TFI International Inc. (TFII) Q1 2015 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the TransForce First Quarter 2015 Results Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. [Operator Instructions] Before turning the meeting over to management, please be advised that this conference call will contain statements that are forward-looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. I would like to remind everyone that this conference call is being recorded on Thursday, April 23rd, 2015. I will now turn the conference over to Mr. Alain Bedard, Chairman, President and CEO. Please go ahead.

Well, thank you operator and good morning, ladies and gentlemen. Our 2015 first quarter results press release was issued yesterday afternoon. I'll begin the talk by providing you a brief overview of the key performance highlights of the quarter and then I'll discuss the results of each of our operating segments. We have several challenges in the first quarter of 2015 notably very harsh winter conditions on the East Coast and Lower oil prices which impacted business activity in the oil patch. Even so we had a solid quarter with growth and profitability driven by major acquisitions made last year, efficiency improvements and the favorable effect of currency variation. Total revenue was $1.03 billion, up 34% over the first quarter of 2014 before fuel surcharge the increase was 36%. EBIT was $45 million up 35% over the last year and represented 4.9% of revenue on both the same as the prior period. I'm happy to report that EBIT rose in every segment except for Waste Management, where it remain stable and in other services were [indiscernible] lower rig moving activity and less oil pricing in the U.S. adding negative impact. Adjusted net income reached $29.03 million or $0.28 per diluted shares compared to $24 million or $0.24 per diluted shares a year ago. Our cash flow from operating activity continues to rise and allowed us to generate strong free cash flow of 40.5 million or $0.40 per share, a 51% increase over the prior period. This was used mainly to repay long-term debt by a net amount of 35.3 million. Debt reimbursement is a key priority this year after last year's major acquisitions. I'll now provide you with more detailed view of each business segment. Our package and courier revenue rose before fuel surcharge was -- revenue was 287 million, up 4% from last year. Most of this increase is due to the Ensenda acquisitions made in May of 2014. EBIT increased by 14% the first quarter of 2015 and EBIT margin before fuel surcharge increased to 5.1% up from 4.7% in the previous year. This improvement reflects right-sizing initiatives in the U.S. synergies at several operating divisions in our stringent and ongoing cost control efforts. We achieve these results despite a tough Canadian retail market in Q1. The work we've done in developing new opportunity particularly in the e-commerce sectors has helped us mitigate the softness in these other markets. In the LTL segment, revenue before fuel surcharge rose 23% to 183 million due mainly to the Vitran acquisition. Although tonnage was down, the dollar yield per ton rose 3.7% in large part because of the appreciation of the U.S. dollar. EBIT in the LTL decreased by 1.4 million year-over-year because of a $3.8 million dollar gain on disposal was recorded in Q1 last year. Existing LTL operation increase our EBIT by 1.9 million before the gain on -- disposition. I'll point out that the first quarter results in LTL are generally lower because of the seasonality of operation. The terminal consolidation in closure made last year generating significant savings and allow us to more quickly adjust operating cost to align with higher volumes -- with volumes, I mean. The truckload segment continued to perform well. A Q1 revenue before fuel surcharge reached 364 million, up from 165 million in 2014. The increase is basically attributable to the Transport America and Contrans acquisition. Excluding the acquisition, revenue decreased by 6% because of lower volumes. However, operating expense of existing operations were down 8% year-over-year reflecting a significant improvement in efficiency. EBIT in our truckload grew from 11 million to 27.2 million, an increase of 147%. EBIT margin was at 7.5, up 90 basis points over the last year, but existing operation and -- at a 180 basis point improvement. Remember that businesses acquired in 2014 have a higher intangible amortization charge. While this reality will delude the EBIT margin somewhat, we’re nonetheless confident that margins will improve it with rigorous management and a continued focus on bringing even greater efficiency to our operation. In the waste management segment total revenue increased by 22% to $43 million, the increase comes as a result of the Veolia acquisition as well, has from organic growth attributable to the landfill operation at the Lafleche Environmental Complex in Ontario. EBIT in this segment was flat year-over-year at $6.7 million. Margins were temporary somewhat by the acquisition and by a less favorable product mix. Initiatives are well underway to optimize the Veolia operations and we’ll start to see some benefit in the coming quarters. Finally, in regards to the logistics and other service segment. Revenue fell by $3.6 million year-over-year mainly because the U.S. rig moving activity where revenue dropped by 16%. EBIT was down $5.4 million compared to the first quarter of [2004] essentially because EBIT in the rig moving service was negative at $6.2 million. We have put an action plan in place to offset the slowdown and have already closed three of our terminals since the beginning of the year. Other downsizings are underway. While looking ahead, we anticipate that the U.S. economy will continue to perform well in that a weaker Canadian dollar should help the manufacturing sector in Canada. As a result we continue to expect to achieve total revenue of about for $4.5 billion this year with a basic EPS coming in the range of $1.85 to $2 per share. Our company wide philosophy is grounded in principle of decentralization. We make sure that each operating segments has the tool, technology and decision making powers it needs to provide industry leading service and solution to maximize return on capital and to make the absolute best use of assets. With these operational fundamentals in place we’ve the ability to continue building shareholder's value. At this moment I'll be pleased to answer any question, so please operator.

Thank you, Ladies and Gentlemen, we will now conduct the Question and Answer session. [Operator Instruction] Your first question comes from the line of Mona Nazir from Laurentian Bank. Your line is open.

Just going to my first question, we did see some positive trends in Q2, Q3 and Q4 last year, pricing and volume side on the truckload and packaging-courier segments. I'm just wondering, of the negative organic growth in the legacy business in Q1, how much of that do you think was directly attributable to harsh weather. So if we took winter variable out of the equation, do you think inorganic growth was more or less flat or where would it have been?

