TFI International Inc. (TFII) Q2 2023 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to TFI International's Second Quarter 2023 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. [Operator Instructions] Further instruction for entering the queue will be provided at that time. Please be advised that this conference call will contain statements that are forward-looking in nature and subject to a number of risks and uncertainties that could cause actual results to differ materially. Also, I would like to remind everyone that this conference call is being recorded on Tuesday, August 1, 2023. I will now turn the call over to Alain Bedard, Chairman, President and Chief Executive Officer of TFI International. Please go ahead, sir.

Well, thank you for the introduction, operator. And thank you everyone for joining us this morning. Yesterday, after market close, we've released our second quarter 2023 results. During these tough times for the freight market with lower volumes industrywide, it was critical that we by, by a long-term operating principles and we did just that. We again, demonstrated the quality of our operation and our team's ability to quickly react to changing market conditions, by focusing intensely on the fundamentals of the business at all times. Speaking of our team, I'm pleased to announce that just yesterday, our TForce Freight unionized employees ratified a new agreement with an 81% vote in favor which we view as favorable outcome for everyone involved. Throughout our organization, we recognize the importance of profitability and cash flow. This is what allowed us to produce solid results during a difficult quarter with solid operating ratio across all four of our business segments. In turns, this focus on profitability and cash flow, as I've mentioned many times, allows us to steadily invest in the business, take a disciplined and strategic approach to M&A, and as always, return excess capital to shareholders whenever possible. We produced just over $200 million in net cash from operating activities during the second quarter, with free cash flow of $138 million, despite the industry wide weaker freight environment, and other factors I'll outline in the moment. Our operating income during the second quarter was $192 million, reflecting an operating margin of 20.4, this compares to the prior year's quarter of three not $391 million with a margin of 19.7. Our adjusted net income of $139 million compares to $241 million, and our adjusted EPS is $1.59 Compared to 261. We view these as solid results under the circumstances, supported by our team's ability to protect margin by quickly reacting to changing market conditions -- changing market dynamics. Our success in this regard is best reflected by the strong returns on invested capital across our organization. When comparing to prior year, I point out that our results reflect not only our sales of CFI last August, but last year sizeable gain on the sales of real estate in both LTL and truckload segments. In addition, similar to last quarter, foreign exchange fluctuation hampered the year-over-year comparison. And similar to last quarter, we incurred costs associated with the transitioning of our IT system from UPS to help enhance efficiency going forward, while providing better controls and insight and allowing us to exit our TSA with UPS. TFI reported results are fully burdened, as we are not adjusting this year, nor did we in the second quarter of 2022 for any of these items that worked against our year-over-year comparison. Let's turn to the performance of each of our business segments, starting with our P&C, which represents 7% of our segment revenue before fuel surcharge. We saw an 8% decline in both the numbers of package and revenue before fuel surcharge. Our operating income came in that $27 million relative to $37 million the prior year with a margin of 23% relative to 29%. However, our return on invested capital actually improved to 28.8% from 27.6% the year earlier. Next up is our LTL, which is 43% of segment revenue before fuel surcharge. Shipments were down 18% in our revenue before fuel surcharge was down 23, also reflecting the unfavorable FX impact. Operating income of $81 million compares to $187 million in the year ago period, and again, we do not adjust for the IT system transition nor our sales of real estate had a gain in the year to go period. Digging deeper within LTL, Canadian revenue before fuel surcharge was down 14%, but our operating ratio remained strong at 73.7, compared to 69.1, the prior year. At the same time, our return on invested capital for Canadian LTL actually improved to 21.1 up 70 basis point versus a year earlier. Turning to U.S. LTL, revenue before a fuel surcharge of $550 million, compared to $725 million the prior year due to volume pressure. However, reflecting our continued progress with our turnaround plan to streamline the operation of divorce rate, our adjusted operating ratio of 91.5 reflects relative stability versus 88% reported a year earlier. And importantly, our work is not done enhancing the efficiency of acquired operation. Return on invested capital for U.S. LTL was 16% compared to the prior year's quarter at 24.5. All right, let's move on to Truckload which represent 26% of our segment revenue before fuel surcharge. Revenue before a fuel surcharge was down 26% reflecting not only weaker volumes, with our sales of CFI last year, and unfavorable foreign exchange translation. Operating income was $66 million relative to $127 million last year reflecting the same factor plus our sales of real estate in the prior year period, and our version of 16.1 was down from 22.9. Within Truckload, revenue before fuel surcharge for our specialized operations, which benefit from our diversity and exposure to niche market perform relatively well at $335 million versus $353 million the year prior, despite FX. Our operating ratio also held under the condition at 83.9 versus 77.1. The year prior. And our return on invested capital actually improved to 12.7 up 150 basis point over the past year. This is yet another business where TFI as what we refer to as self-help opportunity, regardless of the macro environment. Next is a Canadian-based Conventional Truckload, which reduced revenue before fuel surcharge of $77 million, down from $88 million, a comparison that would have been stronger on a constant currency basis. Our 84.3 adjusted operating ratio, which compares to 73.4 a year earlier is impressive under the circumstances benefiting from our continued focus on network density and cost control. Our return on invested capital once again showed improvement despite industry headwinds coming in at 17%, up 30 basis point. Finally, let's discuss our Logistics segment which represent 23% of segment revenue before fuel surcharge. We've produced $362 million of revenue before fuel surcharge, reflecting both volume declines and foreign exchange when compared to the year ago $454 million. Logistics' operating income of $33 million compared to $42 million a year earlier, and our operating margin actually held nearly flat at just above 9% reflecting our team's success in reacting to market condition as well as the relative strength of our same day package delivery operation. Rounding up our Logistics discussion, our return on invested capital was 17.9 versus 21.1 a year ago. Shifting gears, strong free cash flow across our business, totaling $138 million I mentioned continues to benefit TFI International balance sheet. We ended June okay, with a funded debt-to-EBITDA ratio of 1.11. And as a reminder, our debt is almost entirely at fixed rate at a weighted average cost of just under 3.5. This financial strength is an important pillar of our strategy allowing for smart investment in the business regardless of the cycle, while continuing to return capital to our shoulder whenever possible. During 2023, we have now completed seven small tuck-ins acquisition including one completed subsequent to the second quarter. Our ability to take a disciplined approach to M&A stems directly from our strong balance sheet and depreciation allowance [ph]. We also announced on June 15, that our board of directors approved another $0.35 quarterly dividend, which is 30% higher than the year ago quarter. Turning to our updated full year outlook, we are updating our guidance provided in April to range of $6 to $6.50 for 2023 EPS. We maintain our free cash flow at $700 million to $800 million, which is based on net CapEx of between $200 million to $225 million. In terms of capital allocation, given the strength of our current M&A pipeline, we expect that for the full year, we will now allocate a total of approximately $500 million through a combination of acquisition and share repurchases. With that operator, we're now ready to move into Q&A. If you could please open the lines

[Operator Instructions] Our first question comes from Ravi Shanker with Morgan Stanley.

