disciplined manner, completing three during the quarter. This will remain our approach throughout the year with the aim of generating not just growth, but profitable growth, all in the interest of creating shareholder value. With that, let's have a look at our first quarter results. I should inform everyone that we've adopted the new accounting standard under IFRS 16, and as a result, certain numbers I'm going to discuss are not directly comparable with past results. Our total revenue grew 3% year-over-year to CAD 1.2 billion, and that's our highest revenue ever for the first quarter. As you know, we're focused on profitability, not just top-line growth.
More important to us is that our operating income was up 41% to CAD 106 million. Similarly, our adjusted EPS on a diluted basis was up 40% to CAD 0.77. Another focus of ours is our net cash from operating activity because of the flexibility it provides us, and it's close tied to creating shareholder value. You'll recall that last year in 2018, we produced record net cash from operating activities of more than half a billion dollars. For the first quarter, our net cash from operating activity was CAD 161 million, up 178% over the year ago, and another record for TFI during a first quarter. In addition, our free cash flow reached CAD 143 million, up 172%, and also a first quarter record.
The growth in our net cash from operating activities and free cash flow was driven by a stronger operating performance as well as in part by the impact of our adoption of IFRS 16. The detailed impacts are available on our Q1 financial statement published yesterday. As you can tell, our overall results suggest that 2019 is off to a strong start, and that, of course, is due to the performance of our four reportable segments, all of which saw year-over-year increases in operating income. Let's have a look at each segment, starting with our P&C, which represents 14% of total segment revenue. Our revenue before fuel surcharge rose slightly to CAD 147 million. Operating income was CAD 21 million relative to CAD 21.6 million a year earlier, and the operating margin was 14.3% versus 14.4% in the corresponding prior period.
Volume as well as inclement weather were challenging, as I mentioned earlier, regardless of the environment, our focus remains unchanged. We are committed to deploying cutting-edge technology, optimizing the business mix and asset utilization, and leveraging our strong network to capitalize on e-commerce growth opportunities. Next is our LTL, which represents 19% of total segment revenue. Our revenue before fuel surcharge was also up just slightly to CAD 208 million. However, our operating income jumped more than twofold to CAD 28 million, and our operating margin was also expanded significantly to 13.3% from 5.6% a year earlier. This was driven by strong operating performance as well as a CAD 9.4 million gain from the sales of one property. We also saw a 5.7% increase in our revenue per hundred weight, excluding fuel surcharge, as we continue to focus on the quality of our freight.
Turning to our truckload segment, which represents 40% of total revenue, our revenue before fuel surcharge was up 7% to CAD 527 million. Operating income of CAD 51 million increased significantly compared to CAD 36 million in the corresponding prior year period, as did our operating margin, which jumped to 9.6% relative to 7.4% a year earlier, for an increase of 220 basis points. Looking at our adjusted operating ratio, we achieved 84% for our Canadian truckload, 88.4% for our specialty TL, and 92% for our U.S. TL. We remain cost-conscious, continually looking to reduce expenses, and at the same time improving the efficiency and profitability of a modern fleet and network of independent contractors. Next, let's discuss logistics and last mile, which represent 19% of total segment revenue. Revenue before fuel surcharge was CAD 224 million, relative to CAD 237 million in the prior year first quarter.
This quarter, our Canadian operation generally improved earning, while our U.S. was a bit weaker. As a result, on a consolidated basis, our operating income grew 1% to CAD 15 million. In terms of capital allocation, during the quarter, we returned CAD 117 million to shareholders by way of CAD 21 million of dividends, CAD 97 million of share buyback. We also invested CAD 103 million in business acquisition. Looking forward, we intend to continue to buy back shares as well as execute on attractive acquisition opportunity in a disciplined manner, extending our long track record in that regard. Our outlook for CapEx, excluding real estate, is revised down to CAD 200 million-CAD 225 million. Thank you for your time this morning. We appreciate your interest in TFI. With that, we can now open the call for questions.
Thank you. Ladies and gentlemen, at this time, if you would like to ask a question, please press star followed by the number one on your telephone keypad. Once again, that's star then one if you would like to ask a question. Your first question here comes from Jason Seidl from Cowen and Company. Please go ahead. Your line is open.
Alain. Thank you for taking the question. This is Adam on for Jason here. First I wanted to ask you about recent TL pricing trends for your U.S.-based truckload. What have recent contract renewals looked like? What kind of trends are you seeing there in terms of contract renewals for TL?
That's a very good question, Adam. What we're seeing so far is that we're still able to pass on adjusting our price up 3% to 5% to 6%. For sure, the market is a little bit different versus 2018. Okay. Us, we come from a long way. If you remember when we bought TFI, we were really far from where we should have been on quality of revenue. What we're seeing now, okay, is a little bit of fog. Right now, because of weather, seasonal is still not really strong. In Canada, it's not strong at all. We haven't seen it because of weather. In the U.S., in the north, still not available. In the south, we're just starting. This is why there's a little bit of pressure in volume.
