TFI International Inc T.TFII

RBC

[retiredcf]

October 28, 2021

Outperform

TFI International Inc.

Early take on Q3 looks good as earnings come in ahead of expectations

Our view: Our early view on the quarter is positive mainly reflecting better than expected results in the former UPS Freight business. That division achieved an O/R of 90.7% in Q3, and we expect current pricing and demand trends to facilitate a continued integration in 2022. As it pertains to the quarter both EBITDA and EPS came in above consensus. In their outlook, mgmt pointed to continued strong y/y performance for the remainder of 2021.

First impression:

Q3/21 results above consensus. TFII reported adjusted EBITDA of $296MM, above consensus $291MM and our $290MM, as strength in LTL more than offset lower than expected results in P&C and TL. Adjusted EPS came in at $1.46, above consensus $1.38 (RBC: $1.36), helped slightly by a lower tax rate ($0.02 lift to EPS). Highlights by segment as follows, with details in Exhibit 1:

• P&C – EBITDA below (EBITDA $30MM: RBC $33M). Revenue was up +9% Y/Y to $133MM (RBC: $142MM), reflecting a +19% increase in revenue per pound due to tight capacity. Margins were better y/y due to a focus on high quality freight, which we highlight was evident in the revenue per pound increase. Tonnage was down -9%, however, which was the key negative variance to our expectations, and we will look for color on capacity in TFII's P&C network tomorrow on the call.

• LTL – EBITDA better (EBITDA $131MM: RBC $115MM). Revenue was up y/y to $861MM due to the acquisition of UPS Freight. UPS Freight was also the main driver of higher yield and accessorial charges. Margins of 15.2%, were 100 bps better than our expectations. Reflecting the continued integration / re-pricing, UPS Freight achieved an O/R of 90.7% in Q3, and we will look for color surrounding further improvement tomorrow on the call.

• TL – EBITDA below (EBITDA $109MM: RBC $114MM). Revenue was up +19% Y/Y to $489MM due to acquisitions and in line with our estimates (RBC: $489MM). Adjusted EBITDA margin was 22.4% vs. our 23.3% due to operating losses in TForce Freight’s TL division. Focus for the call tomorrow will be mgmt's long-term strategic priority for this division.

• Logistics in line (EBITDA $42MM: RBC $42MM). Higher revenue was offset by lower margins resulting in an in-line quarter within the Logistics division.