I think Mona, there was really, if you look at our P&C business and Canada in our next-day services, I mean we have just a small growth. Now the big effect of this very difficult month of February and to a certain degree the month of March, we have a very late spring, okay so, if you look at our retail business what our custom is, we have been effected not because it's minus 25 degrees outside but because of the fact that nobody shows up in the store, so they don't sell out. If you look at the retailers in Canada, they have a very-very difficult -- if you want -- I mean you have to think about Target closing down in Canada, I mean Target was one of our major accounts in the retailing side. Other franchise on the retail sector were affected by some bankruptcy, so retail sector in Canada is suffering big because of weather related issue, the spring is late, Okay, and we are facing with very small growth on the volume. Although on the same day last mile side if you exclude volume that we get rid of over last six months on the velocity, like one account -- major account that we had where we dished out about $9 million on a yearly basis, the rest of our business on the same day last mile in the U.S. is growing and we have a lot of good accounts that are coming on board. For instance that we're all just opening up with a major e-retailer, I mean the Tampa in Florida market, we are opening up with these guys, New York City pretty soon. So you will see some organic growth in the U.S. on the same day last mile the P&C next day service that we have in Canada, there probably a little bit, our ICS division is showing some organic growth. Our Loomis, I mean they have some good prospects but in terms of growing this market right now it’s still a very difficult thing to do. Now the beauty though, that what we are seeing now more and more on the P&C next-day service is the leader in the Canadian market, is approaching the market in a different ways since they signed a new deal with the airliner provider Cargo Jet. I mean we see a better future in terms of trying to get a little bit better pricing, because for last six years on that P&C next day servicing in Canada and we had a very-very difficult time to get better used. So it's always been a game for last four, five, six years, improving just on -- improving operation and shedding costs.

Okay perfect, I am just looking at the last 16 months period for you and all of that acquisition I'm just wondering if you could speak to how that integration is going. Where are you seeing some good growth and strong margins and where do you think you have to work a little bit more to integrate some of these businesses?

All you see here -- if you look at our P&C business, the integration of Canpar/Loomis and as all the different moves that we've done so far in Quebec are very-very interesting. I mean we have a major move that’s going to take place in Ontario pretty soon in a month of August. We are just waiting for equipment to improve by technology. So our P&C with Loomis/Canpar, I am very happy with what's going on over there. If you look at Contrans, I mean, we just buy Contrans a few months ago and Contrans is really a fantastic company. It's lean and mean and they were a little bit behind plan themselves in Q1 because their flatbed business was affected by a late spring. Their Alberta operation has been slowed down because of -- we know what's going on in Alberta, I mean the price of oil down to $50 it affects volumes. But the integration of Contran is really like a done deal for us. Really what we are trying to do with the acquisition of Contrans is, have to work together with the family -- the Contrans. So this is how by eliminating some moves and working closer between the Contran’s team and the team of TFI prior to the acquisition existing team, that's how we are going to get market to improve. As an example, we just won a major contract for compost for the City of Toronto, we’re going to start that in June, that’s 47,000 tonnes and this is going go to our Lafleche Environmental Complex. Now who's going to do the hauling? Well, Layla's going to do the hauling. So this is great news for Layla, great news for our Matrec division. So Integration, I am really happy now. Now, Clarke and Vitran, the other two LTL companies that we bought last year, I mean, they are doing well, except everyone here knows what happened in Q1 with the railways, I mean CP was on strike for one day and CN had a possibility of strike; major derailment; I mean that affects our customers and that affects us. So there is a cost to that, if you look at the railways coming out with their numbers, the numbers are great, fantastic for them, but me and my cost is going through the roof whenever situation like that where at customer saying, "I am afraid of this strike, so I'm going to ship over the road." So that affected us. But in terms of the integration, I mean Clarke and Vitran in our Quick-X offering. I mean, we were happy of what's going on over there.

Okay perfect and just lastly from me before I step back in, I know you announce Davis Transportation Services acquisition this week. I am just wondering if you go over the rationale. Is it because?

No. it's none us Mona.

It's not you?

No.

Your next question comes from the line of Kevin Chiang from CIBC. Your line is open.

Let me just first start with more of an accounting question and just some more granularity on the guidance, so, looks like you are starting to back out amortization for intangibles in your adjusted EPS. I know you made some acquisitions that are amortization heavy, just try to get a sense of what the rational for the suggestion to moving forward is? And if you can provide an update and how you see EBITDA and free cash flow guiding through the rest of 2015, that would be helpful.

Well, you see what we've done Kevin is very simple; what we are saying is that depreciation of intangible in 2015 for us is going to be around 50 million. Okay, so that’s a non-cash event and we're just say like others if you look at WSP and others, working with KPMG, we said, you know what lets -- I mean everybody can understand that this is the real EPS, but we have to take depreciation on the intangible; so, it's 50 million this year. So it's about $0.50 based on the 102 million of shares. So, it's just an intermission that is different and what we used to do. Now in terms of EBITDA, we are little bit behind plan. I mean we are $8 million behind plan in our Q1. But I mean, if I look at my waste business, I am behind plan $2 million but that is just because of late spring. If I look at Contrans, we're behind plan a little bit of around $2 million again because we had a tough winter and our customer is like drywall supplier. I mean those guys are been delayed big time. So, to me Contrans is going to catch up, our waste is going to catch up. Our P&C was affected a little bit in Q1 with our [seemly] last mile operation in Canada, but this is -- we're back on track with that. So this is why I feel very good about the 550 in EBITDA and in terms of the cash flow, we absolutely there. I mean definitely our goal is to beat the 300 million - 325 million. Now if you look at my disposal of assets in Q1, it was just equipment, I didn't sell any real estate, but you'll be surprised to see how much real estate we'll be selling in Q2, I mean we have major transaction that's going to close in Q2 and that's going to boost again even more our free cash flow. So we feel good about what we said.