So far, every contract that we're renewing is still an opportunity to improve the quality of revenue.
Got it. Thank you for that. Maybe a quick follow-up here. I wanted to also ask about specialty TL. I know it's a focus for you guys. What does the M&A market look like for specialty TL? I know with a Texas-based peer of yours kind of removing themselves from the M&A market at the moment. Are you able to take advantage of that and make more acquisitions? Just in general, what does the specialty TL M&A market look like for you guys?
For sure, Adam, that's an area of growth for us. We did two early in the year. Now it's time for us to really digest the acquisition that we've done. They're not big. We're adding about $20 million of USD EBITDA with those two acquisitions. It's really a base for us to keep on growing. Probably you won't see us really active on the M&A side in the U.S. specialty TL, at least for the next six months. For sure, we have lots of opportunity. For sure, on the M&A, we could do way more. Okay. It's just that you've got to do it in the disciplined manner. Okay. It's easy to buy. Everybody with money can buy. What do you do when you buy the company? That's the important thing.
This is why our focus at TFI has always been to buy at the right price and also to execute all the synergies after you buy the company, right?
Got it. Thank you for the time. I appreciate it.
Okay, Adam. Take care. Bye.
Your next question comes from Cameron Doerksen from National Bank Financial. Please go ahead, your line is open.
Thanks very much. Good morning.
Good morning, Cameron.
Just maybe a couple of questions on guidance. You mentioned the updated CapEx number for the full year. I'm wondering if you can maybe just talk about if there's any changes to your EPS expectations for the full year. You made a couple deals, I guess, subsequent to that, and the previous number we had was CAD 3.80 to CAD 3.90. Is there any change to that number?
You know what, Cameron, we've always been very conservative and underpromised and overdelivered. We're still sticking to our CAD 3.80 to CAD 3.90 in terms of EPS for 2019 so far. Let's see what happens in Q2. Then probably, we may update that. For sure, the possibility of us going on the CAD 4 is reasonable. For the time being, as of today, we're still staying at about the CAD 3.80 to CAD 3.90.
Fair enough. I don't know if you have any comments around our free cash flow was quite strong in Q1. Obviously, always have a good strong free cash flow from TFI, do you have any expectations for the full year?
We said it. On that regard, we've lowered a little bit our CapEx for the year 2019. This relates really to the fact that not really understanding pretty well, okay, the impact of IFRS 16 so late or in the summer of 2018, we made the decision to really replace all the lease trucks that we have, mostly in Canada or in our specialty TL or TL with a truck that we're buying. After really looking at the IFRS thing there, right now, there's no incentive for us. Okay. It's only a tax incentive, this is why we'll do it slowly. This is why we brought back our CapEx at the level of CAD 200-CAD 220. That being said, okay, if you look at our free cash flow, for sure, we should be flying in that CAD 400-CAD 450 neighborhood for 2019.
Q1 was exceptionally strong, okay, because we did a much better job in terms of collecting our ARs and controlling the way we pay our payables and all that. Our DSO went down a day. Okay? A day is still just a day for TFI is CAD 50 million. Right? Because our guys are more focused even more, okay, on collecting. Our CFI guys in the U.S. have done a fantastic job of bringing down, okay, their DSO. We are completely 100% in control over there. We still have lots of work to do with our TCA and our TFM in the U.S. CAD 400-CAD 450, I think, is a reasonable target for us for 2019.
Okay. No, that's great. Maybe just finally from me, just wonder if you can maybe comment a little bit about the recent BeavEx acquisition, or I guess it hasn't quite closed yet, but this looks very interesting. I know it's not huge, but it looks like it'd be a really nice fit with your existing last mile operation in the U.S. Maybe you can comment a bit more about what that brings to you, and particularly what kind of profitability, because it does look like coming out of Chapter 11, this is probably going to be immediately fairly profitable business.
Well, absolutely, Cameron. This is a fantastic deal for many reasons. Number one is that BeavEx, because they're under the protection of the court, these guys were not making any money. It was a nuisance for us in the market. This is why, if you look at the profitability of our U.S. operations versus our Canadian operation, U.S. is lagging Canada. One of the reason is because of those guys like BeavEx, a problem. That problem disappears, so that's number one. Number two is that we're adding about CAD 100 million of business into our network, and we're adding only about seven locations. Think about the improvement of density in all of our last mile network in the U.S. This is going to be fantastic.
