Brian Ossenbeck: Got it. Appreciate it. Thanks so much Alain. Appreciate it.
Alain Bedard: Pleasure.
Operator: Our next question is from Konark Gupta with Scotia Capital. Please proceed with your question.
Konark Gupta: Thanks operator. Good morning Alain.
Alain Bedard: Good morning Konark.
Konark Gupta: Good morning Alain. Just wanted to understand on Q1. I know you were saying, it’s tracking a little bit soft due to weather in January, et cetera. But are you expecting EPS flat or up in Q1 versus last year’s Q1? And would you say the free cash flow for the full year grows toward $10 per share?
Alain Bedard: Konark, okay, so, like I said earlier, we don’t really want to talk too much about 2024 so far. But what I could say is, again, I mean, I think our free cash flow for — we did $9 a share this year. The forecast, what I could say is that, we believe that our free cash flow for 2024 is going to be very good as well, right? We’ll give more information when we come up with our Q1. But when you think about that, I mean, $9 a share, I mean, this is quite an accomplishment. We believe that we’ll be more precise when we get into Q1 numbers. But I think the free cash flow is going to be, wow, again in 2024 based on what we could see now. January for sure has been tough. I mean, Q1 — are we going to do better in Q1 2024 than in Q1 2023?
I would say, yes, okay? Will that be better by a lot? Probably not, because January has been quite difficult for us. And if you listen to our peers, I mean, everybody is saying the same. I mean, we had snow in Nashville, our terminal was closed for a few days. I mean, this is never seen, and never heard that before. So, TFI is all about cash, right? Like we said many, many, many, many times, that helps us do M&A, buyback shares, et cetera, et cetera. The focus at TFI has always been about cash, cash is king. And what I could say is, I will come up with something more of a guidance at Q1. But if you try to pull a little bit of information from me, I would say that we believe 2024 is going to be as good as 2023, and maybe even better.
Konark Gupta: Okay, that’s great, Alain. And then, maybe if I can follow-up with all that cash that you expect to generate this year, are you earmarking anything for tuck-ins and buybacks at all?
Alain Bedard: Yes, yes. Tuck-in, for sure. Konark, we always do tuck-in, right? We always spend or invest at least $200 million to $300 million a year on tuck-ins, so absolutely. I mean — now, in terms of buyback, probably not as much as we did last year. But there again, it depends on what the stock price is, right? So, if you look at our Q4, we bought back, I think, 1.5 million shares, okay, because we look at the reaction after we came out and we saw an opportunity and we said, you know what, we’re going to buy 1.5 million shares. We did that in Q4. So, depending on the reaction of the stock, we’re always there. Now, with this Daseke deal, what I could say is that, let’s say we close that in April, I would say that our leverage will be under 2 million at the end of June, after the closing of the deal. And then, if nothing major happens, I mean, we’ll probably be under 1.5 million by the end of the year.
Konark Gupta: Okay, that’s great. Appreciate the time, Alain. Thanks.
Alain Bedard: Pleasure. Pleasure Konark.
Operator: Our next question is from Ben Mohr with Deutsche Bank. Please proceed with your question.
Ben Mohr: Hi, good morning Alain. Thanks for taking our questions.
Alain Bedard: Good morning.
Ben Mohr: Can you talk a bit more about the conditions in which you’ll pursue a breaking up of the company? Your December statement didn’t include much details in terms of how you’re thinking about doing that. Now, obviously the market responded favorably to it, but can you talk about conditions in which a split happens or doesn’t happen? And what does the breakup do for the LTL business that it’s not getting now?
Alain Bedard: Yes. So, what we’re doing now is, really we’re studying this project, and we believe that it makes a lot of sense. Because if you look at our return on invested capital, right, although our return on invested capital for our truckload in Q4 was about 10%, right, which is the lowest within TFI. And now, that compares favorably with my peers though. I mean, if you look at my peers, except for one, that is a big intermodal player, okay, even in Q4 with a 10-point-something return on invested capital, okay, I’m probably better than everybody, except that peer that do a lot on the rail. We believe that this makes a lot of sense to be as a standalone, okay? And even more now with Daseke, that’s going to give us some size.
And also that’s going to give us some free cash flow over and above what we have within our truckload operation. So, it’s really the logic of not being a conglomerate, okay, like we’ve always been. Now, you have to understand the history because we start really on the Canadian side. And in Canada, you cannot be a pure play, because if you’re a pure play, you’re always going to be small. So, we’ve grown this business in Canada as not being a pure play. So, with package, with LTL, with truckload, blah, blah, blah, and then we start moving into the US. We start with truckload first, okay, with TA and CFI. We sold CFI, so now we’re more in LTL, and in specialty truckload with the Daseke acquisition. But still, okay, like one of my peers that did the spin-off, I would say, what, two years ago, okay, it makes sense for us to do that sometimes in 2025.