Good morning, Alain, thanks so much. Thanks for the update on the numbers. Would love to get your thoughts on some of the strategic changes taking place in the U.S. LTL industry? Obviously one of your large peers has kind of temporarily take stop taking on new business. What do you think the near term implications are for TFI? Are you seeing that seeing some of the benefits of that already? How do you think this industry evolves in the coming days, and also the coming years?

Well, thank you, Ravi, for the question. I mean, I think this is a very good question. And, the first thing that was important to us is to get a long-term agreement with our employees, which we did very successfully. We just ended voting on the weekend. And we got the result, and it was very well accepted. Okay, this this plan for the next five years. Now, in terms of what's going on in the industry? We're looking at, it's a very special situation. A few months ago, we were looking at it and saying, don't know what's going to happen there. And over the weekend, we were updated. Now, what I could say is that for sure, if I look at the average volume of TFI, TForce Freight division, okay, in the U.S. LTL prior to all these things going on right now, we were doing about 23,000 shipments a day, very steady since January of '23. And then now, we're running more like 26,000 shipments today lately. And also, more importantly, is the quality of revenue. If we look at the improvement of quality revenue, we're doing better. So if you look at my Q2 year-over-year, my quality of revenue is down a little bit like 2.5% down. And now if I'm looking at let's say, the last shipments of July versus the earlier shipments in July, my average revenue per shipment is up about 3.5%. So I think that this is going to be really, really good for the industry in general. But for sure, like our team is really looking into deep into this, we need the freight that fits our system. Now, the good thing at TForce Freight is that I've got $4,000 doors too many. So we could run a 40,000-45,000 shipments at the operation within TForce Freight, real estate is not an issue. The other thing also that's not an issue is our drivers and our dock workers, because a year ago, okay, we were running about 28,000 to 30,000 shipments today. Now, before all this changes in industry, we were down to 23,000. So we had a lot of people on layoff. And now we're calling back these people slowly. Okay, so we have the capital, we have the equipment, we have the employees, we have the real estate, to benefit whatever we can guess from these major changes in the market. Now if you also look at our Q2 numbers in terms of our year-over-year, last year was our best quarter ever than before [ph] now in a very difficult environment with 18% less volume, with price pressure a little bit like minus 2.5. We were able with our team, okay done are doing a fantastic job slowly, to get to a 91.5 war, which is not great. But under the circumstances, I think that the guys did a fantastic job. The other very important point to notice on that, is that slowly, for the first time, we're going to be moving with P&L by terminal before year-end. Okay, so our terminal managers now will be able to manage dollars, which they've never done their life. And this is the key if you compare that with our Canadian LTL is in a very difficult market. If you look at our Canadian LTL OR last year, we were a sub-70, we're at 69, now this year we're at 73.7. Not great, but I mean, it's a very difficult market in Canada. And, the reason -- the main reason, okay, why we're doing so well in Canada is because our guys have the financial information. They can see them their ends, okay, they have the tools, they have the info, and they take action. In the U.S., okay, slowly, now that we're -- we've moved away from the UPS financial system, now it's on the TFI financial system. Now slowly, we're going to be moving financial information to those managers. Those are DOs, those regional Directors of Operations so that they can take action and reduce costs and do more with less. So to me, it's fantastic what's going on right now.

Wonderful. Thank you, sir.

Pleasure, Ravi.

Our next question comes from Walter Spracklin with RBC. Please go ahead.

Thanks very much. Good morning, Alain. Congratulations on the Union deal. Certainly, that's an important milestone, given everything going on. I was wondering if you might be able to give us any terms of the deal. So we can look at how that figures into our OR forecasts for your LTL division going forward?

Yeah. So in general, Walter, this is about a 3% increase to our costs on every year, so on this global deal? So if you look at year one of our contract, which starts August 6, so August 6, our employees in general will get $1.70 an hour more. And that was difficult to explain to our employees. Because if you remember, one of our peers, just signed a contract with them with the Teamsters, and their employees a month ago. And the day one, the employees got $3.50. Now, what we have to explain to our employees is that yeah, guys, okay. $3.50 is not the same as $1.70. But don't forget that, at the peers, these guys are getting on average, about $4 less an hour versus us. So our peers is catching up to us. At the end of our contract, the Delta salary -- base salary between us and the peers will still be about $1.75 to $2 an hours difference. We are paying more, base salary than our peers five years from now. On an average, okay Walter, to put in your model. I mean, the inflation of salary is going to be about 3% on average for five years, every year for five years.

Great. That's great color and appreciate that. Next question is just on M&A in general. I know you said $500 million combined M&A buyback. I don't know if you have any -- is that something that you just are holding on to see how M&A develops and you'll adjust as you go through the year? And perhaps any commentary on the divestiture of that stock? And what it may ask for any large deal timeline into next year?

Yeah, very good question, Walter. Well, let's start with the divestiture of our best. I mean, we looked at the situation. We have to go through our contract. And then we saw what was going on with one of our peers that was going through a very difficult period. So we said, if this happens, I mean, we're going to be too busy. We're going to be way too busy, us and them, okay to go through all this changes in the industry. So the timing is wrong. So that's why we sold our position. And then we'll see in '24. Now, in terms of M&A for sure, Walter. I mean, I think that pretty soon we'll be announcing a fantastic transaction. And that's the reason why we sold our position, okay so that we don't leverage our balance sheet more than, because right now we're at 1.11. We think that by the end of next quarter Q3 with a transaction that we think that's going to happen very soon, our leverage is going to go all the way up to 1.25. So now that nothing major, but thanks to the sell of our investment in in our best, I mean, we were able to get this leverage, keep really, really low. Now. This is not going to be a major year for M&A in 23. But, we're getting ready for '24.

Okay, last question here on the coming back to the Yellow. Do you think that the opportunities might present themselves for you to go into new markets through the purchase of terminals or assets? Or is densification and repricing your main objective? And a little bit more of a longer term question, investors are starting to change their view on LTL and to the positive and, many compare even to the railroad pricing, is that something that you think is going to develop? And would you look at LTL longer term as something that we can price whereas we haven't in the past and our models, but we can with good comfort, put in some notional pricing increases, because of the added the added quality and fundamentals of that of that sector?

