TFI International Inc

NYSE:TFII

Earnings Call Analysis

TFI International Q3 Strong Despite Headwinds

TFI International reported resilient Q3 2023 results amid weaker demand, with operating income at $200 billion, down from $318 million the prior year, and operating margin at 12.2%, compared to 17.1%. Adjusted net income fell to $136 million from $181 million, and adjusted EPS decreased to $1.57 from $2.01. Freighter conditions softened, but strong execution led to $279 million in net cash from operating activities and nearly $200 million in free cash flow. Though impacted by the CFI sale, TFI's performance was solid, reflecting margin protection and cost control. The company's balance sheet further strengthened, with a private placement of $500 million and a funded debt-to-EBITDA ratio of 1.39. The Board raised dividends by 14%, and TFI reaffirmed its 2023 EPS guidance of $6 to $6.50.

Resilient Performance Amid a Weakening Demand Environment

TFI International has demonstrated solid execution in a challenging quarter marked by persistent weak demand conditions. Despite a decline in operating income from $318 million to just over $200 billion, and a decrease in adjusted net income from $181 million to $136 million, the company remains committed to profitability, cash flow, and disciplined investments. The operating margin has compressed from 17.1% to 12.2%, and adjusted EPS dropped from $2.01 to $1.57.

Focused Improvement and Structural Changes in the LTL Market

Though the Less-than-Truckload (LTL) market experienced structural changes and TFI International went through tough times in 2023, there appears to be a disciplined recovery. The removal of a significant low-margin player from the U.S. LTL industry is seen as a positive development. TFI International is keen on reducing costs and increasing efficiency by providing better financial information at the terminal level, a strategy that is expected to pay dividends in 2024.

Operational Adjustments and Strengthening Services

TFI International's average weight per shipment has increased by 7%, indicating a positive shift in shipment mix, although revenue per shipment excluding fuel remains flat year-over-year. After dealing with operational challenges such as adjusting the workforce in response to fluctuating shipment volumes, the company is preparing to offer real-time financial information by terminal to enhance responsiveness and efficiency. These changes have maintained the operating ratio flat year-over-year for U.S. LTL, and improvements are expected in 2024.

Working on Recovery and Prospects for the Near Future

The company has acknowledged issues with certain customers that led to a 40% decrease in volume at GFP, but it is in the process of reconciliation and anticipates a revenue recovery. With the business environment showing small improvements in Q4 2023 compared to Q3, there is cautious optimism for a stronger 2024, although it is expected to be a transition year with uncertainties including geopolitical issues and potential political changes.

Maintaining Guidance with a Strong Financial Position

TFI International reaffirms its 2023 EPS guidance range of $6 to $6.50 and maintains its full-year free cash flow outlook at $700 million to $800 million. They have already surpassed the $500 million mark in capital deployed in M&A and share repurchases this year, underlining their robust financial stature.

Earnings Call Transcript 2023-Q3

[Operator]

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to TFI International Third Quarter 2023 Results Conference Call. [Operator Instructions]. Please be advised that this conference call will contain statements that are forward-looking in nature and subject to a number of risks and uncertainties that could cause actual results to differ materially. Also, I would like to remind everyone that this conference call is being recorded on Tuesday, October 24, 2023. I will now turn the call over to Alain Bedard, Chairman, President and Chief Executive Officer of TFI International. Please go ahead, sir.

[Alain Bedard, executive]

