CIBCCurrently have a US$115.00 target. GLTA
EQUITY RESEARCH
April 28, 2022 Flash Research
TFI INTERNATIONAL INC.
Q1 First Pass: Strong Start To The Year
Key Takeaway: Positive impact. TFII reported solid Q1 results, coming in
above expectations, driven by a top-line beat and better margin performance.
We suspect that the strong start to the year should lead to TFII raising its
2022 EPS guidance on its earnings call (current guidance is $6.25-$6.50 and
we are currently forecasting $6.64). The company is hosting a conference
call at 8:30 a.m. ET on April 29.
Q1 Recap – Ahead Of Expectations: TFII reported solid Q1 results, which
were ahead of expectations. We provide a divisional recap in the exhibit
herein.
Revenue: Net revenue came in at $1.9B, up from $1.1B the year prior
and versus our estimate of $1.8B (cons. $1.7B).
Operating Income: Operating income came in at $220MM, up from
$102MM the year prior versus our estimate of $166MM (cons. $176MM).
TFII’s operating income includes a ~$20MM gain in asset sales,
predominantly in TL. We had included $3MM in our estimates. Even
when backing out the asset sales, TFII beat our estimates across all
divisions. We continue to see TFII pursue its “freight that fits” strategy,
which is driving continued OR (operating ratio) improvement across its
segments.
EPS: Adj. FD EPS came in at $1.68, up from $0.77 the year prior and
versus our estimate of $1.31 (cons. $1.29).
FCF: FCF (CFO less net capex) in Q1 came in at $92MM, down from
$141MM the year prior versus our estimate of $198MM (cons. $177MM).
The main variance in our estimate versus actual came from a negative
networking capital drag of $136MM, whereas we were forecasting a
positive net working capital of $39MM.
Debt Refinancing: During the quarter TFII issued $300MM of private
placement notes with 10-, 12- and 15-year maturities at interest rates of
3.50%, 3.55% and 3.80%, respectively. As a result, excluding equipment
financing, 78% of the company’s debt is fixed rate, with a weighted average
interest rate and maturity of 3.45% and eight years, respectively. The
proceeds of these notes were to repay an existing bank loan maturing in
June 2022, making the transaction leverage neutral.
Small Tuck-in Acquisition In The Quarter: On March 19, TFII acquired
Unity Courier Services, a California-based provider of regularly scheduled
same-day service and short-term delivery solutions for the U.S. West Coast.
According to TFII, had it acquired this business on January 1, it estimates the
revenue and net income for this entity would have been $11MM and
$1.7MM, respectively. This is in line with TFII’s tuck-in acquisition strategy to
drive density and expand its network reach.