If you exclude the owner op, which you need the owner op to do the work, okay, so you're left with about 25% gross margin at with today's rate, which is about five points under what we do us in the U.S., so there's potential of improving rates there. More importantly is that the overhead that we're adding is very, very limited, right? Seven terminals with rent, okay, a little bit of executives, management and all that. It's going to turn out to be a fantastic transaction like when I bought Matrec in 2004, like when we bought CF in 2005. This is going to be highly accretive to our U.S. last mile operation. No doubt about that.
Okay. Now this is maybe a bit of a unique situation, but are there any other last mile type operators in the U.S. that maybe also be struggling that might be of interest to you?
Well, yeah, there's a few. Okay, Cameron, on the M&A side, Cameron, you've got to be a very patient guy. We were patient with BeavEx. The only place I'm not patient is the bottom line improvement. There we can be patient, but on M&A, you've got to be patient. You've got to pick up the fruit when it's available and reasonable in terms of price. Yeah, there's a few more, okay? The last mile, we may look at other opportunities before the end of the year. I said 2019 is not going to be a year for us of a big whale, a big transaction. On the last mile, we're doing BeavEx, we may do more.
Okay, great. That's all I had. Thanks very much.
Thank you, Cameron.
Your next question comes from Brad Delco with Stephens. Please go ahead. Your line is open.
Hey, Alain. Good morning.
Good morning, Brad.
Alain, good job on the results. Certainly better than what we were all expecting. I think we were all pretty terrified of the impact weather may have on margins.
Yes.
Margins did well. I guess, could you give us some color on what some of your expectations are for margins in each of your business segments going forward? I mean, how much opportunity do we have to continue to see the types of improvements that we saw here in the first quarter on a year-over-year basis?
Yeah. Well, it's a very good question, Brad. I was with Gregor, the guy that leads our USTL, and we still have lots of opportunity in terms of cost, in terms of improvement, in terms of saving, both CFI and even more TCA. If market conditions remain the same, and for sure, you're right, Q1, we're not really talking about weather that much. Excuse me, Q1 really affected us in terms of the weather. That being said, we still have lots of opportunity. If market stays about the same on the USTL, okay, to bring our OR down from, let's say, a 92, 93 globally TCA, CFI, into a sub 90 over the next 12 to 18 months. Like I said to Greg, the guys have done a fantastic job at CFI.
We're lagging a little bit at TCA, this is why our focus is really TCA. We made some changes over there. There's more changes to come, and the focus is really to keep bringing the cost down because like we always say, the tiger is the last one to survive in the jungle. On the Canadian side, our Canadian truckload guys are doing a fantastic job. Our specialty truckload, Steve Wilks and his team, they have lots of work to do there because we made so many acquisitions, six or seven of them in Ontario, a little bit in Quebec, and some in the U.S., two in the U.S. The guys have probably another 6 to 12 months to bring those acquisition into the level of what we do at TFI in terms of profitability.
If you look at the OR in Q1, now, take into consideration that specialty truckload in Canada in Q1, you got lots of equipment that's parked. You don't haul a lot of cement in Q1. Q1, this year, we did haul a lot of salt because of weather. I mean, weather was bad, I don't really understand why we didn't haul that much salt, we did not. This is why Q1 is never the reflection of what we do, we keep on working, still lots of potential there. On the LTL side, still lots to do there. Still lots to do. We've improved big time, but it's still, we have a lot of good work to do with [Bob McIngvale], [Rick Asher] this week. We see a lot of opportunity there. On the Last Mile side, the Canadian guys are doing a fantastic job.
On the U.S. side, this BeavEx thing is going to be like a shot in the arm, where it's going to really help us drive density, get rid of a nuisance, and also be in a position to bring more density to our terminal network, which it's always really good. Going back to your question, we're busy. We got lots to do, Jason. Lots to do.
Yeah, sounds like you can see improvements.
Brad, yeah.
across the board.
Yeah.
Maybe as a follow-up, on the LTL side, just curious, as it relates to April, has there been any difference in business activity, freight volumes in your LTL business versus truckload? We've just been hearing that April has snapped back a little bit because of industrial activity. I'm curious if you're seeing a difference between those trends in your truckload versus your LTL business.
No. No, not at all, Brad. It's consistent. The only thing we're not seeing is all the seasonal stuff. In Canada, it's really late. I mean, in Toronto this morning it's about 40 degrees. Even our waste hauling business is slow because it's like the spring is still not here, right?
Got you. We're all just sort of hoping that once weather warms up, we'll see a little bit of a spring lift to freight volumes.
Normally, it should, yes.
Yeah. Okay. All right, Alain, I'll leave it there. Thanks for the time.
Okay. Thank you, Brad.
Your next question comes from Gian Luca Tucci with Echelon Wealth Partners. Please go ahead, your line is open.
Hi, Alain. Good morning.
Good morning.
I have a question as it pertains to e-commerce. How much of your business in Q1 was derived from e-commerce, and what was the growth rate on that?