All right. Thank you, operator, and thank you, everyone, for joining us this morning. Yesterday, after market closed, we released our third quarter 2023 results. With weaker demand conditions persisting throughout the quarter, we're proud of our solid execution, which reflects continued adherence to our operating principles. As I mentioned before, our talented team understands the importance of profitability and cash flow, reacting quickly to market shifts and focusing even more intensely on the fundamentals when trade volume weakened. We view this underlying focus on profitability and cash flow as strategically important to the TFI International growth story, allowing us to consistently invest in the business, pursue M&A always in a disciplined manner and return excess capital to our shareholders when it is possible, which, as you know, is one of our guiding principles. Taking a look at our third quarter results, we generated operating income of just over $200 billion, reflecting an operating margin of 12.2%. This compares to the prior year's $318 million with a 17.1% margin. Adjusted net income of $136 million compared to $181 million in the prior year, and adjusted EPS of $1.57 was down from $2.01. Regarding net cash from operating activities, we generated $279 million during the second quarter and in terms of free cash flow, which we view as strategically important, we produced nearly $200 million. Given the softer market conditions, these solid results, along with strong returns on invested capital across all of our business segments reflect well on the hard-working people of TFI and the importance we place on protecting margins, especially when the freight demand weakens. It's also important to note that when comparing to the prior year, our results reflect not only our sales of CFI last August, but the associated $76 million gain on sales, along with costs incurred to transition our IT system from UPS which will provide long-term efficiency advantages. In addition, we continue to face modestly unfavorable move in foreign exchange I'll emphasize the results our reporting are fully burdened, not adjusted for any of these items that affect the year-over-year comparison. All right. So let's review each of our business segment P&C, which represents 7% of our segment revenue before fuel surcharge saw a 7% decline in revenue before fuel surcharge with the number of packages also down 7%. Operating income of $25 million compared to $34 million in the prior year with a margin of 23% relative to 28% the previous year. Our return on invested capital, while down from 31% a year earlier, came in at still solid 27.6%. Overall, our P&C business is operating well given the weaker demand environment, and with less contribution from fuel surcharge, benefiting from our unique market exposure and ability to control cost. Moving on to LTL, which is 44% of segment revenue before fuel surcharge. Our revenue before fuel surcharge was down 12% on a 4% decline in shipments. Operating income of just over $100 million was virtually flat year-over-year. Within LTL, Canadian revenue before fuel surcharge increased 5% on a 5.3% in shipments. In addition, the quality and profitability of our business has happened given difficult market condition with our operating ratio of solid 77.2% compared to 72.8% the prior year. Similarly, our return on invested capital for Canadian LTL was 19.6% relative to 23.1% a year earlier. Within the U.S. LTL, results clearly reflect our margin resilience, especially given an important 5% wage increase to our labor force during the quarter. Revenue per shipment before fuel surcharge remained flat year-over-year, while our number of shipments were down 7.5%. Our revenue before fuel surcharge of $581 million was down from $687 million a year earlier, and we were able to keep our operating ratio flat at 90.8% year-over-year and improve it sequentially. Return on invested capital for U.S. LTL was 15.2% compared to the prior year, 25.2%. Now let's turn to Truckload, which is 24% of segment revenue before fuel surcharge. Amidst a very weak market condition with lower demand and weaker rates we believe that we were able to outperform the broader market, benefiting from our specialized in Canadian exposure. Our truckload revenue before fuel surcharge was down 21%, reflecting not only the weaker demand, but also the sale of CFI in August '22, and to a lesser extent, unfavorable foreign exchange. Truckload operating income was $50 million relative to $97 million last year, and our operating ratio came in at 87.5% versus 81.1% a year earlier. So taking a closer look within Truckload, although our specialized operations continue to benefit from self-help opportunities along with our diversity and exposure to better performing niche market, we were still impacted during the quarter by volume and pricing pressure. This is reflected in our new disclosure of weekly revenue per truck which declined year-over-year. As a result of this as well as a slight FX headwind, revenue before fuel surcharge declined 8% year-over-year to $325 million. Operating ratio was 87.8% relative to 79.9% and our return on invested capital was 10.1%, down from 12.7%. So taking a look at our Canadian-based conventional truckload business, we generated revenue before fuel surcharge of $79 million, almost entirely flat year-over-year and actually up on a consistent currency basis. However, our adjusted operating ratio was 87.8% relative to 75.5% and our return on invested capital, which was 20.6% a year earlier, came in at 13.8%. This reflects a decline in both revenue per mile as well as number of miles, partially offset by our ongoing focus on network density and cost control. Wrapping up the business segment discussion, Logistics represents 25% of segment revenue before fuel surcharge. Our solid results this quarter reflect our operational strength and ability to control cost. We generated $416 million of revenue before fuel surcharge, which was down only 2% year-over-year, benefiting from our recent acquisition of JHT while also facing modest FX headwinds. However, on this relatively flat revenue, we were able to drive a greater than 40% increase in operating income to $41 million on a much stronger operating ratio of 9.8%, up a full 300 basis points. Our logistics return on Invested capital was 15.5%, down from 21.1% in the prior year. Overall, solid performance of our logistics segment benefited from better cost control the strength of our same-day package delivery operation, the JHT acquisition and our team's ability to successfully navigate changing market conditions. Turning to our strong balance sheet and liquidity, which is always a focus at TFI International, we were able to further enhance our financial position during [ fostering ] and subsequent to the quarter. First, we generated a free cash flow of nearly $200 million, as I mentioned, and we end up September with a funded debt-to-EBITDA ratio of only 1.39. Second, Subsequent to the quarter, we were able to further strengthen our balance sheet with a private placement of $500 million. Our fixed rate, interest-only debt, bringing our overall weighted average interest rate to 4.5%, entirely fixed with an overall weighted average duration of 9.5 years. As I mentioned many times, this financial strength is core to TFI International strategy, giving us the flexibility to make smart investments regardless of the cycle, while pursuing strategic M&A and returning excess capital to our shareholders whenever possible. Speaking of M&A. During the quarter, we completed 4 additional tuck-in acquisitions, bringing our year-to-date total to 11. I'm also pleased to announce that our Board of Directors has raised the quarterly dividend by 14% and that the share repurchase program, our NCIB has been renewed for an additional year. I'll now conclude with our updated full year outlook before opening up to Q&A. Today, we are reaffirming our 2023 EPS guidance provided in July on a range of $6 to $6.50. And -- we're also maintaining our full year free cash flow outlook at $700 million to $800 million, including CapEx of $200 million to $225 million. In addition, we have already exceeded the combined total of $500 million this year of capital deployed in M&A and share repurchase given our very strong financial position. And with that, operator, if you could please open up the line so we can move to the Q&A portion of the call.

[Operator]

[Operator Instructions] The first question comes from Ravi Shanker of Morgan Stanley.

[Ravi Shanker, analyst]

I would love to get your thought around where you think we are in the cycle right now. Obviously, a very interesting time kind of bouncing on the bottom, but maybe some signs of life. When do you think the up-cycle comes in? Is it late '23, early '24? How far is it going to be just your overall growth would be very helpful.