That's very helpful and just to clarify, the $1.85 to $2 in EPS, I presume that includes the add back, the readjustments you just mentioned on amortization, just to clarify and get it perfect. And then just on the rig moving, good to see you're trying to right size those assets early here given how soft the market is. Can you quantify -- can you remind me again what your exposure is to rig moving from both a maybe a revenue and EBITDA perspective and is there more to be done here outside of the three terminals being closed?

If you see, if you look at last year's Kevin, we did a little over a 100 million U.S. in the rig moving business and our profit was small, 5 million or 6 million or 7 million, I don't remember exactly, but minimal. Now we had up in Q1 and [Jay] the guy that runs the operation, he's a very optimistic guy and he says yes, it was at $50 but we're all full that the small guys would die and et cetera, et cetera, but didn't turned out like that. So we lost a fortune in Q1, so we shut down PA, Pennsylvania, so we let go all the people. We saw, we're in the midst of selling all the assets, okay and we're not going to lose a dollar on selling those assets which is not too bad considering the shitty market that we are going through right now and the reason being is that the assets that we have are top quality, top maintenance. So we're going to fetch probably $4-5 million on the PA side. Now we also shut down our rifle operation and our [KillBore] in Texas, so really the game plan right now is let's focus on minimal terminals like we still have Unis, we still have Odessa, we still have Greely, we still have -- in North Dakota forgot the name of the city, but in North Dakota we're still there and we say guys, if we have to downsize the revenue down to about 50 or 60 million, fine, okay. But we can't afford to lose money so really we had a bad Q1 and according to [Jay] and I think there he is realistic I mean we believe that we will probably close the year with a small loss or probably at best a break even. I don't see volume on drilling activity increasing, I mean we all know what's going on with the price of oil, it went down to 50, now it's back up to 55 or something like that -- 56. I mean this is not going to rock the market and bring back all those drillers, I mean they've lots of wells still that are even not in operation that have been drilled. So it's going to be a quiet year for us but I don't want to see any red no more of this operation. Now in total assets okay our rig moving business after the PA disposal we're still going to be at or around $35 million to $40 million of assets still that don't produce any cash flow or profit, so this is what we'll keep an eye on that and we're following that very closely.

Perfect and maybe just when you think about this division, strategically you know it had some issues a few years ago as well, you right sized it then. Is this still something that's core to you or is this something that you would look to divest off fully so you're totally out of the rig moving business in the next -- in the foreseeable future?

Well one thing is for sure Kevin, I mean it's a business that I don’t really like because it’s too cyclical, I mean you make a fortune in the good years, if you go back in 2012 we did about 275 in revenue with a 25% EBITDA margin and 15% to 16% profit. That was great but now it's a shitty business, I mean it's terrible. So it's too cyclical for me and for sure we don't like the cyclicality of that business and also its very capital intensive, right. So this is why we shut down the Canadian operation because we knew that there was no future in Canada, we knew that was there nothing that we could do. This market, Alberta is a shitty market for us. Now we thought that the U.S. with about 2000 rigs, we could do good. The problem is we never anticipated oil to go down to $50 just like that. So hindsight you know maybe I should have shutdown Canada and U.S. but I would never anticipate oil to go down to 50, so to answer your question, it's not core for us, we're in the business and we're going to keep an eye on it and [Jay] knows that -- listen I mean we can't survive a negative cash flow operation; within TFI, I mean it doesn’t work.

Right. And maybe just lastly from me, just to get an update on your thoughts or where you’re at in terms of spinning out some of your other assets or discussions you’re having. And I guess you’ve highlighted in the past waste and TL. Any update there? And I’ll get back in the queue. Thank you very much.

Well, you see really the priority Kevin is the waste -- I mean we made a small acquisition with the Veolia asset, I mean they don’t have land fill, so this is why their EBIT will never be as high as EBIT of pre-acquisition of track. We’re in discussion with a lot of people right now. We have a few things on the go. But definitely I’m working on the file of the waste. On the truckload side right now with what’s going on in the U.S. and limited time that I’ve got because I really put my priority number one in making sure that we make the plan. This is priority number one for me. Making sure that we reduce our debt in 2015, making sure that we generate the cash flow, this is priority number. Priority number two is the waste.

Right. That’s very helpful. As always, thank you for your honesty.

Well, thank you Kevin. Thank you.

Your next question comes from the line of Jason Seidl from Cowen. Your line is open.

Alain, how are you this morning?

I’m not too bad, how about you Jason?

Hanging in there. Its transport earnings season so you just try to keep your head above water.

Yes.

A couple quick questions. Can you talk a little bit about the Canadian industrial side? Are you starting to see a little bit of a benefit from the FX adjustment with the U.S. dollar in terms of manufacturing activity up there?

We haven’t seen that so far Jason but we believe talking to my guys, and talk to the customers et cetera, et cetera we believe that probably that should start showing up in Q3 and Q4 because don’t forget if you look at the dollar, U.S. dollar appreciation it’s been really, really important the last few months of 2014 coming into ’15. But there is always a lag, there is always six month, nine months of lag and when I talk to my guys they are really feeling good that our customers in Canada will start moving more their products into the U.S. but we haven’t seen that yet.

And if this does occur, how should we start thinking about LTL pricing, because I know up in Canada it’s really lagged the U.S. counterparts. I mean should we expect that to start turning around?