I think, you're right, Walter. I mean, our goal number one, okay, with everything that's going on right now is to increase our density not to grow our network. I mean, like I said, we got 4,000 too many doors today. So we could have all a lot more freight, but really what we're going to be really strategic and what we take on as customers that has to fit our network, and increase our density, because that's the name of the game. If you want to reduce your costs per shipment, you can drive 10 miles between each and every stop. I mean, in Canada, we drive about five miles between each and every stop and in the U.S. we drive 10, that doesn't make any sense. So that's our focus. And, we're lucky. I mean, sometimes you need to be lucky. And with the demise of one of our peers, I mean, this is really a lucky event for us. It helps us build density. And that's going to be great. Now, in terms of the industry, I think that the U.S. LTL is day and night versus the Canadian ones. I mean, in Canada, we have lots of competition. And we have one smart competitor, yes. But, we just acquired an LTL company in Saskatchewan. And let me tell you, those guys are not running at a 75 OR, or a 90 OR. So we'll, we'll change that. But in the U.S., it's a very different story, because one of the weakest player now is gone. So that's going to change, and already you can see over the last 10 years, if you look at the superstar of LTL in the U.S., I was looking at their results, their volume were down more than 10%. But their pricing, year-over-year was up 7%. So that tells you that these guys are really smart. And the industry in general, also, if you look at another of our peers in the U.S., their volume was down like 3% or 4%. Okay, but they did well. Just a few guys, sometimes chasing volume. Volumes up 4% but OEs down 40% Well, that's not us. So, I think that the U.S. LTL industry is really getting closer and closer okay, to what you could compare to the rail? Absolutely. I mean, we have one player, the best LTL guy in the U.S., he's running a 70 OR in that neighborhood, right? So, I think that the industry will benefit from all that. And, so it's the place to be. This is why with everything that's going on right now, we think that from 23,000 shipments, we get to 25-26-27 hopefully by the end of the year. This is going to be great, but more importantly like I said to my guys, we got to work on the costs. We have to be closer to the Tiger in the Jungle, not the big fat elephant, right.

Okay, I'll leave it there. Thank you very much, Alain.

My pleasure, Walter.

[Operator Instructions] And our next question comes from Jordan Alliger with Goldman Sachs.

Yeah, hi. Good morning.

Good morning.

Good morning. The fairly rapid I guess pick up in volumes here in the near term with Yellow in the U.S. LTL business. Is that enough to mitigate the cost of your new contract and perhaps doing OR better than I think the 92 you talked about in the last call?

Well, I think so, Jordan. I think that, what's going to help for sure. I mean, running at 23,000 shipments a day when you have a network that could do 40,000 shipments a day. So I mean, 26 is better than 23. But at the end of the day, with the new contract, where it provides us inflation to our costs, we have to be more strategic and work with our employees in a way that reduces our cost per shipment. What I could tell you, is that right now, our average cost per shipment, year-over-year versus '22 a year ago. I mean, our average cost per shipment is now above 15%. Okay, so we did really well, in Q2 last year with an OR but with less volume, we have a less cost per labor cost per shipment this year, versus last year. Now, for sure we have all these other costs, but really, the main costs in an LTL operation is labor and fuel. So, yes, I think that, even with this inflation on our labor costs, our OR will keep improving. And don't forget that, slowly, we build a 23,000 shipment base that is quite solid. And now we're building on top of that. So, at 26, we're not at 30 and we're not at 35. But slowly, we'll get there. And in the meantime, like I said, on the first -- and this question is that by moving financial information to our terminal manager, this is going to be a fantastic tool for those guys, to do more with less. And that is the key success for TFI in this Canadian LTL division. We have managers that manage people manage costs, manage service, not just managed service.

Right. And just as a follow up, the new earnings got, I think, 6 to 6.50 is less than the other one the previous guide. Obviously, I'm just trying to understand is at the non-LTL businesses, I'm just trying to get a sense for what sort of -- directionally is why the new range is where it's at? Thank you.

Well, a year ago, our friends at FreightWaves said, there's a freight recession in April of '22. I mean, I think these guys were right, but not '22, it was really '23. And, if you look at all of our sectors, right, our Canadian LTL, revenue is down, big times, our Specialty Truckload down 5%, our Canadian Truckload down 12%, our Logistics down 20%, on the revenue side I'm talking about. So are P&C down about 6%-7% on the revenue. So we never anticipated such a major, major disruption in the market in Q2. So this is why we're going ahead and reducing again, because this is the second time we do that. So we're reducing that again, but we feel pretty good that this is attainable. And this is a major disruption in this market in Q2. If you look at all of our peers that came out, in the U.S., or in Canada, I mean, everybody's going through some very tough soft patch in the freight environment. Now, when we look at the summer of '23, it's still quite soft, but when we talk to our customers, and they say, you know what, inventory are starting to get low, we're starting to get some issues here and there. But then we got a stupid strike in the Port of Vancouver that affects our Canadian operation big time. There's always something that happens, the flood that is that, so I don't want to give any excuse. But, '23 was really a year of a lot of things that -- were a lot of headwinds. Canadian dollars being to buy U.S. dollar now cost CAD1.32 that affects our profitability as well. So, to me, I think 6 to 6.50 is now attainable. Sad to say that we were doing $8 in 22, down to 6 to 6.50, it's a huge drop. But this is reflecting the market condition. And don't forget that, at TFI the culture is we protect the margin. So you got two options when you have a soft market, you could chase volume, but to us, this is a chase to the bottom. And some of my peers are doing that. I've seen that. So revenue is up but profit is down 40%-50%. We're not that. I mean, us, we're more like, okay, guys, okay, we'll have less revenue, but we protect the margin. Because every dollar is revenue, there's a risk, a risk that you can get involved into an accident, a risk that your employee can get hurt, a risk that you're not being paid, because this customer could be having some tough times too. So we don't like taking stupid risks like that. So this is why revenue is down. But, when market condition changes, we'll be there. And our base rate is solid. And we're not going to have to be chasing customers all over the place. No, I mean, we're ready.

Thank you so much.

Thank you.

Our next question comes from Cameron Doerksen, National Bank Financial. Please go ahead.

Thanks very much. Good morning.

Good morning, Cameron.

So just a question on Canadian LTL. I know, Yellow had some operations in Canada. I don't think they were that large. But I just wonder if there's any impact do you think positively on the Canadian LTL operations?

Yes, I mean, the yellow operation in Canada was mostly transported freight from U.S. to Canada or Canada to the U.S. So for sure, all the shippers that were using Yellow from U.S. to Canada now they have to find a different provider. So if you look at our transporter business between TST and Saia, Saia is our U.S. partner with TST, the volumes are up like 15% to 20%. So, that freight that used to be serviced by Yellow Canada, now Yellow being out, has to go through some of my peers or some of my partners. And that's the way it's going to be fed into the Canadian market. Now, they were also doing a little bit of domestic freight, in Canada. So that will probably go to us or to some of our peers.

Okay, that's helpful. And second question, I get sort of related to the to the LTL segment, just on the ground with freight pricing. I mean, pretty significant drop year-over-year in in that business. Can you just talk a bit about that, why was it so down so much? And what's the future of that product?

Cameron, that's a very good question. Yeah, we're done big time on that. So there was an issue with some customers, that we're cheating the system at UPS. So this is why UPS took action. I don't want to go into the all the technical details, but this was a few customers four or five customers that were reseller, that were cheating the system. And the UPS reaction was no, we can't deal with those guys. So that's why our revenue dropped like a rock in that sector, absolutely. Now, we are rebuilding that as we speak, but that is really one of our diamond got cut in half.