[Alain Bedard, executive]

Yes. Ravi, what we're starting to see in Q4 is improvement, okay, versus our Q3 numbers in terms of activity, but small. -- small. We anticipate that '24 is probably still going to be a transition year, okay? There's a lot of things that are in terms of the politics, there's an election in the U.S. there's issues in Europe with war and things like that.

So I think that -- I mean that's what we're doing now. We're just going through our budget. And I think that I'm convinced that '24 will be a better year than '23 for us. okay? But it's hard to have a good feel about how good is this going to be? Is that -- are we going back to normal '24 or is still going to be more towards kind of a transition towards better days, if you want to call it like that.

[Ravi Shanker, analyst]

Got it. That's helpful. And for my follow-up, kind of just given some of these structural changes in the LTL market in the U.S. and some of the I mean just for the benefit of 3 months of hindsight and settling down, kind of how do you think the whole post yellow situation has played out so far versus your expectations? What do you think happens in the near term, in the medium term? Do you think it can kind of set you up pretty well for '24?

[Alain Bedard, executive]

The fact that there's been some major changes in our industry. And I think that the U.S. LTL industry is very well disciplined, okay? So we went through some tough times in '23. The fact that a significant player, okay, that was probably a very low margin player has gone from the market. I think this bodes well for the LTL industry.

But notwithstanding that, Ravi, our focus at TFI with Peoples rate is really -- it's on cost. I mean, yes, our market share could increase, our volume will increase slowly, but our major, major focus is we need to be leaner and meaner over there and that's what we're doing.

So we're providing the team over there with better information, financial information during the course of Q4 and into '24, we will be providing what we have in Canada with all our LTL operation in package, financial information by terminal so that the manager could start doing a better job of managing costs because right now, the excuse is, well, I don't know. I don't have the information, so I can't do anything about it, right?

So the excuse will be gone now, okay? The training and the education about all this financial information at the terminal level will be top priority for our EVP, Bob McGonigal and Keith, the President of TForce Freight.

So just to make a long story short about that our focus for us is really we have to be more efficient, we have to do better, we have to do more with less.

[Operator]

The next question comes from Tom Wadewitz of UBS.

[Thomas Wadewitz, analyst]

Yes. I wanted to see if you could do on a little bit more -- Yes, I wanted to see if you could talk a little bit more about kind of how Yellow -- the business from Yellow coming over affected performance in the quarter. I think we were anticipating maybe a sequential lift in price, but I don't know if there's like a significant mix effect within that. And then also just you have kind of a disruptive step up in activity that can cause some inefficiency. So I wanted to just see if you could provide a bit more perspective on how that affected your results in 3Q?

[Alain Bedard, executive]

Yes. Yes. Very good question. So you know what, Tom. What you could see is that if you look at our average weight per shipment, I mean it's up, I think, 7% okay? So this is thanks to a little bit of change in our shipment, okay? So for sure, the fact that this player has helped us improve our weight per shipment. In terms of pricing, our pricing and revenue per shipment ex fuel is about flat year-over-year. So we were not really helped with that. Now don't forget, we used to run 23,000 shipments before what happened to YRC. We went all the way to 26,000, But now we're back down to more like 24,500 to 25,000.

And during the quarter, we had also -- we went through increased costs in a sense because with pickup in volume, we had to bring back people, bring back people, cost money. And then works, again, okay, we went back closer to 24,500, 25,000 shipments. So then we have to readjust our labor force again.

And as I said, the problem we have at TForce Freight is when you don't have financial information at the terminal level, the reaction time, okay, with all this variation, the volume is too low. Okay. And this is what we will be correcting in the future when we provide those guys with financial information -- accurate financial information by the day, okay, by the week. So all in all, if you look at our operating ratio, okay, We're about flat year-over-year in Q3 for U.S. LTL. One thing that we have to keep in mind is that our GFP operation was down on the revenue big time, okay, So -- but we're coming back. I mean, our sales team is working on that, so that should improve for '24.

[Thomas Wadewitz, analyst]

So I guess as a follow-up question, do you have any thoughts on how we should -- what we should consider when we're modeling for OR and also when we're modeling a 2024 U.S. LTL OR?

[Alain Bedard, executive]

You know what, Tom. I think that '24 LTL -- U.S. LTL OR should be less than 90%. Just losing my voice to that.

Yes. So we should be in that neighborhood of 87%, 88% to 90%.

[Operator]

The next question comes from Ken Hoexter of Bank of America.

[Ken Hoexter, analyst]

Great. So just maybe a follow-up on that for a second. Lots of puts and takes in U.S. LTL this quarter, there was the $5 million, I guess you've got the ongoing charge. Maybe you could talk a little bit about when you start transitioning from the UPS network and then you start eliminating those contractual charges, the ground freight pricing. Is that something that continues to fade away? I just want to be able to step back and understand kind of how we should think about the U.S. LTL and then your near-term target of moving some 90% and your long-term target of getting to as much as 80%. So maybe just talk about what's in the number, what's the clear and then what's the go forward?