Yes. Our e-commerce business is about CAD 100 million a quarter today. What happened year-over-year, if you look at our e-commerce in Canada, we made a decision late in 2018. We have the largest e-tailer in North America. We were doing business with these guys in cities like Vancouver and Toronto with an employee model. They've asked us to go into that direction. We tried it, and it was a disaster. It was just a failure. This is why, if you look at our revenue year-over-year, we're replacing that business with business coming from other customers. With this largest e-tailer, now we're down to just servicing for them, basically the small market like Victoria, like Regina or Saskatoon, the smaller market. We're not in the big market like the Toronto, Montreal, Vancouver market for these guys. Our e-commerce for sure is growing.
That's one of the reasons our guys, either last mile or next day on the P&C side, it's expensive to service e-commerce because it's always one delivery per stop. I mean, you got one packet, one carton.
Yeah
no more than that. Whereas B2B, the average would be maybe 1.8 on average, right? It's a little bit more expensive to service, and we're addressing that now. This is why we're working on our technology. We're working on our sorting equipment. I think as I said on the call previously, or previous calls, we're investing a lot of dollars in Calgary into a new sorting system. Once we're done with Calgary, we're going to Edmonton, and then probably back to Toronto in two years, three years, to upgrade our facility in Toronto. E-commerce, there's no question about it's growing within TFI, and we're really focused on that. Our last mile guys, same story. I mean, the guys are doing a great job there. If you want TFI is not going to work for zero profit.
I mean, some guys are doing it to get big and with volume, okay, and hopefully one day make money. I mean, us, we're not in the same philosophy. We gotta make money today, not in 10 years. That's our approach.
No, that's excellent color. Thanks, Alain Bédard. Then just I'll follow up with asking on an update for the shortage of truck drivers in the U.S. Can you comment on that?
Yeah. Well, truck driver has always been an issue in the U.S. We're doing a good job. We're seating more trucks today. Our turnover is a little bit improved. We're doing a lot of stuff to make sure that we reduce the turnover because the turnover is just a killer. It's still an issue, and it will probably remain an issue. That's one side of the coin. The other side of the coin is that unemployment is really, really low in the U.S., so there's not that many guys looking for a job to be a truck driver. That also creates an opportunity, if you're smart, okay, and you sit down with the customer and you say, "Well, I'm sorry.
I can't buy a truck, I can't find a driver, and I've got demand, so I have to move rates to a level where I can maybe attract more guys." Right? This is what happened in 2018, is that you saw rates moving up, okay, in the U.S. Because of a little bit of a weather issue, some consumer were sitting on the sideline. Consumer confidence was down for a few months in the U.S., it's up big time in February. With the weather, the consumer confidence, we should see more activity. The demand for drivers will stay. The ELD in Canada, they're still supposed to be on track for the end of the year, that will put pressure on the Canadian side as well. To me, pressure on driver, it's tough to find a driver.
To me, we have to work this as an opportunity, not a handicap.
I appreciate the insight, Alain. Thanks so much, and keep up the good work. Thank you.
Thank you.
Your next question comes from Nav Malik with Industrial Alliance. Please go ahead. Your line is open.
Yeah, thank you. Good morning. Just wanted to ask-
Good.
on the logistics last mile segment. You noted that the U.S. side was a bit weaker or faced some headwinds. Was that the competitive pressures? Maybe you could elaborate a bit on what you're seeing in the U.S. on that segment.
Yeah. Our U.S. operation, I mean, we had to make some changes there. Excuse me. We're not growing in terms of revenue in the U.S. It's been difficult for us. Like you said, it's probably like the competition is more aggressive over there. This is why with Scott and his team, we're really focused in building a much better or stronger sales force over there. BeavEx for sure it's going to help, okay? It's going to bring about CAD 100 million revenue. If you look at our gross margin on the U.S. side, it's comparable to the Canadian one. It's not an issue of cost, okay? It's a little bit an issue of overhead because if the revenue doesn't grow, it goes down a bit, then you have a problem with the overhead. That will be corrected with the BeavEx acquisition.
Our focus is really with Scott and his team there to rebuild a team of sales that's going to bring more opportunities for us in the future. With that in mind, with the gross margin to be similar to the one in Canada, there's no reason why we're single digit EBIT in the U.S. and we're double digit EBIT in Canada. There's no reason for that.
Okay, you're really focused in that segment to grow revenue in the U.S. side.
Right.
Yeah.
Right. BeavEx, for sure, it's really a shot in the arm, okay? That being said, Scott has got to build a real solid sales team there in the U.S. We're weak on sales.
Yeah. Just on that BeavEx acquisition again, I know you already touched on it, but in terms of, it's about CAD 100 million of revenue that you're adding. It's coming out of bankruptcy, of course, but I guess you could see margins in line with your other businesses in that segment or in that sense, you could look at maybe being around, CAD 10 plus million in terms of operating income? What are your thoughts as to where you could drive that from a profitability standpoint?