No, I don’t think so Jason I mean the Canadian LTL market is really a very, very difficult business right now I mean we have too much capacity and we have very, very poor pricing. I looked at what’s going on in the U.S. where you look at [Asaya] or a [Nodi] or these guys that show a 6% pricing improvement year-over-year. I mean for us this is like a dream. It’s been six years that we’re like the slaves trying to survive. So, no, I don’t anticipate that. Now, on the intermodal LTL, there is limited players in that field compare to the over the road guys. So maybe in that sector down the road we’ll be in a better position to get a fair pricing. But it’s not the situation today. Now, the beauty of our LTL over the road is that we got a $3 million benefit in Q1 because of the U.S. dollar appreciation, because we do a lot of trans-border shipments with our partner Estes.

Right.

So that helped us in Q1 and that should help us for the rest of the year. And the rest of the year in our LTL over the road, I mean we shut down three terminal in Q1, after this is done now we have a next step that’s going to take that probably in May and we also have another step that will take in effect probably late in the summer. So we’re still working on adapting our capacity, adapting our network to a very depressed LTL market. Over the intermodal, LTL on the intermodal I’ve got a little bit better confidence, because it’s a cheaper mode to shift. Service is -- service is the service of the rail, I mean if they are 50% on time they’re doing well and us we have to live with that and we have to work with the customers and have them understand that you wanted the cheaper price, its fine, but the service is not the same. If you want service and guaranteed on time delivery, it’s got to be on the road and its more money. So it should help us in 2015 this new dollars -- Canadian dollars versus U.S.

Okay. Let me jump to the truckload operation, specifically in the U.S. A lot of carriers have announced their intentions or have already put them through. Rate increases for their truck drivers again here in 2016. What are the plans at TCAM?

Same Jason. I mean focus at TCAM has always been to be in the top 90 percentile of salary to our drivers, because the worst thing is turnover. I mean turnover costs you a fortune. And the focus when I talked to our guys at America's, let's focus on retaining the drivers we've got. So we don't have to chase new drivers. And so in order to retain these guys let's make sure that they understand that our package is very, very competitive and its top payment that you can get in as a truck driver.

Are you still looking for the same mix between company and owner-operator going forward or are you trying to still get more drivers?

We're trying but so far Jason, we have not been very successful. I mean if you look at America, we've got 15,00 trucks on the road and not even 10% of that are [owner-ops]. So, it's not the same mix, if you look at our Canadian mix, I mean, we're way better than that in Canada. So this is why our capital intensity of our truckload division in the U.S.A. is way higher than our capital intensity in Canada.

Is there something that you guys are going to be doing to the OO pay package? I guess outsize compared to company driver?

Yes, absolutely. I said to Scott, I mean, Scott, lets me sure that we have an attractive package because it's way more of flexible to have an OO, an Owner Operator than having your own trucks. So for sure that's an area of focus of ours. But I'm very happy with the results that we have in Q1 with America. I mean the guys, they did a great job and it's not an easy market, well nothing is easy in transportation. But the guys did a great job in Q1.

Okay, fantastic. Well, listen, I don't want to hog up too much time, I'll get to the back of the line. Thanks for the time, Alain.

Your next question comes from the line of Walter Spracklin from RBC Capital Markets. Your line is open.

[Indiscernible] in for Walter, just had a couple questions on your waste segment. I know Veolia and mix has impacted margins. What sort of your line of sight to the improvement and where do you think they can get back up to going forward?

That's a tough question. But if you look at the mix of Veolia because they don't have any landfills, they have only collection and in some areas also they have poor contracts with some municipalities. So, we believe that's Veolia with about $40 million should bring at least a 10% EBIT contribution, which is not the fact, which is not the reality today because of their mix.

Okay.

And so that's going to bring our average down, because prior to the Veolia acquisition with our mix we were running closer to the 25 EBIT margin. So Veolia to me, between 10%, maybe 12%, 13% EBIT contribution of that acquisition. Now they have a great division in Blainville, Quebec that doesn't fit really Veolia. So that division, which is small, it's going to be moved out of my Matrec pretty soon and into our specialty truckload division because this is not really anything to do with landfill our collection is more about contaminated source which we do a lot within our Kingsway specialty truckload division or in the Contrans group specialty truckload division.

Okay, great. And just something over to the volume side of the equation, I know they're soft currently, where do you see them trending going forward? Do you see any sort of pick up as we head into spring?

Are you talking all over or just --?

On the waste side, sorry.

On the waste side, I mean volume on land we're light in Q1 because we've the late spring. I mean already we see the volume coming in April. So, I'm sure if you look at all the Canadian operation, I mean when the other -- my competitors will come out with their numbers I’m sure you will see the same thing. Now the other thing that affected us, our Matrec in Q1 is low commodity prices for paper, for plastic and all that. So that also adds a small effect on our profitability in Q1. Although recycling is not big at Matrec, I mean but there was also a negative impact of the commodity prices on our recycling operation but the third, the volume in our landfill this is a just the matter of time, I mean it's just because we were coming into a very cold March and even April is still not the best but we're starting to see some volume coming into our landfill. So we feel pretty good. And I was saying earlier, I mean we just won a major contract with the city of Toronto for 47,000 ton of compost, which just the tipping fees $115 a tonne landed in Moose Creek. So this is a great business for us and its starts in June. So Matrec, I feel very, very good with what's happening over there.

Okay, great, that's all for me.

Your next question comes from the line of Cameron Doerksen from National Bank Financial. Your line is open.

I just want to I guess get another bit of a clarification on the EPS guidance because when you put that out in December, the $1.85 to $2, I mean you weren't calculating the adjusted EPS at that time with -- excluding the amortization of intangibles. And now you've maintained the same number but there is a sizeable positive impact from excluding that, so I mean how should I look at this? I mean is this I guess -- is your outlook at lease on the earning side worse than what it was in December or am I looking at it wrong?