[Alain Bedard, executive]

Okay. So the transition from UPS at the latest, I mean, we're done by Q1 of '24, okay, so what we've done so far is financial. So we move Oracle -- to our own Oracle financial system, we did HR as well. We did HR in the summer. We also did the fleet in September, so we move from UPS fleet management to our own SEDAR System. So the only thing really important that's left is the housing of our edge system, so that's the only thing really left with those guys. So to me, all these transition to us, all these excess costs should be things of the past, probably into '24. But for sure, you won't see anything like that into -- after Q1 of '24.

Now in terms of our GFP. So last year, we were just flying with that, doing really well. This year, okay, starting Q1, I mean, our revenues started to drop. I mean, we had some customers issue, okay, that we have to fix, which we've been fixing and working on. And now we're starting to see revenue of GFP slowly picking up again. Our volume at GFP is down, like I said, big time by 40% and this is not normal. So we had some issues with some certain customers, but we're working with them, and we're going to fix that. And it's coming. Now in terms of the LTL, like I was saying to Tom. I haven't seen the plan. I'm going to be with the guys tomorrow, okay, and talking about their plan for '24. But I can't see us coming out with a plan with an OR of 90% plus, okay. I think that the market is still going to be soft, okay, But we can't blame the market for that because us, we have a lot of work to do in our costs. So even if the market stays soft like it is now, I think that the TForce Freight team will definitely improve. So this is why, to me, when we have a target for '24 to be in the 87%, 88% range, okay, I think it's reasonable.

But this is me talking before meeting those guys tomorrow. I hope that's their plan because to me, that is a reasonable plan. That's a reasonable target. We'll see. But the fact that this market probably will stay soft, okay, even with the disappearance of a major player, okay, but that's the best that we can [ reach ] so far. If I'm wrong and the market improves, even better. But the focus and I'm repeating that at TForce Freight, we have to be more efficient, we have to reduce our cost, we're going to be providing them financial information now by terminal, which they never had, which we have in Canada. So think about it in Canada.

Look at our OR in Canada. I mean, in a very difficult market in Canada, we're able to come out in Q3 with less volume with a [ sub-80 ] OR. Why? Well, because our guys are very disciplined, they manage the cost, notwithstanding the market conditions. They do a better job than our U.S. team. Our U.S. team, they don't have the financial information, they will have that by terminal, and we'll start to see some improvement, '24 and on.

[Ken Hoexter, analyst]

Great. Alain, I'll ask a follow-up, but I'll keep going, so you can get a simple [indiscernible]. But maybe you kind of reiterated your full year target, right? So but yet and that's a pretty wide range right when we're looking just as we move into the fourth quarter. Maybe can you talk a little bit about what gets you to the bottom end versus the top end? Or is your thought still some decent rebound into the fourth quarter? I mean you look at that Canadian LTL, I agree, it's staying in the [ 70 ] amazing, but yet a deterioration of 400 basis points. So I don't know if there are thoughts you want to throw out there about what gets you bottom end versus top end of the range given we're close to that year-end number?

[Alain Bedard, executive]

Yes. Good question, Ken. If you look at our logistics in Q3, what you see in there is only 6 weeks of our JHT acquisition. So for sure, I mean, JHT is going to be there for the full quarter. So that's going to help us. I believe that TForce Freight will do better in Q4 '23 than Q4 '22, okay, So that's going to help us to get to our target.

Now first, we're going to work hard, okay, to -- because we missed consensus 2 quarters in a row, right, Q2 and Q3. And out of 25 years, we missed guidance about 5x. I have been involved with trucking. And so I don't like that. So this is why believe me, we're going to work very hard to be closer to $6.50 than to $6, right? The first result that I'm seeing from October, okay, are very encouraging. So that's why I feel pretty good of just reaffirming our $6 to $6.50, but we'll probably be closer to $6.50 than $6.

[Operator]

The next question comes from James Monigan of Wells Fargo.

[James Monigan, analyst]

Actually, sort of follow-up -- a follow-up on the broader LTL discussion. You kind of get a better understanding of the volume and pricing trends you're seeing, it seems like there was surge rate to pull back just kind of on and get some context around that as well?

[Alain Bedard, executive]

Okay. Okay. So I mean the forecast we have us for Q4 and into the new year. I mean our forecast is based on about 25,000 to 26,000 shipments a day. Okay? That is where we are seeing us going into '24. So that, to me, is -- should be normal, okay, for the company of our size for the next years to come. And Tom, what was the -- I mean, what was your next question?

[James Monigan, analyst]

Essentially, the trends you're seeing in October and then you mentioned that there was a spike up in volume is slight down just what was driving that during the quarter?

[Alain Bedard, executive]

Well, it's just a judgment from shippers, right? So when YRC closed their doors, I mean, for sure a customer call you and then there's an action and reaction and there has been an adjustment. So this is why we went from 23,000 to close to 26,000 and back down to 24,000, 25,000 as we speak now. So -- but there again, the story of TForce Freight, it's not about volume for now, it's about costs, okay? So what we're saying to our sales team, guys, okay, try to get better freight okay? 26,000 shipments is normal for us in '24. That's our goal, okay, fine, get better shipment because we keep improving that. And the ops guys have to work on the cost. So that's how we're going to bring, okay, we're not focusing on getting more money from the customer. If we can do that, fine. If the market allows us to do it fine, but our focus is not that. Our focus is really bring the cost down, okay, be more efficient, do more with less.

