MONTREAL, Que. – TFI International achieved record first quarter operating income of $118.5 million, a 13% increase year-over-year, but has begun seeing the effects of the Covid-19 pandemic on its revenue.
The company earned a net income of $75.8 million in the first quarter, up from $65.1 million (+16%) in Q1 2019. Total revenue for the quarter was $1.24 billion, up 1% year-over-year. Record operating income was achieved through acquisitions, cost efficiencies and an asset-light approach, the company reported.
But in late March and early April, demand began to weaken as the Covid-19 pandemic resulted in a North America-wide economic shutdown.
“In early March as the pandemic began to spread, we quickly implemented cost-saving measures with an eye toward helping TFI emerge even stronger when conditions normalize,” said Alain Bedard, chairman, president and CEO.
TFI International has cut executive salaries by 5-15%, director salaries by 15%, and has implemented a four-day work week for more than 1,000 full-time employees. Temporary layoffs have also been implemented, with those affected eligible for a salary recovery program when they return. Incentives go from $100 a week for the first four weeks, to $125 for the following four, and $150 a week afterwards, which is collected when they return.
Bedard hopes the program will motivate laid-off staff to return to work when needed and that it will help offset the expenses they accrued while out of work. All capital expenditures the company wasn’t committed to have also been suspended and any acquisitions that were in the works put on hold.
The impact of the Covid-19 pandemic showed up on TFI’s earnings in late March and early April, Bedard revealed on an earnings call with analysts April 22.
In the first two weeks of April, the package and courier segment saw revenue drop 30% YOY, LTL was down 39%, and truckload dropped 20%. The lone bright spot was logistics, which climbed 12% in the first two weeks of April due to rising e-commerce and medical supply demand.
Steps the company has taken to protect its employees include restricting visitors, allowing 70% of its employees to work from home, limiting in-person meetings to a maximum of three people and increasing the cleaning frequency of common areas.
“We were working on a significant sized deal prior to the virus, but we are not going to be doing any major deals in 2020.”Alain Bedard, TFI International
Efforts to streamline the hard-hit LTL business are continuing, and at the end of April Canadian Freightways will be merged with TST Overland Express. Up to 300 pieces of equipment will be reduced and some jobs shed.
“We have to adjust to the volume,” said Bedard, adding LTL demand is shrinking every week due to the rise in e-commerce.
TFI has put some small tuck-in acquisitions on hold as it monitors the Covid-19 situation. Those talks could resume later this year, but Bedard said there will be no major acquisitions this year.
“We were working on a significant sized deal prior to the virus, but we are not going to be doing any major deals in 2020,” he said. “It’s too risky, not knowing how long this virus is going to be with us for.”
Bedard said TFI International is well positioned to weather the storm, thanks to its strong balance sheet and asset-light strategy. A lasting trend Bedard sees emerging is the acceleration of e-commerce, as customers who traditionally shunned online ordering have taken to it while under stay-at-home orders.
“Some consumers are getting used to e-commerce,” Bedard said. “I think this is going to be a catalyst to have even more e-commerce down the road, faster than it would have been without the virus.”
While rates may come under some pressure in the second quarter, Bedard said he hasn’t seen carriers chasing volume, perhaps because they’re too busy trying to manage the Covid-19 crisis. Similarly, shippers aren’t changing carriers for lower rates, as they too are focused on managing the crisis.
The good news is, TFI International has seen volumes come back a little after the sudden drop in early April.
“We have found some kind of stability and slowly, we are picking up again,” Bedard said.
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