No, no, no. Maybe it's my mistake Cameron may I didn't explain it properly. In my mind the $1.85 to $2 what we said is the same as what we said three months ago. That hasn't changed; it's the same thing with EBITDA. We said 550 three months ago and it’s still 550 today. Now I remember the question earlier, does that reflect your new policy; think its Kevin that asked me the question so maybe I made a mistake there. We haven't changed anything Cameron, so we're still forecasting for 2015 the same thing as we were forecasting three months ago.

You mentioned your expectation for 2015 on the amortization of around 50 million but if I look at Q1 it looks like it's on an after tax basis, was it just a little under 8 million so is it going to change by quarter I mean I would think that it would, should be basically sort of at that run rate through the years.

Yes, so when I say 50 million for the intangible depreciation, Cameron this is before taxes.

Right, okay. I guess a couple of questions on the business itself, you talked a bit about the pricing and packaging career in Canada and that sounds a like a Purolator is a little more rational now. You know they put in a rate increase at the beginning of the year, I'm just wondering if you could comment, I mean it's still relatively early in the year but are you seeing actual pricing improvement increases from Purolator, has that kind of stuck, is that the case?

Yes, I think that the P&C makes this service in Canada finally. You're the leader in the market, because of its new deal with Cargo jet and because of this new leadership I think these guys want to make money and in our world this is just good news because really for the first time we're able to talk to customer that we can do it no more. It's got to change, and we need a little bit more money I mean the inflation, we have to pay our drivers, our people, better every year and we can't do that. It's becoming a nightmare. So all the improvements to the bottom line over the last 5-6 years on our next day P&C comes from the consolidation between Loomis and Canpar and working on the cost and working on the productivity et cetera, et cetera. But now I think that's finally in 2015, it's not going to be a lot but it's finally we're starting to make some moves in the right direction because the leader understands that things have to change too.

Okay and just maybe a couple of questions on volume outlook, I mean one of the areas you cited is Western Canada, I guess it's fairly obvious things are weaker out there. Is there any way to quantify what percentage of your business that would be affected by weakening overall market in Western Canada and I guess maybe Alberta specifically?

Well you see if you look at TFI, I mean we are about 75% to 80% company that operates east of Mississippi, but Alberta is very important to us in terms of profitability and in terms of yields et cetera, et cetera. So we've always done well, but if I look at my LTL operation we're down volume wise 10%-15% in Alberta. If I look at my pipe storage which has always been a great business I mean we're down, 20%-25% there, so for sure Alberta and the oil patch of Texas, we've been affected. So what is that going to mean for us for the year 2015, it's still early because we have some good divisions that are still doing fine, talking to my guys they're confident that we'll be able to turn -- some kind of a maybe not the greatest year in Alberta that we have but something that will be still be attractive for our shareholders, that is really -- if you want to talk about a spot where we're little weak is really everything that relates to the energy because of that oil price that dropped like a rock without anybody really knowing or anticipating a move like that.

Right.

Even with that I mean talking to my guys we're still confident that our target is reachable.

Maybe just a final one from me just on trans-border, I think this is a market that seems like it's pretty strong and you mentioned earlier that you thought it would be picking up more towards the back half of the year but what can you talk about on the pricing side? I would think that the U.S. carriers raising their rates is helping you as well on trans-border volumes.

Yes, absolutely Cameron, I mean, we feel very-very good about the truckload for 2015. We were down in volume in Q1 mostly because of lower activity on the East Coast but this is, we believe that this is coming back and had a lot to do with the weather and I look at the profitability of our truckload our existing truckload in Q1, we feel very good I mean oil price is down, that helps the truckload because you know truckload fuel is very important to the equation and the dollar is also going to help us, so we feel there is, we going to beat the plan and convince.

Okay, good. That's all for me. Thanks very much.

Okay, Cameron, have a great day.

The next question comes from the line of Benoit Poirier, Desjardins Capital Markets. Your line is open.

Hi Alain. This is Charles filling in for Benoit.

Good morning [Charles].

Good morning. Just the first question, regarding your CFO search, can you maybe provide an update on what's going on right now? And also if your timeline -- what is your timeline you have in mind about the potential announcement?

CFO will come from the family, it will come from the inside of TFI, I mean I've not been very successful when I'm going outside, I was very disappointed with the person we had before. So this is why I change completely my approaches, this new CFO of TFI will come from our family, will come from people that have been in the business for a long time. In terms of the timeline I would say probably within -- it's going to be before publishing July's results, our Q2 results, alright? This should be resolved probably in the next few weeks.

Okay, very good color. And we noticed that you have not performed any share buyback during the quarter. Could you maybe comment about your strategy on that front, to know if you would intend to perform some going forward or if you prefer to wait to maybe increase your financial flexibility?

Well, it's all a question of pricing and we feel very good with the situation where we are going, okay? And it's all about price. So when I see my stock going in under 29, I would like to buy one stock if it's under 29, myself Okay? So, you are going to say well, how you are going to do that? I mean you got $1.6 billion dollars of debt, how are you going to do that? Well we have a lot of asset, there will be sold within the next few months, that's number one. Number two, is we feel pretty good about the cash flow that we will generate and number three is I think that we have something going on in our waste sector that will be very positive for the future of our stock, so if I see a weakness, for sure we'll going to be on a lookout and try to bring back as much as possible shares into our treasury, okay? We don't like to issue equity and well believe me we'll be going be issuing equity within the next 12 months. That's for sure. Our free cash flow is going to be huge and like I said it's going to be used primarily to reduce our debt, but if we see weakness in our stock price, we’ll be aggressive.