[James Monigan, analyst]

Got it. And then on Canadian LTL, you're doing much better -- better than sort of the long-term guidance you've given at the Investor Day, and it seems like [Technical Difficulty] in terms of -- so how should we think about like essentially was that number conservative? Or is that actually sort of how you still think about the business? And if not, like what do you actually do think the long-term margin can be in Canadian LTL?

[Alain Bedard, executive]

Well, I think Canadian LTL, if you look at that Q3 with volume and pressure on the Canadian market, we were able to come up with a sub-80 OR and don't forget that we also made an acquisition in the Canadian LTL market, the Kindersley Group and these guys are a 2% bottom line guys, right? It's going to take us a year to bring those guys closer to 15% bottom line guys, right?

So I mean, to me, we've always been more focused on bottom line than top line. So Kindersley is going to help us with the volume. So this is why when you look at our Canadian volume, Q3 over last year, our volume is up because of Kindersley, right. But that's good in terms of volume but the profit margin is really, really like 2% with these guys. So it's going to take us a little bit of time. But I think that the Canadian market -- Canadian LTL market is way more difficult than the U.S. one in terms of market condition, quality of revenue, et cetera, et cetera.

So this is why when you look at also our Canadian LTL, a lot of our freight is intermodal. okay? So probably like 40% of our revenue runs on rail. So to be able to come up with a sub-80 OR using the rail, this is like close to America. But again, I'm always emphasizing this is that our Canadian team has information, okay, to act and react okay, every day. And this is what's lacking in the U.S. Those guys have the excuse today of not knowing anything about costs. The only thing that now they know is their labor cost per shipment, okay, since October of last year.

[Operator]

Your next question comes from Jordan Alliger from Goldman Sachs.

[Jordan Alliger, analyst]

You guys made some pretty good [Technical Difficulty] looking at things like cost per shipment, which was down quite a bit year-over-year and flat sequentially despite the labor increase. I'm just curious if you could provide a little more color on where you think you've made some of that progress? And how do we think about cost per shipment from here?

[Alain Bedard, executive]

Yes. Yes. So those guys today with the increase in salaries to our union labor force, okay, we are a little bit ahead of our target. So our target should be in the neighborhood where we're right now about 5% or 6% more than that. But the target for '24 drops again, okay? So the guys will have to do a better job. So how can you do a better job is you have to act and react, okay, in a much faster way. We're also providing our team for the linehaul of a software of the 21st century, right?

So this is going to be up and it's in the trial, okay, phases right now. And based on what the guys are saying is that this is going to be fully implemented into '24. So there again, with better information, better tools to our linehaul guys, I mean, they'll be in a position to save costs.

So I can't really tell you what our labor cost per shipment is. But what I could tell you is that even with more -- paying our employees more our labor cost shipment today less than a year ago.

[Jordan Alliger, analyst]

Got it. And then just as a follow-up. I know we've talked about yield and mix and what have you. I don't recall you've touched on sort of like core pricing ex the effects of fuel and mix and just as contracts have come up, what you're seeing, especially since the Yellow bankruptcy.

[Alain Bedard, executive]

Well, I think that for Q1 and Q2 of '23, we were starting to see a little bit of pressure on rates in the U.S. LTL market. Now with the fact that this thing happened, okay, with YRC, the pricing pressure has alleviate. I'm not saying that GRI and all this is going to be great in '23, '24 but at least the pricing pressure because of too much capacity in the market start to alleviate in Q3. And I think it's going to be thing in the past, okay, for Q4 and into '24.

[Operator]

The next question comes from Kevin Chiang of CIBC.

[Kevin Chiang, analyst]

Alain. Maybe just looking at the U.S. LTL division, I guess, after 2024, it feels like the 87%, 88% OR that you think you can get next year is burdened with a higher wage rate in the first year of your new deal, I think it's 5% [ in the ] discussion now. Just as you kind of roll through that wage, it feels like you're good line of sight to get to that 85%. Maybe it's more of a 2025 story. Is that kind of the right way to think about the OR cadence? Just as wage growth steps down and you continue to get yield growth? And I assume you get a cost declines?

[Alain Bedard, executive]

Yes. Yes. Well, absolutely, Kevin. Because it's a huge hit. I mean when you have to give 5% more to your employee right there, okay, and employee cost is a big components of our cost, right? So you're absolutely right. I mean that 5% is really a big hit for year 1. But then when you get to a new contract with year 2, 3 and 4, I mean, we're not talking about 5%, right? So I think it's about 2%, something like that. Because overall, the contract is just -- just under 3% over 5 years, right?

So that's a huge headwind for us now, okay? Because all these costs, we have to manage them. We've got to try to pass on more to -- in terms of pricing, okay, which we haven't done because if you look at our average revenue per shipment, I mean, we're flat year-over-year. So really this increased cost per hour, we have to swallow it within our operations.

So again, it's by being more efficient, that we're able to come up with an OR that's about stable year-over-year with 5% more money to our employees, right? So time is on our side, okay, for sure, because down the road, we will not raise the salaries by much as '23 and we're still going to be working on reducing the miles, reducing the hours, having a better planning, talking about my linehaul operation, that's going to help big time. I mean it's new tools with AI that's really going to help our linehaul division to be in a better position to forecast because every day, it's a different story, right? So I'm convinced, okay, that '24 will see major improvement versus '23 in our U.S. LTL operation, okay? So that's why I'm convinced that we could get to the 87%, 88% OR. And then we're on track to be closer to 85% in '25. Our goal has always been to be closer to 80%, but we got to go step by step.