Okay, so you still have -- I believe that's going to be a good long-term business for you?

Yeah, absolutely.

Okay, that's great. I appreciate the color. Thanks very much.

Thank you. Thank you, Cameron.

Our next question comes from Tom Wadewitz with UBS.

Yeah. Good morning. Alain, wanted to ask you a little bit about the guidance. I know you talked about it before. I'm wondering if you're factoring into that 6 to 6.50 improvement in U.S. LTL or if that guidance reflects more what the run-rate was in 2Q for U.S. LTL. It does sound like, the recent kind of end of July trend in both shipments in and price is pretty favorable. So just want to get a sense of what your assumption is for that business in the guide.

No, no. And all the changes in the last week of July are not reflecting in the guidance because is so new. So that's why we went very conservative. So it's not included. So whatever benefit we get from the 23,000 shipment is 26 or 27 sticks to 25-26-27 sticks with us. Over the long term, it's not in there.

Okay, so that would be upside to what you've said for --

Yeah.

Great. Thank you for that. I want to ask a little bit about 2024 view on U.S. LTL. So, when the, I guess, using your words, when the elephant becomes a tiger could run a lot faster. So I think that was referenced to the cost side, and you got a number of cost drivers. But obviously, it looks like the revenue side is really stepping up nicely, too. So how do you think about where the U.S. LTL operating ratio could potentially go in 2024? I mean, I think the obvious macro assumption, but assume that you get some modest improvement in the freight backdrop. Can we see a really big change 300 or 400 basis points? Or would you keep it more moderate at 100 to 200?

Yeah. Tom, I would be very, very disappointed if in '24, we're not running a sub-90 of our operation in our U.S. LTL. Now, one thing that's also very important to mention is I was talking to our board yesterday about a little bit of a change in our structure in our executive team. So one of the changes that that will be happening for '24 is that one of our EVP, Bob McGonigal, that takes care today our package business in Canada, which is only 7% of our revenue. My friend, Bob now will take over the responsibility of the U.S. LTL working with Keith. Keith is the President of TForce Freight. I'm still going to be involved, but to a lesser degree. And as package business will be taken over by another one of our EVP, Chris Traikos. And there's other changes also, that's going on. So we're going to be putting even more effort, from some of our Canadian team players supporting our U.S. team. But at the end of the day, Tom, me -- my philosophy has always been if you can measure it, you can manage it. And by providing financial information to our terminal managers, I think that that's been the success of our business in Canada. And those four guys right now, at TForce Freight Terminal Managers, they have no clue, they have no financial information. We're just providing them for the last few months, their average labor cost per shipment. And that's how we were able to improve that by about 15% year-over-year. And this is not over. I mean, we got a lot of work to do on fuel management, MPG on the trucks, idling time on the trucks. I mean, there's so many leverage that we could tweak and reduce this cost. So I'm very confident, and I would be very disappointed that '24 we're not a sub-nine OR. If you look at some of my peers, non-union. They're running an 85 OR in a tough environment, like we are now. These guys will probably do better than that. And also, we should be doing better than 91 or 92 OR like we have now in Q2. So I think that with a little bit of a weak player gone, the market probably will start to recover, I think that the pricing also will improve with everything that's going on, I would be so -- I will fell off my chair if we're not running, like something like an 85 to 88 OR in '24.

Okay, great. Yeah, that's very helpful. Thank you, Alaine.

Pleasure, Tom.

Our next question comes from James Monigan with Wells Fargo. Please go ahead.

Hey, good morning. Like follow up on some of the U.S. LTL questions, I guess what's the right amount of capacity to actually release out into the market? I understand you have a lot available, but what's the right sort of amount that you can release without sort of disrupting the OR plans that you have?

We have the team, we have the equipment, we have the infrastructure to do easily 30,000 shipments. And like I said over the last few days, we're running 25,000-26,000 shipments. So when we bought the company, James, we were the company at the time, where he was doing 32,000 shipments a day. The network that we have, could support easily 40,000 shipments a day, 40,000 to 45,000. So what that's real state. In terms of people, we could easily do 30,000 shipments a day, 30,000 to 32,000, this is what the company was doing two years ago. But -- then we went from 32 down to 23. Like I said, now we're back up to 25, maybe 25-26-27, we'll see where we end up. And but we still have loss of capacity within our system. And we have also the people to do the job. Because, when we start to reduce the volume, we also layoff a lot of people. So we also, what we did in Q1, we retired also about 150 people that were good for retirement. So I think that we could do very well. But we're going to be smart in terms of the volume that we're going to get from our customer. Because, our rule number one is to increase our density, not to enlarge our network or add the routes and this and that, no, no. Let's increase our density, because I've said it many times, we can't run a P&D operation in the U.S. with 10 miles between each and every stop. I mean, it doesn't make any sense. But that is what we're doing now. And, I use the Canadian comparison in our business, we do five miles between each and every stop in Canada. And Canada is not the U.S. I mean, the density is not the same. Dense areas, we have Vancouver, Toronto, Montreal, that's it. The rest is -- there's no, there's no density in Canada.

Got it. And then -- well, I understand that, like the year-over-year -- on a year over year basis, everything is down quite substantially and U.S. LTL do does have a catalog in front of it. Some of your peers did call out some sort of green shoots across sort of freight generally. Just wanted to see if you were seeing any sort of similar trends in the business, like apart from U.S. LTL a positive trends sort of sequentially?

Well, absolutely. I think what we're seeing now is, with the fact that Yellow is not going to be there tomorrow. So I think that this is a huge benefit for the industry in terms of -- I think Yellow was doing 40,000 shipments a day, maybe not last week, but normally two-three months ago. So this is really a huge benefit for the industry. And I think that everybody knows that Yellow was a very low cost -- not low cost, but low revenue provider of service. So it was like very cheap pricing compared to the average, compared to the market. Those guys now being gone. And that's going to help the industry overall.

Thank you.

You're welcome.

Our next question comes from Ken Hoexter, Bank of America. Please go ahead.

Hey, great. Good morning, Alain.

Good morning, Ken.

Hey, good morning. Can you talk a bit about the patent process to remove some of the UPS costs, so the timing and scale of those duplicate costs? I just want understand your goal of 85-88 OR next year, how much of that is the Yellow benefit of scaling up your network from 23 up to 26 or wherever it settles in? And then how much of it is self out? And then are you done getting rid of the lower profit business? Obviously, that gets pause now as you take on a lot of business in this interim? Was that process complete?