Well, that's a very good question. First of all, what I have to tell you is this, is that we got to pick and choose customers, right?
Yeah.
We're not that stupid. We picked the one that made sense. All the dogs, we said, "Hey, call somebody else." This is why, like I said earlier, now, we can always be sure 100% until we get it, okay, but we believe that the gross margin will be in the 25% neighborhood. That means that for sure, the contribution to the bottom line, it's going to be probably 10 plus. It's just normal, because we're not adding a lot of overhead. If you take 25% gross margin and you're not adding a lot of overhead, if you're just doing 10 bottom line is because you're not that good. Maybe you could do 10 to 15.
Yeah. Okay. Lots of upside in terms of profitability.
Yes
Contribution from that transaction.
Yes.
Lastly, for me, just on the acquisition side, I am wondering if you could maybe talk about vendor expectations in this environment. Where are vendors relative to you guys? Are you seeing willingness to do transactions, or is it more that, coming off of a strong year that maybe vendors have a bit lofty expectations for their businesses? Maybe if you could just comment on that side of the M&A strategy.
Well, like I said earlier, the way we do M&A is, first quality is patient. Number one is that we are patient, we are not in a rush. We don't have to do deals. We do deals where it makes sense. All the deals that we've done, okay, is based on a reasonable pricing. For instance, somebody calls us and asks us for eight times EBITDA because we were PE, we bought it for eight, we want to sell it for eight, at least. Keep it. We are not buying things at eight.
We don't even trade at eight ourselves. EBITDA. This is why for us, if it fits, if the price is right, okay, yeah, we'll look at it. Like I said earlier, we have one guy, Jason, in Chicago, on our new M&A team. That guy could be busy like crazy. We could add more people to the team, but we have to digest what we do first of all, and it's got to fit. It's got to fit with TFI. No, in terms of pricing, we buy at reasonable and fair price. Don't forget, we work for our shareholders. We don't work for the banks or We work for the shareholders.
Yeah. Good to hear. Perfect. Thanks, Alain.
Thank you.
Your next question comes from Benoit Poirier from Desjardins Capital Markets. Please go ahead. Your line is open.
Hey. Good morning, Alain. Congratulations for the very strong start so far.
Yeah. Thank you, Benoit.
Yeah. Just looking at the winter was obviously not only challenging for railroads, but I assume also for the trucking. Are there any tidbits you could discuss about how the costs were superior to a typical Q1, either in terms of accident and insurance costs, and would you be able to quantify some metrics to qualify how harsh was the winter this year?
Well, that's a good question, Benoit. We have not done that, okay. One thing is for sure is, this winter has been really difficult. We have good winters, we have tough winters. This one was a difficult one because of the cold, because of the ice. The ice is the killer, because of the storm, because of the number of trucks. Even the wind, even as when I was talking to Greg the other day, we had 15 trucks out of service just because of wind. Too much wind. It's stupid. 15 trucks out of 3,000 is not much, but this is so unusual that we have in April in the U.S. trucks out of service because of wind, right? It's been difficult. Now, if you ask me, are you talking 5 million, 10 millions?
For sure, it's in millions of dollars. We don't really look at that because we don't like excuses. It's part of the game. You have good winters, you have difficult winters, you have cycles on the activities, the economic activity, like 2018 was great, then 2019, maybe it's going to be good, but maybe not as good. We don't play this excuse game. Also, our focus is bottom line. Okay, don't give me the excuse of the weather. Do better. Do better than last year.
Okay.
We did not quantify that, Benoit.
Okay. That's still a very good color, Alain. Just to come back on BeavEx, you mentioned about the 10%-15% impact on the bottom line. Were you referring to net margin or EBIT margin, Alain?
Yes, because don't forget, this is CAD 100 million. If you do the math of just 25% gross margin, which is not great, which is not fantastic, but which is not bad, because don't forget, we got to choose the customer.
Yeah.
A guy with 12% gross margin, we said, "You know what? Call somebody else. We don't want you." Okay. We did that with some customers. No, forget about it. Call somebody else. If you take 25% gross margin and you add minimal amount of overhead, you should be bottom line a CAD 10 million-CAD 15 million guy, unless you're very lazy. Okay?
Okay. That's very good. I assume that it's after depreciation, amortization, so it's probably more kind of a net margin, I would assume.
Yeah, it's net because there's no depreciation, there's no goodwill, there's nothing, there's no intangible because we're buying the company for CAD 7.2 million, including working cap.
Yeah. Okay. That's perfect. Do you feel, Alain, there's an opportunity to recapture a portion of the other $100 million that was part of BeavEx, or that business is kind of not profitable or not in the same location that are interesting to TFI?
