Bedard summed up the overall performance on the call with analysts: “Q4 was a disaster for us,” he said.
But that comment was mostly reflecting on the U.S. LTL operations, the core of which is TForce, built from the UPS acquisition.
As for Daseke, TFI (NYSE: TFII) bought the flatbed operator in April. Its performance is embedded in the TFI earnings for Specialty Truckload. The data in those numbers as well as Bedard’s comments make clear that the former Daseke operations have room for improvement.
“If you look at the trend since we bought Daseke in April, the second quarter was OK,” he said. “And then we had issues with revenue per mile that keeps dropping because the freight recession is still with us.”
Continuing into this quarter, Bedard said the former Daseke operations still suffer from “a very high pressure on rates,” though he added the decline has “stabilized.” “But the number of miles are down and our costs also are too high,” he said.
While revenue in the specialized truckload group was significantly higher – no surprise given that Daseke was not part of TFI in 2023 – other measures show how it has dragged down some performance metrics.
OR at former Daseke about 98%
For example, the adjusted operating ratio of the specialized truckload operations at TFI ballooned to 91.6% from 87% a year earlier. The return on invested capital fell to 8.5% from 10.3%.
While the specialized truckload data does not break out Daseke separately, the percentage of that business that is former Daseke can be estimated. Revenue in the fourth quarter, with Daseke included, was $531.9 million. A year earlier, without Daseke, it was $283.3 million, for an 87.7% growth.
And while the operating margin may be a combined number, Bedard talked about the performance. He said the legacy Daseke business is “probably running like a 98 OR.” And he lamented the fact that the specialized truckload segment at TFI, during his tenure, had always been a sub-90% OR and now is above that.
Bedard also said the legacy Daseke business was suffering from “too much capital invested.”
“And why is that?” he said. “Because when we acquired Daseke, they had committed to buy a large number of trucks, which we could not walk away from.”
The end result is that “we have way too many trucks in a very difficult environment.” The process to sell some of that excess is ongoing, Bedard said.
But he was generally optimistic about the future of the legacy Daseke operations. He said he believes TFI will be able to turn it around primarily through cost-saving measures, with equipment a key part of that. “If the market does not improve, we have a path forward by shedding equipment, improving our costs and improving our overhead as well,” he said.
Stones in shoes
In contrast, the problems at the company’s U.S. LTL operations, the bulk of which came from the UPS acquisition, sound like they are going to be tougher to fix.
Bedard used a description made famous in various iterations of “The Godfather” trilogy: “TForce is a big rock in my shoe.” (The actual quote was “a stone in my shoe,” spoken by, among others, the legendary Joey Zaza, but the Bedard statement was memorable enough that Jason Seidl of TD Cowen, in his report on TFI’s earnings, titled it “TForce Becoming A Rock In TFI’s Shoe.”)
Bedard’s statements about TForce echo what he has been saying quarter after quarter: “Our costs are still too high. We’re also getting killed because our volume keeps dropping. Our shipment count is down 6% year over year. Although our weight per shipment is about the same, it’s still a very difficult environment. So we still have a lot of work to do at TForce Freight on the fleet side to reduce our costs.”
But Bedard looked forward and said, “We’re on the right track there.”
He returned to a theme he has discussed before: density. He said the Canadian LTL operations involve more deliveries in a smaller area, but that is not the case with TForce.
M&A might be needed
“The mission we give our sales force is to try to grow organically but also to try to improve the density,” Bedard said. Density in the Canadian operations is “second to none,” while the situation in the U.S. is “really bad.”
Fixing that may take an acquisition. “If you can’t get the density organically from your sales team, then you have to focus down the road in trying to find a target that could help,” he said. “You improve your density.”
The earnings report wasn’t greeted warmly by investors. By 10 a.m. Friday, TFI stock had fallen from about $122 at Wednesday’s close to less than $98 per share.
The research team at Bank of America Merrill Lynch led by Ken Hoexter cut its rating on TFI to underperform from neutral.
Several other negative aspects of the TFI earnings report and call with analysts about the issues at TForce were cited by Merrill Lynch: declining market share in profitable small to medium business, a rise in missed pickups and a claims rate of 0.9%, which is shockingly high when placed against the corresponding rate of LTL competitor Old Dominion Freight Line (NASDAQ: ODFL) of 0.1%.
Bedard summed up the disaster on the call and said conditions in the first quarter aren’t improving. “Q1 Is going to be a very difficult quarter,” he said. “We didn’t do a good job in managing our labor cost. We had too many issues with accidents and claims. If you look at my claim ratio, I went all the way to 0.9% of revenue, which is just unacceptable, right?”
In its earnings announcement Wednesday, TFI said it was going to “re-domicile” in the U.S. On the call with analysts, Bedard said the change would not involve moving employees from Canada to the U.S.