[Kevin Chiang, analyst]

That's helpful. And maybe just -- maybe to my last question here. You've talked about normalized earnings for your company. And I think you mentioned this on the Q2 call kind of between $8 to $10. I know you're looking at '24 being a transitionary year, but does that get you within that range? Do you think you can get to the bottom end of the $8 to $10 normalized earnings in '24, even if it's a transition year or -- or is this still a pretty challenging market out there?

[Alain Bedard, executive]

Our Truckload is really killing us, right? If you look at the Star in the U.S., okay, the best Truckload company in U.S. they had a very difficult Q3. That's what they are saying. Really for us in '24 is how is our Truckload, okay, specialty Truckload is going to come back. To me, if our Truckload is coming back slowly, okay, to a more normal environment, I think that '24, we should be in a position to get closer to $8 than $6.50, right? So Truckload is a big story for us this year.

LTL -- U.S. LTL volumes in Canada, if we could start to see a little bit of growth there and M&A too. I mean, for sure, JHT will help us big time to get closer to $8, right? And we have other things in the pipeline that could be also interesting for '24. So I mean, let's talk about '23 get to $6.50 in '23. And then guys, we've got to get closer to $8 in '24. How we did in '22. But okay, so I mean, that's a nice target to be an $8 in '24.

[Operator]

The next question comes from Brian Ossenbeck from JPMorgan.

[Brian Ossenbeck, analyst]

I just wanted to follow up on the M&A and maybe get your thoughts on capital deployment and sort of the rationale and timing behind the private placements. What are some of the best opportunities to deploy capital? You see right now, there's some bigger deals maybe getting a little more interesting as the freight recession lingers and then [ obvious ] comments on the last time, you said you had enough stores now in U.S. LTL, so maybe you have those auctions to trust you, but comment on that would be helpful.

[Alain Bedard, executive]

Yes. Yes, you know what, Brian, I mean the reason we did that $500 million placement is because -- is that because we don't know what to do, right? It's just we're just getting ready to do something, right? So as you look at what we've done this year, I mean, we've done about [ $100 ] million right, of investment, okay, in terms of M&A?

I think that we're going to do more than that in '24. So this is why we got set up with this private placement, just in order to get a little bit more dry powder for us to be in a position to do the good things that we want to do into '24.

In terms of our pipeline, our pipeline is really strong in terms of M&A.

[Brian Ossenbeck, analyst]

So just a quick follow-up. Any thoughts on the Yellow bankruptcy auction, anything? It seems like you have enough stores in the U.S. now, but I wanted to see if there's any particular assets that looked of interest to you?

And then maybe just as a quick follow-up at the same time. Can you just give us a sense of how density is tracking in TForce Freight, or is it big part of the story here, some comments on stops per truck or miles between stops. Now that you have a good step up in volume in the third quarter.

[Alain Bedard, executive]

Yes. Yes, you know what, Brian, we've said it many times, I mean our focus in the U.S., okay, has always been logistics and LTL and to a certain degree, specialty truckload, if there's something that makes a lot of sense for us to do. In terms of improvement, okay, at TForce Freight, our miles per stop between each and every stop has improved, okay? This is helping us reduce the cost, okay? But we're still a far [ cry ] from what we do in Canada.

So as an example, if we do, let's say, the Canadian story is we do about 5 miles between each and every stop. In the U.S., we used to be doing double-digit miles over 10, right? So now with less volume than 2 years ago when we bought the company, okay, our average mile per sub is not 5 in the U.S., but it's not 10 anymore. So it's single digit now.

So slowly, okay, we're doing more in terms of having drivers picking up freight and driving less. And when they drive less, well, they cost less money because they don't spend on fuel, there is less risk of accident because they're not driving, they're picking up freight, right? So we are on the right track, okay? But we're so far from the efficiency that we have in Canada. But this is work that needs to be done between our sales team and our ops team so that the sales team really understand what we're looking for. So TForce Freight used to be a sales-oriented company when it was owned by UPS. When it's owned by TFI, it's not a sales-oriented company. It's an operational oriented company. So the operation talks to sales about what they want, what they need to improve density. It's not the other way around where sales -- oh, this is a customer, this is the shipment and now you got to take care of that. No, no, no.

This company is moving into an ops-driven okay environment. And it's the operation that works with sales and say, "Hey, this is what we want. This is the area. This is the kind of freight we need, okay? And don't bring me something that I don't want, right? Because I'm not [ jack-up on ] trade master of none anymore.

[Operator]

The next question comes from Scott Group of Wolfe Research.

[Scott Group, analyst]

Alain, just want to follow up on the M&A. Just want to follow up on the M&A discussion. So -- it sounds like more M&A next year, should we be thinking about a sort of a larger, more transformational deal? Is this more just more of the tuck-in deals? And how do you balance M&A with the potential for a big buyback. Just like the stocks are basically back to like pre Yellow levels right now. So how do you balance the M&A with buyback?