Yeah. Okay. So in terms of the low, the freight that don't fit the network? I mean, Ken, we've done everything except rural. We still deliver freight that is way too far from our terminal. Okay. And that is still an issue. So we still have that. We don't have the freight that doesn't fit in the high density areas, but in rural freight, we still have that. So we are not going to address that right now in '23, we may address that in '24. And in terms of, what's going to be the leverage that we're going to use? Our TSA with UPS, we're going to be done by the end of '23. So coming into '24, so all the duplication that we're going through now, all the professional fees that we have to pay et cetera. So, what's left, is our fleet management today that is really the big issue our platform. We're still running edge on to the UPS platform. So we're going to migrate that before the end of the year. Fleet is done in the fall. We just finished the HR platform, we went from Workday UPS to, to Oracle HR, TFI Oracle HR, like just a few weeks ago. So all of this is going so into '24, all these duplicate costs, all these professionals' fees will disappear. For sure that's going to help our OR, absolutely. But more importantly, Ken, is can is I think that the self-help that we're going to bring to that business is providing financial information to our Terminal Managers. I mean, this is not the decision, the improvement are not going to happen overnight, once we provide them the information. But over the period of six to 12 to 18 months, we anticipate that these guys will be able to do more with less. Because, you can't fake something that you don't know. So that's always the excuse that we get from when we talked to those guys that, I didn't know. You didn't know, fine. So we'll provide you the information now that you know, you're not going to sit on your hands. No, no, no, no, I'm not going to sit on my hands. I'm going to take action. Okay, good. So, what we've done so far, with those Terminal Managers, as an example, Ken, we said, what they want when we acquired the company, we said grievances, it's your responsibility now. Now, in the old days, you used to send that to lawyers, no, this is over. You fix it yourself. We labor relation, TForce Freight will help you fix the issue with the employee with a grievance and all that, but it's your action. You have to fix it. Claims, again, claims not mean them, no claim is you. So if you look at the dollars claims per dollars revenue, I mean, we were at 1.5% of revenue, then they say, well, we're well, because we used to be 2. No, no, you guys have to be 0.5% of revenue. So now we're getting very close to the 0.5. And this is the Terminal Managers, because now we're getting them involved. They have the information, et cetera, et cetera. So all the financial system that we've put in place with TFI Oracle slowly, we're moving all this information to them. And then we'll see, because we'll have managers that will perform really well with all this information. Some maybe not able to perform well, because they're used just to service rate. Because us, we want them to manage costs, manage people, manage the relationship with customer et cetera. Being a real manager, not just a guy that's making sure that the free gets delivered.

Thanks, Alain. And just to clarify, you mentioned the M&A before, is that, I presume not LTL just given you were talking about maybe come back revisit our best another point, is that a different sector you're focused on?

Well, Ken, we said many times. In the U.S., our focus is going to be LTL and Logistics. But in Logistics, we have to be very careful because we don't want Logistics at 2%. If you look at our Logistics, our revenue is down big time, because the market like TFWW. We're down, Q2 this year versus last year, we're down like 20% revenue. But our margins is still 9%. So if we buy a Logistics business at 2%, that's not us. We're not in the business to buy logistics company for big dollars and 2%. Because 2% what, we'll buy shares of Canadian banks or U.S. Bank and we'll get 4% dividend. So there's two major sector that were focused in U.S., LTL and Logistics. That's logistics that makes money, not logistics that add 2%.

Wonderful, thanks for Alain. Appreciate that. Okay.

Our next question comes from Jason Seidl with TD Cowen. Please go ahead.

Hey, thank you, operator. Good morning, Alain.

Hey, good morning. Jason.

Wanted to focus a little bit on TForce Freight some more here. Can you talk about the potential for a GRI in the back half of the year, as capacity starts filling up and existing networks?

Yeah, very good question. So I could tell you that Keith and Bob are already working on it right now. So the discussion that we're having is that this will probably take place in September. And for sure. We're not leaders in the U.S., so probably we'll have to wait and see what the leaders are doing. Leaders, we know leaders in the U.S. is FedEx Freight and OD. But OD and those guys are very smart. So I think that those Smart players will address GRI not in January of '24. But I think it's going to get addressed right now.

Okay, that's good color. And the other thing, you talked a little bit about some of your customers seeing some low inventories. Wonder if you could add a little more beyond that bone? And then maybe thoughts on peak season this year?

Yeah. Well, you see '22 was like, in my mind a party, because all the supply chain mess. I mean, then the supply chain mess was fierce and then the guy's got lots of stuff coming in. And sometimes they order once, then they ordered twice, they don't get the stuff. Now, everybody got the stuff late-'22. And in '23, we're stuck with, nobody is ordering anything because the inventory are too high. But when we're talking to our customers right now, inflation is coming down slowly, not bad. Interest rates are going up. Disposable income, is okay, labor situation is okay. The problem is that most of the consumer are saying, we've been tied up because of COVID. Now we want to travel. So this is what we're seeing now is that a lot of people are traveling, they're not spending as much on the home, or buying a TV or patio furniture or whatever. So this is why we still believe that '23 is going to be a little bit difficult for us, because of -- but it's slowly getting cleaned up all this excess inventory. So it's not going to probably help us in '23 in general. But coming into '24, I think we have a better feeling now. The Fed said -- the U.S. Fed and I was saying, the risk of recession is becoming less and less in the U.S. So okay, fine. Consumer confidence is okay. So to me, I feel pretty good, not so much in '23, but going into '24 that the market slowly for freight will start to come back to normal. Those guys at FreightWaves said, there's a freight recession a year ago. We didn't feel it a year ago. We didn't feel it in Q2, we start to feel a little bit in three and four of '22. One, but big into Q2. I mean, Q2 was terrible for us. Very tough.

Alain, appreciate the color as always.

Thank you. Thank you, Jason.

Our next question comes from Jack Atkins with Stephens, Inc. Please go ahead.

Okay, great. Good morning. Thanks, Alain, for taking my questions. If I can maybe kind of start with service, obviously, that's critically important in the U.S. LTL market, as I'm sure it is another park as well. How are you protecting the network? I know, there's probably plenty of freight to be had. But how are you protecting the network so that you don't encounter any service issues as you're onboarding this incremental freight here, that's kind of coming at you pretty quickly.

Yeah. Well, you know what Jack, like I said earlier, we've got capacity, we've got people, we've got equipment, we got everything. So it's just a matter of our sales team, and our leadership in the operation to really say, well, this is the freight that we want, this is a freight that we have, and we keep. Because don't forget that until just two months ago, we had customers saying, you know what, you got to lower your rate, because I've got a carrier here that says, I'm going to have to move with this guy. And now, I'm going to stay with you now. So you got that going on. Plus, you got the new freight coming in. And for sure, what we're trying to do us is to protect our existing customer by adding new lanes, lanes that were with the competition, and now the competition is gone. And we're saying, instead of going with new customers all the time, what we're trying to do is increase our volume of business with existing customer that we already have, but we were doing only 10% of their business or 15%. So that's our focus so that we provide, a good level of service. Now, the other thing also jagged as very important to mention is the atmosphere at the TForce Freight. If you think about our labor force, accepting a new deal at 81%, the fact that we've invested in the equipment, the fact that we are investing millions of dollars in the real estate that was abandoned. So our employees, how would you say that? I mean, their morale is great. I mean, they're seeing that. So the owner of the company is investing. So now we have a better deal for them. And for the next five years, everybody's happy about that. So, I would tell you that if you look at the morale of our team two years ago, a year ago, today, and a year from now, that morale, that old pride of being part of TForce Freight is like -- changing like, there's no tomorrow. If you look at the pride of our guys in Canada is second to none. In the U.S., we were not there. So if you look at some of my peers, the best of my peers, you see a lot of pride. Their terminal is speaking span, ours were just abandoned terminals. Our trucks were terrible. So the morale of our guys -- and we're saying, guys, we got to do more, we got to pick up more freight, we got to stop driving all the way around, and spend money driving a truck, we have to pick up more freight. So all this culture is taking place. So this is why going back to your question, that's our focus. And our focus for sure, is not to go up to 26,000-27,000 right now, and then back down to 24, because all the freight that we picked up didn't make any sense, didn't fit, or we didn't provide the right service to the customer.

