CEO vows quick action to negotiate with customers or ultimately cut them loose after acquisition closes.
TFI International (NYSE: TFII) plans to aggressively improve margins at UPS Freight after its $800 million acquisition closes by reining in unprofitable business. The plan: renegotiate with customers or cut them loose, CEO Alain Bedard told financial analysts on Monday after the Canadian trucking and logistics company reported fourth-quarter financial results.
“There is some freight there that the company does not make any money on,” Bedard said of UPS (NYSE: UPS). “It’s normal because it was part of a global commingling, bundling — whatever word you want to use — for the good of the company, UPS. And if you look at the results of UPS, they are fantastic, but UPS Freight, not so much. So now UPS Freight being stand-alone, they have to stand on their own two feet. There’s some freight, maybe, that [doesn’t] fit the network. So we will have to address that as soon as possible as soon as we get in there — talk to the customer and take action.”
Bedard’s blunt talk about UPS Freight customers shouldn’t come as a surprise. The CEO has built TFI into the largest trucking and logistics company in Canada, and one of the biggest in North America, by acquiring firms and turning them into profit engines. In the U.S., the truckload carrier CFI is a prime example.
Bedard set a target of bringing UPS Freight — to be renamed TForce Freight — to an operating ratio of 96% within 12 months. It currently sits around 99%, which Bedard bluntly stated “isn’t normal.”
“We’re laser-focused on bringing a level of profitability that is normal,” Bedard said.
TFI has strong Q4 as it sets expectations for UPS Freight performance
TFI’s own performance in the fourth-quarter almost seemed an afterthought with UPS Freight acquisition set to close in the second quarter. But the company’s performance was impressive: Revenue increased by 13% compared to a year ago, and adjusted net income soared by 49%.
TFI handily beat analysts’ expectations for the quarter by 16 cents per share. The company, which began reporting in U.S. dollars, had adjusted net income of $94.4 million, 98 cents per share, on $1.1 billion of revenue.
The Canadian firm began reporting its results in U.S. dollars ahead of the closing of the UPS Freight acquisition. Once the deal completes, the majority of TFI’s revenue will come from the U.S.
Bedard’s long-term vision for TForce Freight includes getting its operating ratio below 90. He singled out Saia and Old Dominion as measuring sticks for LTL performance.
The overwhelmingly unionized workforce of UPS Freight — represented by the Teamsters — doesn’t stand as a barrier to achieving that level of profitability, Bedard said.
“We work with the union,” Bedard said. “We respect the contract, but we respect the business.”