TFI International Inc. 2026 Q3 Earnings Call

Please go ahead, sir. Thank you very much, operator, and welcome everyone to this morning's call.

Yesterday, after market close, TFI International reported another quarter of solid results with a standout performance from our truckload segment. Overall, adjusted diluted EPS was $1.67, up nearly 40% over the prior year's of $1.20. Our overall operating income grew 17% to $180 million, despite an office-related real estate impairment charge, and this was driven by truckload operating income that nearly doubled, and logistics operating income that was up almost 60%. Another important highlight is that this was the second consecutive quarter that TFI International achieved a sub-90 operating ratio on a consolidated basis. Of significant importance to our business strategy, we generated another $116 million of free cash flow, bringing our year-to-date total to more than $440 million, even while investing for growth.

As a result, our leverage ratio further improved this quarter, as I'll discuss in a moment. This very solid financial foundation allows us to thoughtfully invest for the future during up and down cycles alike, and also allows us to return excess capital to shareholders whenever possible, which we did both during and subsequent to the third quarter, as I'll also discuss. Taking a step back, our current strong performance is the direct result of the investment we made during the down cycle. We invested in our operation, we made strategic acquisitions, and as a result, we now have an enhanced focus on specialized freight, which improves diversification towards industrial end markets and across multiple modes of transportation. All the while, the talented men and women of TFI International have maintained their focus on efficiency and the related operating principle that drives our profitability.

With that, let me quickly review our consolidated third quarter results before taking a closer look by business segment. Our top line total revenue before fuel surcharge of $1.9 billion was up 8% over the past year, while operating income reached $180 million, up 17%. Our operating margin of 9.7% was up 80 basis points over the prior year's quarter of 8.9%. Turning to our segment, we will begin with truckload, which simply had a phenomenal quarter and now represents 40% of segmented revenue before fuel surcharge at $753 million. That was up 10% the past year, and our revenue per truck per week, excluding fuel surcharge, climbed 13%. Operating income nearly doubled to $100 million, up from $53 million in a year-ago period, and our industry-leading adjusted OR of 86.7% marks a 560 basis point improvement over the past year.

Lastly, our return on invested capital for truckload was 8%, up from 6% last year. In addition to the tightening capacity industry-wide, these results directly reflects our favorable exposure to the right end markets, our emphasis on the specialized side of the business, and our limited capital intensity, with an optimal asset mix and improved fleet productivity. Next up is our LTL. LTL was 36% of segmented revenue before fuel surcharge at $678 million, which was roughly flat year-over-year. Our adjusted OR was 91.3%, and operating income was $44 million. Again, that's including a non-cash impairment and equates to a return on invested capital of 11.1%. Finish up the segment, logistics also had a strong quarter, with revenue before fuel surcharge of $437 million, up a robust 19% year-over-year, and logistics now accounts for 23% of our segmented total.

Perhaps more impressive, our operating income jumped 59% to $49 million, and that equates to 11.3% margin, up nearly three full percentage points from the prior year's of 8.4%. Our logistics return on invested capital was 14.9%. Turning to our balance sheet, as I mentioned, $440 million of year-to-date free cash flow has further added to our overall strength, and we ended September with an adjusted funded debt-to-EBITDA ratio of 2.1. Please note that this is an updated measure, which excludes the letter of credit and contingent consideration, which affected the previously communicated banking covenant ratio. I'll wrap up my prepared remarks this morning with our updated outlook, which include full quarter adjusted EPS of $1.30-$1.40, which at the high end would represent a 28% year-over-year increase.

In addition, we continue to expect year-over-year adjusted operating ratio improvement of 400-500 basis points in the truckload segment, 100-200 basis points for our logistics, and a slight decline maybe of 100 basis points, up to 100 basis points for our LTL. And lastly, in terms of our outlook, we continue to expect net CapEx, excluding real estate, to be in the range of $225 million-$250 million, demonstrating improved capital efficiency. As always, our outlook ranges assume no significant change in the operating environment. With that, operator, David and I are ready to take question. If you could please open up the lines.

Yeah. A very good question, Ken. If you talk about Canadian LTL, fuel is some kind of a tailwind because of our density, right? Our density in Canada is second to none. But in the U.S., it is the opposite kind of thing, our density is so bad that when you have inflation like we went through in Q2 and in Q3 with fuel, that turns to be some kind of more of a negative because our density is not that good. Okay, we do about 20,000 shipments a day. We cover all of the U.S., and our density is not good. Now, as you know, we have been going through a very rough patch in our U.S. LTL for the year 2025, 2026. We are not very happy at all with the result that we have in 2026.

We are in for major improvement, I think, going into 2027 with improvement in the team and all of that. That being said, we tried something, Ken. Tried to grow organically at TForce Freight, and the results, our timing was probably bad because we tried that in Q1 of 2026 when the weather was not helping us at all, okay? If you remember January, February, it was difficult. Even Dallas was tough to deal with. Then, you go into Q2, we end up with something like 22,000 shipments a day, and our guys are not able to manage that.