The Covid-19 business recovery is uneven across sectors. Among the sectors reeling from the effects of the pandemic is the transportation and logistics sector. However, there is one logistic contender that beat all odds to register strong robust growth in the third quarter of 2020.
The company’s net income rose 34 per cent in Q3 to C$110.7 million from C$82.6 million in the same period a year ago. The stock has advanced by 43.45 per cent year-to-date (YTD). As the economy shifted to e-commerce and delivery services during the pandemic times, it helped the company’s package and courier business to grow.
Rebounding quick from the pandemic-led slowdown and clocking profits in the third quarter, Montreal-based truckload and logistics company TFI International Inc (TSX: TFII) reported surge in profits, with 18 per cent year-over-year increase in operating income and a robust 27 per cent increase in free cash flow.
From Pandemic Lows to Full-Throttle Acquisitions in Q3 2020 and Beyond
TFI International Inc. provides transportation and logistics services in United States, Mexico, and Canada through its subsidiaries. By following the route of strategic acquisitions and operating via wholly owned subsidiaries, the company creates value for its shareholders. It caters to four different business segments – package and courier, logistics, truckload, and less-than-truckload services.
Alain Bedard, President and CEO of TFI International Inc. since 1993, has overseen more than 88 acquisitions during the last two decades and has helped generate more than 750 per cent annualised return to shareholders, claims the company.
On October 5, the company announced acquisition of dry bulk business of Grammer Logistics focused on transportation of commodities that include sand, salt and lime, cement, and cementitious materials. It acquired all assets of CCC Transportation, related real estate and equipment for a total consideration of US$6.8 million.
Earlier this fiscal 2020, TFI International Inc acquired Keith Hall & Sons Transport, Courier Services business from R.R. Donnelley & Sons Company (RRD), acquired all assets of MCT Transportation for a total consideration of US$9.6 million, acquired CT Transportation for US$15 million to strengthen its US specialized truck operations, and Gusgo Transport in June 2020.
The company terminated the previously announced agreement to acquire APPS Transport. TFI International Inc will acquire DLS Worldwide for US$225 million in the fourth quarter of 2020.
Steady Stock Performance
Data source: Refinitiv Thomson Reuters
The stock is up by 12.77 per cent in the last three months, and has gained 5.85 per cent in the last one month, as per Refinitiv data. Current market capitalization of the company is C$5.88 billion. The stock holds debt -to-equity of 77.19 per cent and debt-to-capital of 43.56 per cent.
As per Refinitiv data, the stock has dividend yield of 1.66 per cent. TFI’s PE ratio is 16.63, price-to-cash flow (P/CF) ratio is 7.48, and price-to-book value ratio (P/B) is 2.60. The stock has positive Return on Equity (RoE) and Return on Assets (RoA) of 17.80 per cent and 6.99 per cent. The company’s total debt-to-EBITDA ratio is 1.96, and price-to-sales is 1.20.
The average dividend growth for three-year period is 9.77 per cent, and over the five-years is 9.15 per cent.
TFII’s Stock Year-To-Date Performance (Source: Refinitiv Thomson Reuters)
Rebound in Profits in Q3 FY2020: Strong Comeback
The company has been registering historical growth of 6.2 per cent per annum over the past five years. While the company’s core truckload business did not fare well this year, its asset-light logistics business is starting to pay off.
On the back of rebound in profits this quarter, the company has rolled back certain cost saving measures implemented at the onset of the pandemic and reinstated a full five-day work week for 486 employees. It also rehired 176 furloughed employees on a full-time basis.
The company declared dividend of C$0.26 per outstanding common share for the third quarter. It raised the quarterly dividend by 12 per cent in the fourth quarter to C$0.29 per share.
The total revenues of the company stood at C$4.9 billion, down by 5.69 per cent. The gross income is C$2.27 billion, and gross profit margin is 46.39 per cent.
Source: Refinitiv, Thomson Reuters
In the third quarter of 2020, the company’s total revenue dropped 4 per cent y-o-y to C$1.25 billion. The total revenue for logistics grew 7 per cent y-o-y driven by business acquisition and rise in e-commerce. However, revenue for truckload declined 6 per cent y-o-y and less-than-truckload business 17 per cent y-o-y.
The third quarter operating income (for period ended September 30, 2020) increased 18.27 per cent y-o-y to C$156 million in Q3 2020. The increase in operating income was primarily driven by disciplined execution of asset light business plan across the board, contributions from business acquisitions, and approach towards maximizing cost efficiencies.
The company’s net cash from operating activities increased to C$189.6 million from C$187.1 million in Q3 2019. Free cash flow increased 27 per cent y-o-y from C$129.7 million in Q3 2019 to C$164.8 million in Q3 2020. Its adjusted EBITDA as of September 30, was C$252.3 million.
The company completed four strategic acquisitions in the third quarter and entered into two more definitive agreements post September 30. It has agreed to close one acquisition arrangement in the fourth quarter, which makes for a total of seven strategic acquisitions this fiscal 2020.
Navigating cautiously through an unprecedented year, the company plans to build on its operating philosophy, focus on disciplined execution of the asset-light business plan, create shareholder value through strategic acquisitions and expand its US presence in 2021.