Very good color on that. Thanks, Alain. Just a follow-up. You mentioned that e-commerce helps you to offset some of the weakness in P&C. Could you maybe provide more color about the opportunities you see in that sector going forward and maybe how sizable could they be in terms of quantity in the future?

Well, you see the e-commerce using the last mile guy like us, is something that is really new. It's something that it's very, very at the beginning of probably something that could be great for us. To give you an example, the largest e-commerce guy, we’re doing his last mile right now in Vancouver and in Toronto and we're in discussion with them for Montreal and Ottawa. We just opened up for them, the Tampa and New York is coming in soon. So, how big is that going to be? I mean what we know so far is that we are doing e-commerce last mile right now for about $50 million to $65 million today, small. How much is that going to be in, by the end of 2015? Could be a $100 million. Okay?

Right.

Now, the difficulty in e-commerce is that a lot of these retailers today, if you exclude the Amazon guys, which that's, that's how they were born, but if you exclude this guy the rest are still trying to find a solution, If you talk like the big retailers, largest retailer in the world and the one that closed down in Canada, that's strong in the U.S. All these guys have just working with us and trying to find and approach the market. These guys, they've built their business on brick and mortars, whereas the other guy built his business on e-commerce and internet, right? So, this is, we're in a transition phase, start small in 2014, it's going to improve in 2015 and always the question is, yes, but honey, is your margins going to suffer because of that? No way, I mean if we've to suffer in the margin, we'll just leave that to somebody else, Yes? We're not in the business of practicing delivery; we are in the business of making money, right?

Yes.

So, it could be a very interesting opportunity. We're still in our early days.

Perfect. Really good color on that. Thanks for that, Alain. And maybe just the last one, maybe an accounting question. Can you maybe quantify the benefits you got from FX in the first quarter on your EPS?

$5 million was the total benefit for us on the FX, net over the CapEx because when I say 5 million, it’s about 3 million in LTL and about 2 million in my truckload sector. Now when I say, and little bit in the P&C. So when I say 5, this is 5 is the right number but it's not the real number because all the CapEx are done in U.S. dollar. So yes I've gain on my revenue, on my profit of 5 million but all the CapEx that I'm doing in Q1 are costing me 20% more because everything is done in U.S. dollars. So there is also a negative effect. So how much is that negative effect I'd probably say about $1 million in the quarter maybe $1.5. So really the net benefit to us in Q1 is about 3 million to 3.5 million.

Okay, perfect. Thanks for the time.

Your next question comes from the line of Turan Quettawala from Scotia Bank. Your line is open

I guess my first question, maybe I'll just go back to that accounting question that you've already been asked a couple of times. But in mid-December when you provided your guidance, you said EBITDA was going to be 5.40 to 5.60 and earnings were 1.85 to 2, right? And you still -- I know you said that those are both true, but I guess I'm trying to understand, was this change in the amortization then contemplated back in December or -- so then that gives you another $50 million, right, on earnings?

Well if you want, but this is just one way of looking at it. What we're saying is that if you exclude -- because some of the other businesses are excluding that. Because it's -- for some investor is really you don't take care that. But like I said earlier, really our plan did not change. What we said in December is what we still are saying today.

Okay. Well, I'm just trying to -- numbers just don’t -- when you look at the EBITDA -- and I understand the cash flow impact, right, and I understand it's non-cash, but I'm just trying to understand if the EBITDA is not changing and the earnings are not changing, then where is that -- like the EPS has to go up, right, if you're adding $50 million more?

Yes, so maybe where we should have said Turan is that $1.85 to $2 exclude, the benefit or that's $50 million of intangible.

Okay. That's fair -- that's helpful.

So in order to correct the mistake that we said, is go back to what we said in December EBITDA doesn't change, the EBIT doesn't change, nothing changes, that the fact that now we added intangible depreciation to our EPS, it's just a -- doesn't change anything. I mean it just a presentation thing.

Okay, that's helpful, thank you. I guess then moving forward, the other question that I had was on the P&C business and I know you've been working quite hard to restructure that and having sort of taking out a lot of the non-profitable businesses, when I look at the margins over the last few years they really haven't gone up that much. There has been a bit of improvement for sure and I know there has been a bunch of acquisitions in there as well. Could you maybe just explain that disconnect a little bit? Like why aren't your margins going up more and also in terms of the margin improvement, you've talked about that double-digit margin, when should be expect that?

First of all, we have to look at the next day service that we have in Canada. Our next day service in Canada has improved every month, year-over-year from the day that we bought Loomis until now. Where we got a bad operation is our same-day, last-mile both in the U.S. and in Canada. So we bought that business, we're running at 2% to 3% EBIT when we bought that in 2011. So we've improved that in the U.S. and in Canada and we were very close to about 8 points, then I made a mistake, I bought the Velocity and I double up when I bought TDS in Canada. So that really killed me on my same-day, last-mile operation, both U.S. and Canada. So from an 8% before these acquisitions, I went down to the shit with more revenue, but no profit attached to that and a lot of cost. So I shut the business out in the U.S. same thing in Canada. But I’m still stuck with the cost, so if you look at my same-day, last-mile business today, both U.S. and Canada, I'm still below where I was -- after all the improvement we've made before the acquisition of Velocity and TDS in Canada. So when you look at the global profitability, if I would segregate that in two you would see that the P&C [indiscernible] is improving every month. The Canpar/Loomis thing and the ICS and the TForce Integrated Solution, these guys improves all the time. The shit hit the fan with my friends at Dynamex. So now the U.S. is coming back, if I look at my same-day U.S. operation this quarter versus last year, I’m improved.

Okay.

If I look at my Canadian I’m not improved, but the team there took major action and they will improve. So that is really what happen over the last three, four years.

Okay, that’s very helpful.