[Alain Bedard, executive]

Yes. Yes. Well, buyback, we really love buybacks. So I'll give you an example. We just renewed our NCIB, Scott, right? And we have an order to buy 1 million shares, depending on the price. So -- so this is the focus, depending on the price, we're there, we renewed our NCIB, and we're going to be now. If there's a major transaction, okay, and I think that if you look at our industry, normally, you have something of size in '24. We did a lot of nice tuck-ins in '24, we're probably very close to being done for -- I mean, '23. We're probably close to being done in '23.

We got this $500 million placement just to get ready to be in a position -- okay? In a better position. Our leverage is 1.39 right now. We should be closer to 1.2 at the end of the year. So we have a lot of dry powder on our line of credit with our bankers.

Now we have cash. We have about $300 million, $400 million of cash at the end of the year, okay? So we are well positioned to do something of size in '24. Now, it's always the same story with TFI. There's always one -- not just one file that we're working on. They're always more than one. So I think that the possibility of doing something of size in '24, I would put that at 65%, 75%.

[Scott Group, analyst]

Okay. And then, the other at times that you've actually gone the other way and you've sold assets or spun assets. Is that something you're thinking about right now? Are there assets potentially worth monetizing?

[Alain Bedard, executive]

No. not in '23 or '24, Scott. Maybe that's something that may happen in '25, depending on what happens in '24. We'll see.

[Scott Group, analyst]

And then just lastly, you made a comment earlier that you're not sure if the -- if it's the right environment for big LTL, GRI or something like that. And I know the GRI you announced earlier this month was a bit lower than last year's GRI. We just had Saia announce their GRI this morning, and it's actually a point bigger than last year.

So maybe just -- I want to understand why you think it's not an environment more supportive for LTL, GRI and pricing.

[Alain Bedard, executive]

Scott, you can't compare Saia with TForce Freight, right? So our reputation is not the same. So we have to gain reputation. We've to improve our service. We've to improve our cost, but we also have to improve our service because for years and years, we were hiding the truth, right? So this is why us, we -- in Canada, we could do these kinds of things, okay? We could be the leader, okay?

But I'm sorry, but in the U.S., we have to be followers today. We have to follow OD and Saia. And can we be in the same league of those guys? No. I mean we were not as good as them, we'll be, but we're not today. So this is why when we talk to our teams these guys, let's be cautious on that. okay?

And Saia and OD are the big guys, they do really well, fine. Us, we still have lots of work to do in terms of service and in terms of costs. And maybe next year, we'll be in the same league. Maybe it's going to take us another year or 2, but we're not there, Scott. So we cannot be as aggressive on pricing as these guys are. Also, we have to be very aggressive on our cost.

[Scott Group, analyst]

Makes sense. Thank you, Alain for the thoughts.

[Alain Bedard, executive]

Thank you, Scott.

[Operator]

Your next question comes from Konark Gupta of Scotia Capital.

[Konark Gupta, analyst]

I just wanted to kind of circle back on people's rate, yield ex fuel in the third quarter, it seems to have come down sequentially. And I'm just curious, the Yellow bankruptcy situation definitely created a more sort of balance between demand and supply. The LTL market is consolidated, right and concentrated. So I'm just curious as what would have contributed to that yield decline in Q3 versus the first 6 months of this year?

[Alain Bedard, executive]

Well, I think that if you look at the revenue per shipment, I mean it's flat. The yield is lower because the shipments are heavier. So there's a little bit of a trade-off, okay? So really, Konark, to us what we look at is, hey, what's the revenue per shipment? And our goal is always to increase the weight because we are being paid by the weight. Now when you increase the weight, you got to reduce a little bit the rate, okay? So it's a balancing act, okay?

And like I said, with Scott earlier on, I mean, we're not perfect. I mean we're -- it still needs some improvement. Our pricing team. It's -- we lack a lot of discipline in the past, okay, that we're trying to correct, but that takes time with customers. So we want our customers to have a great experience when they deal with TForce Freight.

And we had a lot of issues in the past with the service. Our equipment was so bad, okay? I think that for the first time in the MD&A, we're showing the age of our trucks at TForce Freight. So now we're down to about 4.6 average age versus when we bought the company, we were closer to 8. I mean that's issues with service for sure, I mean, with all trucks. So slowly, I mean we're going to get to a better quality of revenue, but we have to improve our service.

We have to improve our customers' experience with us -- and this is why it's a little bit of a balancing act, okay. This is like when you're trying to buy let's say a car, okay? So you can't sell car that is not a Bentley at Bentley's price.

[Konark Gupta, analyst]

Right. Now, it makes sense, Alain. Thanks for that color. To kind of follow-up on the operating ratio. So I heard you saying 87% on 90%-ish almost right next year for U.S. LTL. You guys are at 90% today. So that's a decent improvement, clearly. But I think you kind of alluded to probably a low at 85%. I'm just wondering, like, is it market oversales or is it market-driven that you are not expecting 85% in the next year maybe? Or is there something else in that equation that has changed?

[Alain Bedard, executive]

Yes. No, no, you know what, Konark. It's really -- it's a soft patch for the volume right now, right? So for sure, the fact that YRC has gone has improved, okay? But their market is -- it's still in an overcapacity, okay, situation in the U.S. Not big, but still is, right? So this is why we have to be careful. We see 90% for us in '24 should not be our target. It's got to be closer to 87%, 88%, okay? Keep improving that.