Okay. So that that makes a lot of sense. And it's helpful. I guess, from my follow up question, I'd like to go back to your comments on the improvement in revenue per shipment that you have observed in the U.S. LTL business from the beginning of July to the end of July. I think you said it's 3.5% better. Could you talk about -- is that from that higher weight per shipment? Is that from improved sort of core pricing? What's driving that? I just love some more detail around that if possible?

Yeah, you're absolutely right. Weight per shipment is up, absolutely. Weight per shipment is up. And the quality of revenue is also improved a little bit. And I haven't seen my cost per shipment of -- because today's Tuesday, I get that on the Wednesday of last week. But I'm anticipating that my cost per shipment. Because my salary increases August 6, so I'm still with this, the old salary scale for last week of July. So I'm anticipating that my labor cost per shipment is going to be down. I haven't seen it yet. So it's a combination of more weight a little bit improving the quality of per 100 weight. So it's a combination of all of this. And the fact that I think that now moving from 23 to 26, 25-26, I think my labor cost per shipment is going to come down too. So it's going to be a double whammy if you want to say.

Okay, absolutely. That's great to hear. Thanks again.

Thank you, Jack

Our next question comes from Kevin Chiang with CIBC. Please go ahead.

Thanks for taking my question, Alain. If I go back to your last call, I think you talked about normalized earnings for your portfolio of businesses around $8to $9. And I'm just wondering, as you look at the M&A you've done, I know a lot of them are tuck ends, but you've done quite a few seven already this year more to do later this year. Plus maybe the accelerated benefits within your U.S. LTL from the demise of Yellow. Just wonder how you think about that $8 to $9 moving forward. Should we think of that as being a higher number, just because given some of these tailwinds and recent acquisition, activity, and buyback activity?

I think it's a little bit too early Kevin to talk about that now. Because when I said 8 to 9, I think that this is the capacity of TFI in a normal environment. Right now, we're not in the normal environment. All day, small tuck-ins that we've done so far are really small, but we anticipate that between now and the end of the year, we'll do at least two of a normal size, with revenue of more than $150 million each. So that that really is going to help us into the end of '23 and into '24. The other ones that we've done so far is just some small tuck-ins that we've done. Small truckload guys in Ontario or in Quebec. I mean, this is not going to move the needle. It's good when the market gets better, absolutely. Environment like we're going through right now, it's not really a big help. So, I'm still convinced by the end of '23, we'll have a clearer picture of where we're at for '24. It's still deemed as good has got the capacity, okay to be between an $8, EPS minimum to $10 with what we're going, what we're doing right. Now for sure, the demise of one of my peers is going to help us, absolutely is going to help us if we could get this volume steady at 26,000 to 27,000 and by providing financial information to our guys, they'll be in a position to make better decision, reduced costs, being more efficient, et cetera. I think that this is really going to help us into '24.

Right. I'll leave it there. Thank you very much for taking my question Alain.

Pleasure, Kevin.

Our next question comes from Konark Gupta with Scotia Capital. Please go ahead.

Good morning, Alain. How are you?

Hey, I'm good. How are you, Konark?

Great. Thanks, Alain. So she wanted to understand, Alain pretty good margin progression at TForce and given the situation in the U.S. LTL market certainly seems like, the volume and rate environment is getting better for you guys in the second half, can you talk about how you are ensuring the pricing discipline and onboarding this new LTL volume so that, your efforts are not diluted to get to the 20% margin that you have sort of aim for the next two years?

Yeah, very good question. I mean, that's for sure. And this is why, like I said earlier in the call, I mean, we're moving one of our EVP, Mr. McGonigal, working day in day out with Keith and the rest of the team there is -- we're not in the business of practicing delivery freight and not make any money. So, no. Absolutely, you're right. We're taking very important measures. And every week, we also get the -- I get the reporting on on the pricing, and what's going on with the average revenue per shipment. So it's very important to us that we're not just taking freight just to match the other guy's rate, because the other guy's read the guy went belly up, why would leave you with the same rate now. Rate is 30%, less than the market? So Mr. Customer, sorry to say, but we have to adjust the rate to the market. So that's what that is what we're doing, Konark.

Okay, that's great, Alain. Good to hear. And then if we can just follow up, like, I think the industry, you're in the U.S., it's very concentrated, very few unionized players and like, with the Yellow's, exit, you will be one of the few unionized companies there. Is there any main lessons learned for you guys from Yellow's repeated bankruptcy process considering, their exit would leave you as one of the only few unionized players, and then hopefully, you will see more sort of employees adding up their rights. So what do you learn from that process, like, how is the unionized business doing in the U.S.? Is it a good business to be in? Is it something that concerns you, any thoughts there?

Hey, listen, I mean, the benefit of a unionized environment is you have a contract that you have to abide by. But it also could be an excuse for poor results by the management or the executive team. So if you look at what we're doing in Canada, in a unionized environment, we're doing really, really well, because we have managers that are managing everything, except cost service, et cetera. So I think that the perception in the U.S. has always been that, it's a unionized operation, it must be bad. So I think that we're trying to work as TFI and TForce Freight to change that perception, that if you manage the business, for sure. I mean, the base salary of a union and non-union environment are about the same. Maybe 15 years ago, it was different. But today, the base salary of a guy that works, let's say, on the west coast of the U.S., union, or non-union base salaries about the same. Where the big differences is on the fringe benefits. So, pension for example, which is a huge cost for us. So if we're competing with a non-union guy and he's got no pension, for sure, that is a disadvantage for a unionized environment. Now the fact also that the turnover normally is less in a unionized environment, because those guys understand that they are very well cared for. Now if you look at TForce Freight, it was partly true because the trucks were bad, the environment was bad, the terminals were bad. So that was not the case, but we're changing that. So at the end of the day, there could be a few points of OR that could explain, okay, if you got the superstar in the U.S. at a 70 OR, okay, or 75 OR. Well, if you're a unionized guys, you could say, well, because of pension, because of this, because of that, I cannot be as good as the superstar, okay. Maybe. But the delta cannot be 20 points. The delta cannot be 15 or 10 points. The delta could be 4-5-6-7-8 points, but no more than that. So if the superstar in the U.S. is a 75 or 70 -- and for sure, the superstar is going to be much closer to 70 now that one of our peers is gone. So okay, fine. So our goal is to get closer to the top guys in the U.S. And we'll get there. We'll never be as good as a non-union superstar, but we could be really, really good. If you look at our unionized environment in Canada, which is a depressed market compared to the U.S., a depressed market, if you look at the quality revenue, I mean we're running, mostly unionized operation, we had 74 OR in Q2 in Canada. So to me, union, it's sad to say that over the last 20 years, they went from 60% or 65% of the market. Now with Yellow being gone, probably the union will be 15% of the market. So, I would say it's sad to see. It's a reality. It's our goal, us, to make sure that we can grow in a unionized environment by paying our employees well, but also by making sure that they are efficient at what they do and productive. And that's our job as management, to make sure that they don't drive the trucks 10 miles between each and every stop. So we have to change, and that is our job as management.