Well, yeah. That's a good point. We chose seven locations. There's some locations that were really small. The customer base was okay, but it's so small, like CAD 1 million. We said, "No, we don't want a terminal with CAD 1 million revenue." This is not going to be attainable for us. Maybe in the other customers, they'll try to find another BeavEx kind of guy. Maybe they'll find one, maybe they won't find one, they will talk to us again. We told them, "Listen, with these kinds of rates, we're not there. Call somebody else.
Okay. DSO, Alain, when we look at your DSO, you mentioned that it improved about one day, CAD 50 million intact . Are there still a lot of opportunities to improve your DSO? How many days do you think you could improve longer term? Is there still a lot of room in terms of a DSO opportunity?
Well, for sure. Like I said earlier, we have two of our U.S. operations that needs to improve, our TCA and our last mile guys, and we're taking action on that. CFI was not doing a great job when we bought the company a year ago. It was a knick-knack mess. Today, they're really on top of the situation. They're doing a fantastic job. U.S., those two divisions need to improve. In Canada, we have a little bit, but not so much in Canada. I think that it's still doable that we could bring that down another day over the course of the next year. Lots of work. Don't forget, we get also a lot of pushbacks from customers that, "Oh, TFI, you're big. Give me 90 days credit." No, I can't do that. You're paying the small guy seven days. You want me 90 days. Why?
Oh, because you're big." No. I got to pay my guys every day, every week. I got to pay my fuel every week. I'm not a bank. I'm a trucker.
Okay. That's a good point, Alain. Just in terms of share buyback, you've been quite active. Obviously, valuation was interesting. It seems that you still have room to complete your share buyback, although there's much less opportunity given you've been very active. If you look at the share count, it's below 85 million. Any thoughts on the remaining share buyback opportunity and whether you could enlarge the NCIB and try to be even more proactive on this side?
Well, I think that if the stock remains at the level it's at today, like the CAD 40 mark, CAD 42, something like that, we'll be back. We still are allowed to buy back about 2 million shares and in our plan is we're buying back those 2 million shares. We want to bring the share count down like maybe 83 until October, and then in October, we'll see. Like I said, excuse me, earlier, there's no big transaction for TFI in 2019. Nothing big. Just the small deals that we've done so far. With the kind of cash that we're going to be generating. When you create that double-digit free cash flow on the stock price, I mean, come on. I got my guys saying, "Buy more." That's what we'll do.
Okay. That's perfect. Okay. Thank you very much, Alain, for the time.
Thank you very much.
Your next question comes from David Ross with Stifel. Please go ahead. Your line is open.
Hey, good morning, Alain. This is Matthew Milask for Dave.
Morning.
Good day. Good morning. Congrats on the quarter and great start to the year.
Sure
sort of housekeeping item here. On the step up in D&A and finance expenses in the quarter, resulting from the change in lease accounting, we just wanted to sort of confirm that these expenses are expected to recur at similar levels going forward into the next year.
Yeah.
Might there be a change in trajectory to think about?
A little bit, okay? What we're looking at is, on the real estate side, I've talked about a little bit on the truck side, so truck, we'll keep on buying more instead versus leasing, but slowly over the next three, four, five years. On the real estate side, for sure, the way this IFRS 16 works, I'm not really happy with the way it works. It doesn't make any sense. For sure, there may be a little bit of change in terms of, we've been working hard with our guys to say, "We can't afford to have more space. We can't." We've been doing a lot of that the last year and a half to two years, and now the pressure is going to be even more into reducing our footprint in Canada, okay, on our LTL, on our P&C.
You should see that asset or depreciation of that asset going down. There also may be some sites where we have the opportunity to buy them back, okay? Because of the way the accounting is done on IFRS doesn't reflect the reality, there may be some sites in Canada that we could take the opportunity to buy them back at a fair, reasonable price. That being said, you should see the trend going down, okay, in terms of that depreciation or finance charge because of IFRS 16 over the next two, three, four years, because we want to reduce that as much as we can.
Great. Thanks a lot.
You're welcome.
Your next question comes from Kevin Chiang with CIBC. Please go ahead. Your line is open.
Hi. Good morning, and thanks for taking my questions. Just two from me. One, LTL margins in Q1 were extremely strong. I noted that you talked about some opportunities you had with decreasing your subcontracting costs. Just wondering if you could elaborate what happened there, and does this create a new run rate for margins, kind of as I think of the seasonality of LTL margins from Q1 into the rest of the year? It's about 300-400 basis points higher versus last year, backing out asset sales and stuff like that.