To answer your question, double-digit EBIT is that still possible, absolutely.

Okay. Do you think that happens next year or --?

No, we are to do a lot of changes in Toronto in our next day service and this is going to happen in summer, late summer. The other thing also, Turan, you’ve have to exclude, if you want to do some comparison, the severance because we have a lot of severance.

Okay.

This year in our P&C business probably 60 to 100 people will be let go, because the technology changes because of consolidation. So that’s going to cost me -- if you look at my severance last year was about 7 million. My severance this year is going to be the same amount. So every year that affects my profitability but this is an investment for the future.

Yes, that’s extremely helpful. Thank you very much. That gives a lot of color here. I guess the only other question that I wanted to ask you was on Target. Was that about a $3 million account, is that right?

Probably little bit more than that because this affects our Vitran operation. So probably if you look consolidated numbers for TFI probably closer to 5, because we are also doing some trans-border LTL with them. Vitran was a big account of ours for the Canadian domestic. So, probably in the neighborhood of closer to five.

Okay. And that’s -- we should be thinking about all of that not happening this year, right? On a year-over-year basis that's about a $5 million reduction?

Yes.

Okay. That’s extremely helpful. Thank you very much Alain.

Pleasure.

Your next question comes from the line of David Tyerman from Canaccord Genuity. Your line is open.

A few questions, just clarifying a few things. Did you say that Velocity had an account go down by 9.5 million?

No.

No. Okay. Because I just -- I thought I caught that -- you were saying a lot of things quickly.

No. Velocity, what we did, yes, what I said the Velocity we had one account that we let go, absolutely you are right it’s one account that was a little bit more than $8 million because we were doing the Atlanta business, the Florida business, yes, we shut that business, some of that was late 2014, some of them was also in September of 2014.

Okay. So -- and that’s a case of you just -- you weren’t making the kind of money you wanted, I take it?

No. It was a terrible business. You see, the mistake I made when I bought Velocity is that, it was all my [PE]; it was completely out of control. They were losing revenue and then us we came in there the management team is really, really bad they don’t know what they are doing. They’re losing customers like one and day because the service has been so bad. So we bought a business that was probably a $140 million revenue, the day that we got in there. But then they lost this account, this account, this account and then you’re stuck with the real estate. You stuck with the people. You stuck with all kinds of cost and you stuck with all kinds of claims. So it really was a bad move on my part, I never anticipated this company to be so bad, because officially we were looking at the numbers we knew that these guys didn’t make any money but we never thought that they guys were just going down to their own death. And one account that took us a long time because a bad account always stuck with a contract, a good account well and you don’t have a contract. That’s the nature of our business in our world. So if you have a great business then the guys says, that’s too good I’m going to bid the business. And because it’s a still difficult environment then you have to lower your price. When you have a contract with the shitty price, like we had with this customer, you have to honor the contract. So that’s why it took us a long time to get rid of that shitty business. Because we also stuck with leases we had about 400,000 square feet of space we discuss about, it’s been a nightmare for us.

Okay. So do you think you’re at the end of shedding clients like this at Velocity?

Yes, we’re done. We’re done with that, we’re done, but if you compare us year-over-year we’re still short, okay. But we’re done with the shitty business in the U.S. we’re done. In Canada, we’re not done yet but we’ll be done very soon.

Okay. And the profit implications, is Velocity making money and improving at this point?

Well, Velocity doesn’t exist anymore. So Velocity now is integrated within Dynamex, so like I was saying earlier I mean, we bought Dynamex at 3%, we moved Dynamex U.S. up to 8% then we went down as low as 3.5% again, 4% and we're back up, we'll do about 6.5% to 7% in this 2015. So we're still not back to where we were after making all these changes after we bought the company.

Great, okay.

Although we have a little bit more revenue though.

Right, so 6.5% of mix does that refer to the Dynamex combined operations or is that overall --?

Yes, the combined operation of U.S. and Canada.

Okay.

Which is still far from the 10.

Right. Sorry, when you say combined operations Canada and U.S. are you referring to all of P&C?

No, no, I'm just talking the same-day last-mile.

Okay, same day last mile, okay that's very helpful. Okay, thank you. Second clarification, you mentioned when you're talking about Clarke and Vitran that the CT strike the possible CN strike and the CN derailment hurt you. I was just wondering if you could explain how that hurt you.

It's very simple, David, to understand, I mean you're a customer and you read the news and you're shipping with me through CN and already on average us because of service of our railway provider we have on average about 20% left behind in the winter. So these are cans that sit in Toronto because they can make it on the train, right, so that affects the service and then you start reading that maybe there's going to be a strike, what do you do? Well you pick up the phone and you call me and you say what are you going to do? There's nothing I can do, if my line-all provider is on strike or there's a risk that he's going to be on strike I can do nothing, except if I've got capacity and if you want to pay the price, I'll do it through my truckload division, right. Now in order to do that the customer has to agree to pay 20%-25% more if he deals with us to be on the road. So what he does is that sometimes he's going to say yes, sometimes he's going to shop and find maybe a better deal because in Q1 the truckload guys are less busy, because of cyclicality. The containers, all the box are completely disorganized because of that derailment. So you will have to come to visit our place in the month of February and March when all this happened to really understand the effect -- the domino effect that this has on us. So, what's the cost? I don't know. One thing I could tell you is that us, we're facing the customer every day. And those guys are not happy because we are dealing with them, they don't deal with the line-all provider, they deal with us.

So, nice to understand and then is it volume in that?