So, we’re getting ready for that as of fall of 2024, because we believe that there’s a huge discount, okay, on TFI shares today, because it’s a mix. It’s a mix of truckload, it’s a mix of LTL and logistics. We believe LTL and logistics makes a lot of sense to be together, because profitability is there. If you’re trying to mix LTL with a return on invested capital at 25 and Logistics return on invested capital at zero, that doesn’t make any sense. But that’s not the situation at TFI. I mean, our OR in our logistics is running 88. Our OR in LTL today, combined US and Canada, is about 90 — 88, 90. We’re going to go down to 88, 85 over time. So, I think it makes a lot of sense. Our return on invested capital, okay, is great. Now, US LTL is not as good as used to be because we had to make major investment in the fleet, okay, over a very short period of time.
So, our return on invested capital with improved profitability should get closer, again, to 20. So, that’s the thinking. That’s the logic between having one company, TFI, that is truckload, LTL, and logistics versus having two business units, one is truckload, specialty truckload, not van. Specialty truckload with an OR, that’s going to be on average for five years, like low 80s, okay, with a huge free cash flow. And the same on the other side, huge free cash flow and an OR in that neighborhood of low 80s.
Ben Mohr: Thanks. And as a follow-up, beyond the 500 to 700 basis points of initial OR improvement for US LTL that you’ve discussed in the past, you’ve also talked about an additional 500 to 1,000 bps from mix and density improvement. How much would you estimate you’ve achieved from that so far as we enter 2024? And what’s the cadence of achieving the balance of that over 2024 and 2025? Are you still targeting an 85 OR in 2025, which means another 300 bps from the 88 from 2024?
Alain Bedard: Yes, that’s a very good question. So what we’re saying is 88 for 2024, that is really the goal. We said that this company has to be an 85 and probably less than 85 OR over time. Now, for sure, this is based on normal market condition, which we haven’t seen in 2023. We don’t know if we’ll see that in 2024. But let’s say that in 2025, we have normal market condition in terms of freight environment, I think that we should be well-positioned to be under 88 in 2025 in normal market condition. Can we get to 85 over time? I’m convinced. Will that be in 85 in 2025? I mean, it’s still too far away to say that. But I’m still convinced, guys, that this company, there’s no reason for us not to be a low 80 OR company over time over a period of three, four, five years in the normal freight environment.
Ben Mohr: Great. Thanks Alain.
Alain Bedard: Pleasure.
Operator: Our next question is from Kevin Chiang with CIBC World Markets. Please proceed with your question.
Kevin Chiang: Hey Alain. Thanks for taking my question. I know the call has been going long here.
Alain Bedard: Good morning Kevin.
Kevin Chiang: Good morning. Maybe just a clarification question on the 88 OR in US LTL. Are you assuming shipments are similar to, let’s say, the exit rate or the seasonally adjusted rate in the back half of 2023, so roughly the 23,000 shipments? Or do you assume you can kind of get up to that 24,000, 25,000 shipments or is that needed to get to the 88 OR?
Alain Bedard: Yes, the average shipment for us in 2023 and 2024, Kevin, is about 23,0000 to 24,000 shipments, right? So, we’re not going to do that in Q1, okay, but the average for the year should be in that 2023, 2024 range.
Kevin Chiang: Okay, that’s super helpful. And I know this is nitpicky, but just on the TL acquisition you talked about $0.02 of earnings accretion in 2025. It does sound like there’s a lot of low-hanging fruit. If I just do quick math, if you drop that OR by like five points, it seems like it could be significantly higher than $0.50. I’m just wondering, is it conservatism, is it — any noise around purchase price accounting to close the deal still? Is it just macro? Just wondering maybe the difference between the margin improvement you’ve talked about and the $0.50 that’s in the December press release?
Alain Bedard: Yes, we’re always conservative, Kevin. When we talk about $0.50 in 2025, that is to me, that’s a minimum. When I look at all these different operation, when I talk to all this leadership that those guys that run the show over there in the nine different business units, I’m very confident that these guys, over not three years, okay, it’s not a complex deal like UPS Freight, UPS Freight was very difficult to do. Daseke is not the same at all. I mean, Daseke, we have great operating team in all the business units, and these guys have done very well in 2023 in a difficult market like us, they’ve done well. Now, when you look at the global of Daseke, you say, well, they’re not doing that well. Well, the problem is that they have huge costs at head office for consultant accounting.