That's very good perspective, Alain. Thanks so much, appreciate the time.

Pleasure, Konark.

Our next question comes from Brian Ossenbeck with JPMorgan. Please go ahead.

Hey, good morning, Alain. Thanks for taking the questions.

Good morning, Brian.

So just wanted to come back to your comments on cost per shipment trends within TForce Freight. I know there's probably some fuel impact in there, but you also mentioned unit costs were down pretty notably on the labor side. Maybe you can expand on that and then also touch on the benefits of the new trucks you're getting. It looks like you actually shed a few trucks sequentially, but I'm assuming they're all getting newer, so maybe you can elaborate on how that's impacting the cost structure there.

Yeah. So on the truck side, I mean, for sure, I mean, we're getting -- by the end of October, our '23 order is going to be completely done, okay? So the average age of our fleet will come down to about just shy of four years old, okay, which is now going to improve our MPG. The only thing we haven't really worked on, on the trucks is the idling. The idling, this has never been managed. It's still not managed today. So that's something that we have to work on, okay? And for sure, the fuel management, we could do a little bit better job. We're working on it right now. In terms of the cost per shipment, this is labor cost per shipment that I'm talking about, Brian. So our labor cost per shipment is down year-over-year, with volume down like 17%-18%, before what happened last week of July. So what have we done, is first of all, in the fall of '22, we provide them the information of, hey, listen, this is your labor cost per shipment for P&D and dock. A guy said that first. Is that real? We never saw that. Yeah, it is real. And then we identify the stars and the docks. And right now, we're working on the dock. So this is why by improving the docks, labor cost per shipment. Now we're able to look at what happened in '22, and now I compare that and my labor cost per shipment for P&D and dock is down by about 15%. And I'm paying my employees a little bit better this year than last year. Now for sure, when August 6 hits, now I'm going to be paying $1.70 more an hour. So we're working on what is this going to be the effect on my labor cost per shipment. So this is -- now this is where we have to be very aggressive and even more aggressive now with what's happening with Yellow. That guys, we need to drive less miles and pick up more freight because now our labor cost per hour is even more. And it's just normal because inflation, as we all know, got all the way to 6% to 7% or 8%, now down to 3%-4%, okay, but still. So average contract, like I said earlier on the call, is about 3% a year, average. So it's reasonable. It's fair. It was very well received by employees. As a matter of fact, like I said, 81% said yes to this new contract. So I mean, this is an ongoing thing. But this is just labor cost per shipment, because now we're going to be working on everything else, maintenance cost per shipment. Everything, and now we're -- because we're going to be providing all this financial information to our thermal manager, they're supposed not just to work on labor. They have to work on every, every cost that we have in our business to reduce that, because that's the only way, in my mind, yeah, the market will help us. Yeah, the volume will help us. Yes, the improved pricing in the industry will help us. But at the end of the day, us, we have to reduce our cost because we're like, I would say, the elephant right now on the U.S. LTL. We're big. We're fat, but we have to trim down. We've done some good stuff so far in two years that we own the company. But on the cost side, we haven't done enough, no way.

Just a follow up on that, it sounds like perhaps you get more benefits in later this year and into '24 from the fleet and from fuel efficiency and maintenance and service reliability? Is that how to think about the ---

That's absolutely right.

Have you seen some of that already?

No. The fleet side, the MPG, we're getting it. That's not an issue. Idling, we're not. The other thing, too, is that we had to shut down about 80 shops. Don't forget that in the old days, these guys used to manage 120 shops with 300 mechanics. So think about, this is a nightmare. This is -- now by the end of August, okay, we're going to be down to 16 shops and 200 mechanics, because the age of our fleet went from eight years old on average, down to less than four right now. Now our fleet -- the guy in charge of our fleet, Eric, he's been tied up for 22 and 2 because he was hired in the fall of '22, fall of '22, all the way to '23 now. The guy has been stuck with shutting down shops and letting go staff and people and all that. So we're still not doing a good job on our maintenance cost per shipment. We're still not doing the job there. But we have the excuse, ANA. We have to do this. We have to do that. Okay, fine. Now at the end of August, we're all done by cleaning up the mess of the past. We had a ton of spare parts that were obsolete related to the old trucks. We're cleaning that mess right now as we speak. It's costing me about $400,000 a month to clean up all this obsolete stuff that was there. Okay. Fine. But that's going to be done by, let's say, September. We're done. So now fuel economy, we're not doing bad because we have the new trucks idling. We have to improve that big time. We're doing about 35% to 40% idling. Nobody knows exactly how much, because we don't track it. So now we're going to start tracking that. Maintenance cost per ship and it's too high, because the warranty. We have new trucks, but you have to clean the warranty. If you do the work, you have to claim it. So we hired a warranty managers just a month ago. Because in the past, warranty, what's that? I mean we buy trucks with no warranty, so we don't have to worry about warranty. No. No. We buy trucks with warranty we have to claim. So I mean, you'll see us improving on all aspects of our costs slowly into '24.

I appreciate all details. Thanks, Alain.

Pleasure.

Our next question comes from Benoit Poirier with Dejardins. Please go ahead.

Yeah, good morning, Alain.

Good morning, Benoit.

Yeah, you provided great color about 2023, but I was wondering what kind of market conditions do you foresee so far in 2024? Is it kind of overall major rebound or slight improvement? And is the $8 still achievable given what you foresee the positive impact from Yellow and all the actions taken to improve the OR at TForce Freight?

