MONTREAL, Que. – A sluggish Canadian economy, an oversupplied domestic LTL market and downward pressure on rates in the US hurt TransForce’s Q3 revenue. However, the package and courier (P&C) segment was a bright spot, growing its revenue by 3% and its operating income by 50%.
“Revenue growth in the P&C segment was driven by our expanding reach in e-commerce activity. Less-than-Truckload (LTL) activity remains subdued by a soft Canadian economy, but enhanced by improved operating margins. An ailing North American manufacturing sector is holding back freight volume in the Truckload (TL) segment where we are continuing to right-size operations and focus on high-return activities. Lower customer volume is also affecting logistics activities which nevertheless continue to produce superior returns,” said TransFoce chairman and CEO, Alain Bedard.
Net income was $51.5 million in the third quarter, up from $41.6 million year-over-year.
“Economic conditions affecting the freight market across North America remain fragile,” Bedard told investment analysts on a conference call following the release of the results. “Soft manufacturing activity has affected volumes, especially in the truckload sector and the lower value of the Canadian dollar has not yet provided the Canadian economy with an appreciable boost.”
TransForce has bought back 1.6 million of its common shares and boosted its quarterly dividend from 17 to 19 cents. Bedard remained bullish on the company’s P&C segment, which is benefiting from the trend towards e-commerce.
“The e-commerce business will be a tailwind for us in the fourth quarter,” he said. “What is going on in the US, and even in Canada, we are seeing more growth in the e-commerce business.”
However, he was less optimistic about the overall Canadian economy.
“We don’t really anticipate this getting any better with oil prices at $50 a barrel, with the situation in Alberta, which is a disaster,” he said. “Hopefully we are at the bottom of the barrel now.”
He feels better about the prospects of the US economy post-election and feels capacity will be better aligned with demand next year.
“The supply is shrinking,” he said of the US truckload market. “Demand is not improving but at least supply is shrinking, so we feel good that sometime in 2017 – also with the fact ELDs will have to be adopted by the end of 2017 – we have a good feeling we should finish 2016 stronger than we did last year and I feel very good about 2017.”
Bedard said plans are still on track to grow the US truckload business through acquisition.
“It’s really bad in the US,” he said. “It’s time to buy. I’ve been working on deals the last nine to 12 months, but if you want to buy at the right price or sell at the right price, it takes time. The mission is still there. Hopefully we can see some interesting news within the next six to 12 months.”
Bedard said the Canadian LTL market is oversupplied but he feels the situation is correcting itself.
“On the Canadian side, LTL carriers have to understand they have to reduce the number of trucks, they have to reduce the number of terminals, they have to reduce the number of doors you have, because although the population is growing in Canada, the biggest market for LTL has always been industrial and we have lost most of our industrial base,” he said. “So now it’s retail and the brick-and-mortar guys serviced by LTL guys are losing business to e-commerce. I don’t think this will change. That’s why the LTL market, in my mind, will keep shrinking.”
TransForce has been eyeing LTL acquisitions but is also shutting down rural terminals and focusing on higher-density population areas.
Bedard also remains worried about the economy in Alberta, Saskatchewan and Newfoundland.
“For us, we keep in western Canada what we have, but our investments are not going to be done in western Canada,” Bedard said. “Our vision is really south of the border and the eastern part of Canada where the largest population is and B.C.”