Pain in Alberta, no gain in Ontario behind TransForce’s lowered expectations

MONTREAL, Que. — The anticipated benefit of a weak Canadian dollar – a boost to manufacturing in Ontario and Quebec – has yet to materialize, causing TransForce this week to reduce its earnings outlook for the rest of the year.

TransForce reported its Q2 earnings yesterday. They were up substantially on major acquisitions made last year. However, Alain Bedard, chairman, president and CEO, warned analysts on a conference call today that there has yet to be any improvement in manufacturing in Central Canada, even in light of a rapidly falling loonie.

Improved exports from Ontario and Quebec had been counted on to offset substantial freight losses in Alberta.

“The economy in Canada has contracted since the beginning of this year and the reduced business activity in the oilpatch has had more far-reaching impacts than originally anticipated,” Bedard said. “When we were making our plan in September-October of 2014, we never anticipated the backlash of this oil situation that affected so much in Alberta, Saskatchewan and also had some ripple effect in Ontario. With the 75-78 cent Canadian dollar, we thought that if this happens, the Ontario – and to a certain degree, maybe Quebec – manufacturing base should get a boost. We had major issues in Alberta and Saskatchewan and we didn’t get that benefit in Ontario.”

TransForce also operates a US rig-moving division that took it on the chin as oil prices plummeted. The company downsized that segment substantially and brought in new management to get it on track. Having restructured where necessary, Bedard said he feels good about the company’s position over the next six months.

He hinted there’ll be news regarding the company’s waste division by the end of the year. It was widely expected TransForce would divest itself of this business, but Bedard didn’t rule out becoming a buyer in this segment due to currently depressed valuations.

LTL revenue was down 20% in Alberta, and Bedard said “We don’t anticipate any improvement there. We’re getting adjusted to that new reality that Alberta is never going to be like it was a year ago or two years ago.”

Alberta is the only weak spot in the company’s truckload division as well, Bedard noted, however he added there were some unforeseen variables such as forest fires that also had a negative affect on volumes. Still, he’s not expecting a turnaround in Alberta any time soon.

“In October last year we were optimistic, but now we’re more cautious. This Alberta situation is really bad and I think it’s going to get worse. We have a situation there where a lot of people are losing their jobs, salaries are rolled back and they have a new government there and taxes are going to increase. That is why we are very cautious about Western Canada,” Bedard said.

However, he remains upbeat about the US market, its last-mile and same-day operations in the US and Canada and its package and courier division, as well as its waste management division.

Bedard said it’s too early to make projections for 2016, however he said “I think 2016 will be better than 2015. The feeling we’re getting is it takes time for that low dollar to create some activity in Canada.”

Bedard also indicated the company will be buying back its own stock and continuing to sell off real estate.

“As long as our stock is depressed like it is right now, we’ll buy more,” he said.

Bedard is still hopeful Ontario’s manufacturing sector will get a boost due to the low Canadian dollar but he’s not counting on it.

“In theory, with the Canadian dollar being at 75 cents, we should start to see things start moving in Ontario, but we haven’t seen it,” he said. “My guys think it’s going to happen but we haven’t seen it. The Canadian economy is not moving at all.”

As far as last year’s big acquisition of Contrans is concerned, Bedard is still pleased with the deal.

“We’re very happy to have Greg (Rumble) as our CFO. He’s going to help our team in TransForce. He has the experience. We’re very happy with the executives over there. I’m very happy with what’s going on over there but they’re going through the same thing. The big boom we expected in Ontario, even Contrans isn’t feeling it,” Bedard said.

 

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James Menzies is editorial director of Today's Trucking and TruckNews.com. He has been covering the Canadian trucking industry for more than 24 years and holds a CDL. Reach him at james@newcom.ca or follow him on Twitter at @JamesMenzies.


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