It is volume and it is cost too. It is volume and it's cost because then the guy says, hey could you do this favor for me? Could you do this? Could you do that? And because it's a large account and its winter and it's Q1 and you got a relationship with your customer so you say okay, this is like if you look at the Q4 of UPS last year what happened with their e-commerce business? Their cost went through the roof, right. Why? Because they have customers and they say yes, yes, yes, we'll service you but now they say well, okay well next year it's going to be a different story. This is what happens when you have instability in this sector; it creates huge effect on your cost.

Okay, that's helpful; I think I understand now a lot better. And then on the divestiture side I'm a little unclear on the truckload, is it still your intention to do something there?

No, no, it's still our intention David; we will definitely do something with the truckload. But it's just a question of priority. So what I said is my priority number one, after Q1 that I'm a little bit behind my plan, so my real focus is to make sure that we deliver the plan of 2015 that's priority number one. Priority number two is really the waste, why? Because there's a lot of activity in that sector right now so the timing is proper, we're having lots of discussion with lots of people. So I can't do everything at the same time so this is why I said to our board, guys truckload, we’ll take care of truckload but we got to look at what we can do with the waste first. Simple as that, it shows the priority issue. But we will definitely do something because I am a firm believer that we have a great truckload business with the great team, and our plan is really to find another great company. Okay, probably in the U.S. where we -- for sure, because in Canada, there’s not a lot of sizeable company left .Right? So probably in U.S. and then we have some kind of an association with them to build a huge North American truckload operation. But that will take some time, it’s not the priorities of the day, priority of the day is after a little bit behind planning Q1 is to make sure that we make our plans towards 2015 which is, what we earlier promised that we would do and number two is the waste; waste is a gem. It's not property valued, okay? And you will probably see something happening there within the next six to nine months, this coming 2015.

Okay. That's helpful and on the truckload with finding a partner, is the intention to actually divest the operation or would you expect to continue to own a significant portion?

As a first step TFI would still be the shareholder of a combined truckload operation, right? But I'm think that there would be a great combination. Same thing could happen in the waste, whereas we take Matrec and the rest of our waste business and we combine that with somebody and we become a significant shareholder of the new group. And we work to build a fantastic business in Canada or even in the U.S. close to Canada, we'll see.

Okay. And that so sounds like combine; then together work together to build a really good business and then presumably the last step would be then to actually divest.

Yeah. If the shareholder is -- if this is their will, fine. We will see.

Okay.

But then it becomes an investment and liquid investment because it's a partnership with somebody that's public.

Okay. So you just stocking and -- okay that's very helpful. And then, you mentioned that the truckload volume was down in Q1 and I think you specifically East Coast with the issues, is that just weather or there are other things?

No, I think it's just weather, we are also down in Alberta. This is -- could be a little bit more the environment there, but although the truckload sector out West for us is really small. So really the big thing is really what happen with the weather. Take for instance our [corn transplant bed] division, I mean they are way-way behind plan. Wow! I mean their customers are not shipping, I mean it was very-very cold in February and March; unusually cold in March. So that what I'm saying so we were down versus plan, versus what we did also last year, but it’s just -- we believe in small related issue than anything else.

Great, Okay that's helpful and then the last question I had, you’ve made quite a few acquisitions in the last year -- year and a half. Presumably these you expect to generate synergies, et cetera from -- maybe not so much Contrans but certainly from some of the others I think. Is there a sort of a ballpark number you would hope to get to and where you are? And can you tell us where you are now; on that and how longer it would take to get to where your goal is?

Well the synergies, you see David, really on the upside is really with our same day business that we have in Canada, so that what we were doing with Loomis/Canpar so still we see probably, another between $8 million to $15 million of saving with what we're doing. On the same day last mile it's got nothing to do with synergies because I mean it's our own operation. On the LTL side, we're going to be running on a combination IT platform pretty soon for a Kingsway sea and overland, so we have that -- we shut three terminals on the East Cost in Q1. So overland took over those three terminals for Kingsway, so it's an ongoing effect, so if you ask me on the LTL side it's still very difficult to say but between five to fifteen million is still what needs to be done there. On the truckload sector as I said earlier that the synergies with the Contrans and the America guys is really to work together, so after Q1 it’s still very difficult to quantify that, but probably you're talking maybe 10 million to 15 million by working closer together. For instance this contract that we talked about hauling for Contrans compost from Toronto to landfill, I mean Contrans will take over more of the trucking operation of Atrack because they are a great hauler from transfer station to landfill. They will probably start running our tippers and running our transfer stations, so how much of that is going to be creating some reduced cost and improve synergies, you know this is why I say between 5 million and maybe up to 15 million.

Okay, if I total all that up that you mentioned, ball park you're looking maybe 25 million to 45 million improvement.

Right, over the next two or three year’s still ongoing yes.

Okay, that's very helpful. Thanks very much Alain, I appreciate the commentary.

Very good, have a good day David.

Your next question comes from the line of Maxim Sytchev of Dundee Capital Markets, your line is open.

Just a very quick question in relation to the balance sheet and just thinking sort of on a going forward basis, I mean obviously there's a lot of potential, accretive things that could be ongoing but is there a level from a leverage perspective where you feel more comfortable doing sort of additional M&A and other strategic stuff, if you can provide some color on that?

Well, you see Maxim M&A as I said earlier in the year is going to be very light in 2015 for us, you'll see probably one or two, three small deals that will take place between Q2, Q3 and the end of Q4, maybe an important one by the end of the year and that will be all. So really the focus this year is really making the plan, working on the integration of all the different groups and working on our waste, on key solution for our shareholder. So M&A will be light for us this year, yes.

Okay, that's it from me, thank you very much.

Okay Maxim, a great day.

Mr. Bedard there are no further questions at this time, please continue.

Very good. So well, thank you very much for joining us today on our call, so I look forward to speaking with you again following our second quarter. So have a great day all, thank you, bye.