2023-12-13 12:16:31 ET
Summary
- TFI International Inc. provides transportation and logistics services in North America.
- Shipment volumes have decreased in 2023, requiring the industry to increase efficiency.
- The company's financial trends have been impacted by lower activity and high fuel prices, but earnings have improved slightly.
- In the near term, I'm Neutral [Hold] on TFI International Inc.
A Quick Take On TFI International
TFI International Inc. ( TFII ) provides various local and long-haul transportation and logistics services to companies in Canada, the U.S., and Mexico.
Shipment volumes have fallen in 2023, requiring the trucking industry to increase its efficiencies.
Given the need for the company to reignite revenue growth (which will be time-consuming) while becoming more productive and reducing costs, my near-term outlook on TFII is Neutral [Hold].
TFI International Overview And Market
Quebec, Canada-based TFI provides integrated cargo transport services to businesses and organizations throughout North America.
The firm is led by Chairman, President and CEO Mr. Alain Bedard, who has been with the TFI since 1993 and has more than 45 years experience within the industry.
Management says that no single customer accounts for more than 5% of revenue, so the firm's customer base is distributed.
The company’s primary offerings include:
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Truckload full load haulage
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Logistics
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Less-than-truckload
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Package and courier.
The firm grows its customer base both through organic efforts via a direct sales team and through an active acquisition strategy.
The primary reasons for expected growth in the transportation industry are an increase in automotive shipping requirements and a growing need for transporting alternative fuel stocks.
Major competitive vendors include:
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Werner Enterprises
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Schneider National
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Knight-Swift Transportation
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Covenant Transportation
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USA Truck
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Marten Transport
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Heartland Express.
TFI International’s Recent Financial Trends
Total revenue by quarter (blue columns) has dropped since the middle of 2022 due to reduced post-pandemic transportation activity; Operating income by quarter (red line) has dropped from a high in later 2022 due to lower activity and high fuel prices:
Seeking Alpha
Gross profit margin by quarter (green line) has remained flat in recent quarters:
Seeking Alpha
Earnings per share (Diluted) have rebounded in recent quarters as revenues have improved slightly:
Seeking Alpha
(All data in the above charts is GAAP.)
In the past 12 months, TFII’s stock price has risen 8.18% as compared to the iShares U.S. Transportation ETF ( IYT )’s gain of 12.86:
Seeking Alpha
For balance sheet results, the firm ended the quarter with $88.3 million in cash and equivalents and $1.6 billion in total debt, of which $26.1 million was categorized as the current portion due within 12 months.
Over the trailing twelve months, free cash flow was $567.0 million, during which capital expenditures were $392.6 million. The company paid $13.2 million in stock-based compensation in the last four quarters.
Valuation And Other Metrics For TFI International
Below is a table of relevant capitalization and valuation figures for the company:
Measure (Trailing Twelve Months) | Amount |
Enterprise Value / Sales | 1.6 |
Enterprise Value / EBITDA | 11.5 |
Price / Sales | 1.3 |
Revenue Growth Rate | -16.5% |
Net Income Margin | 7.0% |
EBITDA % | 13.5% |
Market Capitalization | $9,800,000,000 |
Enterprise Value | $11,730,000,000 |
Operating Cash Flow | $959,610,000 |
Earnings Per Share (Fully Diluted) | $6.01 |
Forward EPS Estimate | $7.85 |
Free Cash Flow Per Share | $6.52 |
SA Quant Score | Hold - 2.75 |
(Source - Seeking Alpha.)
Below is an estimated DCF (Discounted Cash Flow) analysis of the firm’s projected growth and earnings:
GuruFocus
Based on the DCF, using a discount rate of 11% (10-year Treasury at 5% plus 6% equity risk premium) and 2024 earnings per share assumption of $7.85, the firm’s shares would be valued at approximately $97.62 versus the current price of $113.49, indicating they are potentially currently fully valued.
Commentary On TFI International
In its last earnings call (Source - Seeking Alpha ), covering Q3 2023’s results, management’s prepared remarks highlighted focusing more on business fundamentals when volumes drop, as has been occurring recently.
The company is also facing a "modestly unfavorable move in foreign exchange," providing a headwind to results.
Revenue per ship before fuel surcharges were flat YoY, but the number of shipments dropped by 7.5% for the quarter.
Management also highlighted its balance sheet , which it believes gives it the flexibility to continue investing in its initiatives regardless of the external business conditions or to make strategic acquisitions.
The company completed four tuck-in acquisitions, and the Board has raised the quarterly dividend by 14%, with a current annual dividend yield of 1.41%.
A weekly chart of U.S. diesel fuel retail prices since 1993 provides perspective on the recent variations and drop from a 20-year high in mid-2022:
U.S. Energy Information Administration
I prepared a chart showing the frequency of various keywords and terms used by management or analysts:
Seeking Alpha
The chart indicates that the firm sees industry-level challenges and headwinds.
Analysts questioned the leadership about its M&A strategy and 2024 outlook.
CEO Bedard answered that they recently completed a $500 million private placement to provide them with the dry powder they need as they get ready "to do the good things that we want to do into ‘24."
Bedard believes that 2024 will be a "transition year," better than the current year but still being a very operations-driven period that will require greater productivity and cost reductions.
The company believes that the recent Yellow bankruptcy bodes well for the LTL industry in the U.S.
For the quarter’s results, total revenue fell 14.8% YoY, while there was no percentage change to gross profit margin.
Operating income dropped 19.3% year-over-year on lower volumes and stubbornly high costs.
The company's financial position is characterized by some liquidity, significant debt but strong recent free cash flow.
Looking ahead, 2023 full-year revenue guidance expects an annual decline of 14.6% versus 2022’s results.
In the past twelve months, the firm's EV/EBITDA valuation multiple has risen markedly as the year has progressed, as the chart from Seeking Alpha shows below:
Seeking Alpha
A potential upside catalyst to TFI International Inc. stock could include a better-than-expected year-end holiday season or, longer term, increased volumes in 2024.
However, given the need for the company to reignite revenue growth while becoming more productive and reducing costs, my near-term outlook on TFII is Neutral [Hold].
For further details see:
TFI International Readies For 2024 Consolidation Opportunities