Well, the big story in LTL, besides the operation that we had last year, as an example, we had Overland, TST Overland, and Kingsway in Q1 of 2018. In Q1 of 2019, we have only Overland. We've combined those two, okay? We got rid of a lot of costs, okay, by combining those two. We also got rid of some business that don't fit, low margin business. The net effect of the combination of Kingsway and Overland in Q1, okay, is CAD 3 million, bottom line. That's just an example. Another example of the improvement that came in Q1 is the fact that we bought Normandin. Last year, we bought it in April. In 2018, Q1, Normandin was not there. Now we've added the Normandin business, and Normandin is a highly profitable, very well-managed company. Okay?
If you look at our top line, you say, "Well, Alain, I mean, you did that, but your top line is only up just a few million dollars." Yes, true, because we added Normandin. At the same time, because of the combination of Kingsway and Overland, we got rid of a lot of freight that did not fit the network, because TFI is all about bottom line. It's not about top line. How can we get more bottom line? Well, we have to shed this customer because we're losing money with this guy. Now, how come? No, we don't want that guy. The same story happened with NFF. We bought NFF about 18 months ago, and we keep on cleaning NFF. Since we bought NFF, we got rid of CAD 20 million of business.
Instead of losing 8 or 6 or 8 on 80, wow, we make money now. We make double digit even. We reduce our footprint, we reduce the rent, we reduce a lot of stuff. Going back to your question is, yes, we will keep improving our LTL. Now, 300 basis points, can we do another 300 basis points in Q2, 3, 4, 5? We'll have to see. For sure, can we improve Q2 2019 versus 2018? Absolutely. I'm convinced. I mean, the guys are focused. The other thing also that changed in our LTL is. We have a lot of good guys that have been with the company for a long time that have retired. Three of our top executives in FTL retired. Brydges, Clark, and TSD.
Right. No, that's super helpful. Maybe just lastly for me, I appreciate you being conservative on your EPS guidance, but you laid out a lot of self-help levers, where margins can go within your U.S. operations. You've made four acquisitions here, which in rough math could be another CAD 0.15-CAD 0.20 of EPS. I think your CAD 3.80-CAD 3.90 EPS didn't include any of these acquisitions. Just wondering why you wouldn't be able to lift that guide just on the acquisitions alone. Is there anything that you're seeing that's causing you any worry, whether it's noise around weather, issues around wage inflation? Just wonder if there's anything that maybe gives you a little bit more pause today than when you had your last earnings call a few months ago.
This is David Saperstein. I think Mr. Bédard may have cut off. Kevin, can you hear me?
Yeah, I can hear you, Dave.
Okay. Hi, Kevin.
Hey.
No. It's just with the new accounting standards, it's IFRS 16. We wanted to put these numbers out there, let them speak for themselves, let them be digested. Then as Mr. Bédard said earlier in the call, we can evaluate as the year progresses.
Okay. No, that's super helpful. Thank you very much. Congrats on a good quarter.
Thank you.
The next question comes from Walter Spracklin with RBC Capital Markets. Please go ahead. Your line is open.
Hey, guys. This is James on for Walter here. I just have a question on the M&A strategy. I know you guys mentioned that there wouldn't be any acquisitions in 2019. If we look out to 2020, would your focus be more on U.S. or Canadian markets? With regards to strategy, are you guys looking to buy strong businesses and then grow them organically? More so buy companies out with poor operations and try to turn them around?
Yeah. Hi there. Good question. Listen, our focus is always on making acquisitions that make us money. We're always thinking about capital allocation just from the perspective of, hey, where's the best return? We're thinking about share buybacks, we're thinking about investing in our existing operations, and we're thinking about M&A. To your question, in Canada, we are the natural buyer for businesses across the scope of our activities. We'll look at opportunities throughout our four segments. When they make sense, when they fit, when we can get a good financial return before any improvements, we'll do those deals. There's always improvements. There's always improvements around procurement costs, a lot cheaper than smaller independent businesses do, as well as on the facility side. U.S., we've been active on both sides of the border so far this year. That will continue.
In the U.S., we're a little bit more focused from a sector perspective, and you can see that in what we've done so far this year. We've been saying for a while now that in the U.S., we're really interested in specialized truckload. We did two deals in the U.S. in specialized truckload. We need to digest those now. We've also been saying for a while that we've been interested in parcel. We've now got BeavEx that's going to close shortly. We'll continue to look in that space as well.
Thank you. Under the driver shortage, there was a question on the driver shortage in the American market. Are you guys seeing anything similar in Canada? Do you see any impact from ELDs being implemented? Do you guys think that you'll be able to transition this into any opportunities for the business?
That's a great question. In Canada, the driver situation is more stable. It's more stable for a number of reasons. We're able to provide leadership in the market. The drivers are generally home more. We're able to provide steady wage increases year after year. It's a different dynamic. Our turnover is not as much a problem in Canada as it is in the U.S. ELDs is interesting, this is one where you're right, ELDs are coming into play in Canada. There's no question that ELDs in the U.S. had a very important impact on safety, which we're all very grateful for. That also had an impact on capacity because it leveled the playing field between all players, those that formerly used paper logs and those that have been using ELDs all along. We expect a similar sort of effect in Canada.