You know what, Benoit, I think that if market in '24 comes back like normal, okay, not like great '22, okay? Because we believe that '23 was a terrible, very tough year for us for the industry in general. So '22 was the party. '23 was the after-party. So we had some headaches and all that. And I think that '24 will probably be slowly going back to normal. Now in a normal environment, can we do $8? With everything that's going on at TForce Freight, everything that's going on with our later M&A in '23, I think that going back to $8 in '24, I would say, it's very early to say. But I would tend to agree that I think $8 for '24 should be attainable with everything that we're doing. And if our guys at TForce Freight are able with the new volume coming in, okay? The focus on reducing their costs with all this financial information and getting closer in '24 to an 85 to 88 OR as a first step sub-90 OR, I think $8, we should be back on track for $8 into '24. Now that's very early, okay? Because we're just in August right now, okay? But my feeling, because our guys will start working on the budget in September. But my feeling is that would be really, really nice because don't forget, every part of our business has been affected in '23. We were able to protect our margin, yes -- in general. But the revenue is down big time, right? So we need the revenue to come back. And then our Logistics, think about that. Our Logistics were able to protect the margin at 9, but the revenue is down like 20%, right? So this is tough, right? So if revenue is not down 20%, but let's say, down only 5% versus '22, I mean the bottom line will follow. Our P&C, the same. Our Canadian LTL is the same story, but TForce Freight is really the key, and our specialty truckload as well to get back to $8 and above into '24 and then going into '25. I still say that this company today with the M&A that we're going to do between now and the end of the year, I mean, in a normal environment, it's between $8 and $10. $10 being a great environment like a '22, okay, and $8 being a minimum in a normal environment.

Okay. That's really great color, Alain. Just in terms of follow-up, obviously, you mentioned good details about the M&A strategy. Obviously, a focus on U.S. LTL and Logistics. But when looking at valuation multiple, even on the Logistics side, we've seen an expansion in valuation multiples. So I was curious, given your discipline -- you're a disciplined acquirer, what kind of valuation multiples do you see these days and whether transformative deal, there are still two or three opportunities out there as you discussed in the past.

Well, Benoit, I've been saying that all the time, is you always make your money on the buying, never on the selling. So you got to buy right. You buy that -- you have to buy at evaluation that makes sense for your shareholders. And you'll see. I mean, hopefully, we can announce something in the next few days, next few weeks about a transaction that is going to be really, really very interesting for all parties involved. I really like this company. I like the management team. It's not a fixer-upper. I mean, those guys are doing a very good job. And we'll just work with them, and it's going to be really fantastic. So no, I mean, we have to be cautious for sure. Valuation is always important when you do a deal. And we've always been very cautious with that. Because if you overpay, I mean, you're stuck with that rock in your shoe for a long time.

Okay. Okay. That's great color. And I assume given the robust M&A environment, buyback might be less a priority in the short to medium term, given the M&A environment?

Benoit, it always depends on the opportunity. If our stock goes back down to, I don't know, $140-$130, I mean we're going to be active, Canadian dollars I'm talking here. So for sure, we'll be back on the M&A of our stock. Our leverage is still very low. It's at 1.1. So I mean we could do 1 million, 2 million shares easily if we want. If we see the price being a very, very low, okay, we'll be opportunistic and we'll be, again, active on the buyback. I mean it's not because we're doing some nice M&A in the latter part of '23, that this will impede our possibility to do buyback. I think that by the end of this year, with all the M&A, everything that we're looking at doing, our leverage is going to be about 1.26 at the end of Q3 and 1.05 at the end of the year. So I mean, this is chicken shit in a sense that we could buy back at least 1 million or 2 million shares if the price is right.

Okay, perfect. Thanks very much for the time, Alain.

Okay, pleasure Benoit.

Our next question comes from Scott Group with Wolfe Research. Please go ahead.

Hey, thanks, Alain. So you've said the word fantastic now twice with respect to near-term M&A. I just want to understand, are we talking about a major transaction? Or is this something that's bigger than [indiscernible] smaller tuck-ins?

No. Something of good size, okay? No, something of good size because what we've done so far this year, Scott, is very small transaction, right, small deals. And I think the latter part of '23 is going to be more like a medium-sized deal. So when I say fantastic is the company that we're looking at acquiring, to me, it's a fantastic transaction for many reasons. Reason number one is the market that these guys serve is really second to none. Their market share is what we like is really interesting. So I see fantastic because the valuation is also very accretive for our shareholders. I say fantastic because with these guys, we're going to learn something that will help us in all of our business segments. I say fantastic because I really like the management team over there. I can see that we could help them on a few aspects of their business, saving costs. So that's why I'm saying, in a difficult environment like that, I mean, this is one of a gem that we were able to pick up, hopefully. And that's why I'm saying fantastic, Scott.

Okay. And then someone asked you earlier about buying terminals from Yellow. I'm wondering if they were trying to sell one of the regional brands or the regional brands in total or maybe even the whole thing, is that something you'd never have interest in.

Well, for sure, we're having discussion with the people in charge of the process. There are some areas that, as a matter of fact, if you look at Florida as an example, I mean, we are a tenant in one areas they have. They own one terminal that could make sense for us. So for sure, we'll have some discussion with those guys. But to say that anything big will come out of -- on the real estate side or employees or equipment, I don't think so.

Okay. All right. Thank you, Alain. Appreciate it, helpful color.

Pleasure Scott. Yeah.

Our next question comes from Bascome Majors with Susquehanna. Please go ahead.

Following up on that last question. I believe at the Investor Day, you talked about maybe 1 to 2 points of long-term opportunity from real estate in the U.S. LTL business. If we look to next year, it's pretty clear that there's going to be more real estate available than maybe had been anticipated at that point as well as more freight available near term. I'm just curious how your calculus may change where there's more freight and more supply of industrial real estate. And how that -- how you play that to best drive value for your shareholders longer term? Thank you.

Yeah. That's a very good question. So what we've done in '23 so far is we've done deals with other carriers, okay, where it made a lot of sense for them and a lot of sense for us. We still have some deals that are going on into '23. Now like I said, we've got lots of capacity within the TForce Freight network. So for sure, by moving from 23,000 to 25,000 or 26,000, that's going to take a little bit of capacity. But still, we have a lot of things to do. So in terms of shedding this capacity or finding tenants or doing some M&A that's going to help us, okay, fill those terminals that are costing us a fortune. And they are -- some of our terminals are running half empty, right? Now the fact that YRC is going to be liquidating their assets or something like that, I guess, that's going to bring a lot of real estate to the market. Agreed, okay? But I don't know exactly. I mean some of the real estate that YRC was using -- utilizing was a lot of that was leased. So we'll see. I mean, that may affect the market, okay? But really for us is most of the transactions that need to happen within what we had to get rid of or sell, it's ongoing right now. So I don't think it's going to affect us in '23. Could that change in '24? I think that the cleanup of the real estate for us at TForce Freight, I would say, is mostly done. And then what's left is our 3,000, 4,000 doors. Okay, we're going to have to fix that over time with volume through M&A or through organic growth, slow organic growth.

Thank you.

You're welcome.

Excuse me. There are no further questions at this time. I would like to turn the floor back over to Alain Bedard for closing comments. Please go ahead.

All right. Thank you, operator, and I want to thank everyone for being with us. If you have any follow-up questions, please don't hesitate to reach out. I hope you enjoy the rest of your day, and we very much appreciate your interest in TFI International. So thank you again, and we'll speak soon. Thank you. Bye.

This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation, and have a great day.