Certainly among the publicly listed companies out there, we are the most exposed to ELDs and the impacts of that in Canada.
Great. Thank you. That's it for me.
Your next question comes from Alana Yontes with BMO Capital Markets. Please go ahead, your line is open.
Thank you.
David, I'm back. You know what? The technology I'm back. I don't know if you guys can hear me now.
Absolutely.
Technology, I lost the line. Thank you, David. If I may, I'll take over.
Okay. This is Alana from BMO Capital Markets for Fadi Chamoun.
Okay.
I just have a question regarding the acquisitions that have been made so far this quarter. I just wanted to confirm that the guidance is that did not include the acquisitions, correct?
Well, that's normally what we do. Part of our plans is that we do late in last year. We never include any acquisition in our plan. I said on the call that the guidance on EPS remains the same because we're very conservative. I didn't say that does not include the M&A. What we're saying is that the guidance stays the same even with the acquisition that we just made. You're saying, "Well, you just added $20 million in EBITDA." Okay, U.S. It could change. Us being very conservative, we'll say for now, let's see what happens. We'll revise guidance if necessary in Q2.
Okay. That's great. Just more on the acquisitions. I'm just trying to understand the impact of the acquisitions on operating income. I'm just wondering if you could please comment on that.
When you say acquisition, are you talking all the three acquisitions we've done so far? Is that what you're saying?
I guess, is this the same story as the EPS if you expect no or how you expect these acquisitions so far in Q1 to affect operating income?
Well, if you look at the three acquisitions we've made, we've added about CAD 30 million in Canadian EBITDA. EPS, in terms of bottom line, this will add probably maybe CAD 0.10. This is why I said, let's digest those acquisitions. Let's be conservative. We stay at CAD 3.80-CAD 3.90, we'll review that probably in Q2. What we're saying today is we revised the CapEx down from about CAD 20 million-CAD 25 million, we're saying EPS stays the same for now. Like this BeavEx acquisition, for sure it's going to improve EPS. We're saying, "Guys, give us a quarter, we'll come back.
Okay. That's fair. Just one last question. I believe you mentioned earlier that the contract renewals for truckload pricing was up 3%-6%. Did I get that right?
Yeah. Absolutely.
Is that for-
Excuse me, we're still able to pass on pricing improvement in the U.S. today. Yes, absolutely.
Okay. That 3%-6%, that was for both the U.S. and Canadian truckload segments, or was it just the U.S.?
No, I was just talking about the U.S.
Okay, great. That's it. Thank you so much for your time.
Okay, thank you.
Your next question comes from Jason Seidl with Cowen and Company. Please go ahead, your line is open.
Hey, this is Adam on again. Thanks for taking the time for a quick follow-up here. I appreciate you guys squeezing me in. I just wanted to follow up a little bit on just recent trends in April. I know it's only been a few weeks, but is there anything that you guys are seeing in terms of your TL market that would give you guys a little bit of pause? Is that part of the decision not to raise guidance? Just looking to see if there's anything that's been going on in the last few weeks in terms of contract TL that may be giving you guys.
No
hesitation with the guidance.
No, not at all. It's just a matter that we're very conservative, and we just don't want to play the very optimistic game of saying, "Oh, everything's going to be nice." The only thing I could say is that what we're seeing is that the seasonal is late. Normally, seasonal in April should be ongoing.
Okay.
We're not seeing that in Canada yet. This is, in our mind, is weather related. We know that the consumer confidence in February is up big time in the U.S., we're just starting seasonal now in the South. The North was still not doing it. This is why us being very conservative and saying, "Listen, guys. Let's do the BeavEx deal, which is going to close by the end of April." We've done those two deals. We've done it all in just April 1st. Give us a quarter, okay, and then we'll probably be in a position to revise the guidance. The only thing we're revising now is CapEx is down, and we're still there to buy back the stock. That is clear. We're not going to do anything major in terms of M&A. Let's see what happens with Q2.
Got it. Thank you so much for the call. Appreciate it. Congrats again on the quarter.
Thank you, Adam.
There are no further questions in queue at this time. I will turn the call back over to Alain Bédard for any closing remarks.
Okay. Well, thank you, operator, and thank you once again, everyone, for being part of today's call. You can rest assured that through 2019 and beyond, we at TFI will continue to seek opportunities to create value, unlock it for our investors, and whenever possible, return excess capital to our shareholders. Thank you again. I look forward to speaking with you soon, and have a good day. Thank you all.
Ladies and gentlemen, this concludes today's conference call. You may now disconnect.