And as I said it, with minimal improvement on volume because our targeted volume is to be closer in the 25,000 to 26,000 range shipments per day, right? So a little bit of improvement in volume, a little bit of improvement maybe on the pricing, okay, with the GRI. Fine, but the big improvement has to come from the operation. In terms of the linehaul costs, in terms of our P&D cost, in terms of our -- that's how we're going to get to 88% and 85% and hopefully, one day get closer to 80%. Now we also have to live with the environment, right? So what we've seen so far is in Q3, one of my peers came out nonunion with a Navy [indiscernible] , okay? So us, unionized in a difficult environment because TForce Freight has been abandoned, okay, not really invested a lot by the previous owner because that was not the focus.

So we're going through a lot of improvement and changes. So to me, when you look at the U.S. at 90-something OR for us in Q3 in a soft market, yes, YRC has gone. Okay, that helps. But still, I mean, my GFP logistics operation is down big time. Okay, that's going to come back in '24.

But still, I mean, I'm really proud of what the guys have done so far at TForce Freight. We bought this company 2 years ago, okay? At the time, it was losing money. Today, it's close to making 10 points in a softer market versus a year ago.

[Konark Gupta, analyst]

That's great Alain. Thank you so much for the color and all the best for 2024.

[Alain Bedard, executive]

Thank you, Konark. We're going to need that for sure.

[Operator]

Your next question comes from Bascome Majors with Susquehanna.

[Bascome Majors, analyst]

There's been a lot of talk on U.S. LTL understandably given how much you've improved and driven value from that business. But could you go back to the Truckload segment a little more in detail. How comfortable are you that this kind of $100 million adjusted EBITDA level is close to the bottom? Should we see some negative seasonality into the fourth quarter? And are we at a floor there where we feel pretty good about where we're bottoming and it's really just a question of how it takes us to get better and how quickly that can happen.

[Alain Bedard, executive]

Very good question. I think that if we're not at the floor, we're very close to the floor, okay? The truckload world, our specialized truckload, okay, is very disappointed in a sense because we're coming out with an 87%, 88% OR, but then we take comfort when we look at the Van World in the U.S. where most of the guys are coming out with a 95% OR, okay, in Q3.

So what have we seen so far? So it's very disappointing. When I talk to Steve Brookshaw our leader over there. And the feel is that I don't think it's -- we're going to see some major improvement in Q4 and it's probably going to take us all the way to somewhere in '24 before we start to see improvement, okay, in the specialty Truckload.

But again, I haven't talked to the team there. I'm going to be with the Truckload team next week to see what the plan is for '24. But I would -- my feeling right now is that '23 has been difficult, okay, for Truckload. And we're probably at the floor -- but we're going to stay on the floor probably for at least the next 6 to 12 months.

Maybe I'm wrong. Maybe things will improve faster than that. But us, we're always very conservative, okay? And fuel is an issue. Fuel surcharge is an issue. When you have a soft market, okay, shipper take advantage of you, okay, by trying to squeeze you on fuel surcharge as well as rates. right?

So this is what we're going through now. It's not so much the rate, okay? Is the activity level that's down for us in our Truckload. Our revenue per truck per week is down. Our miles are down, okay, because the activity is down, the rate is not so bad, but it's the fuel surcharge squeeze that we're getting from shippers that is affecting us more than the base rate, right? So there's 2 things: activity, okay, number one, revenue per truck, lower and number two, the squeeze on fuel surcharge.

[Bascome Majors, analyst]

So higher fuel is helpful next year and its profit improvement is not purely a function of the bad season for you. It really can involve utilization as well. Is that fair?

[Alain Bedard, executive]

It's fair. Yes, absolutely. So utilization is too low, okay? So that's number one. And number two, rates are about, okay, not so bad because we hold on to the rate, okay? And we get less volume because we hold down to our rate, but then we'll also get squeezed on fuel surcharge. So instead of getting the fair fuel surcharge because the market is soft, we get a discount of fuel surcharge from the ships today, right?

So before things start to get better for us, we need more volumes that the market condition starts to change with the shipper, okay? And it's a kind of a cycle thing, right? So some people are dropping from the market right now because they come to the shippers with fuel in price and then ops, they lose their fuel card because they can't pay their fuel bill.

So I mean, the demand is still weak and the offer is still more than the demand, but you're going to see some truckers slowly getting out of the business okay, because they get with the shippers with stupid pricing.

So that's what I'm saying. We're on the floor. okay? Are we going to stay on the floor for 3 months, absolutely. Is that going to last for 9 months? I don't know. But one thing is for sure, I don't think that we're going to see worse condition than what we have today. And I also listening to what the way our peers are looking at the market. And I think it's basically the same vessels, these guys were on the floor. It's just that how fast can we get up from the floor. It's hard to say.

[Operator]

The next question comes from Elliot Alper of TD Cowen.

[Elliot Alper, analyst]

Great. This is Elliot on for Jason Seidl. Maybe over on the logistics side and the JHT acquisition. I guess, how is the integration going so far? How does their margin profile maybe compared to your core logistics margin? Maybe how we should think about that in Q4? I know they're a pretty niche player in the auto space. Curious if they're being affected by the auto strikes as well.

[Alain Bedard, executive]

Yes. Yes. Very good question. So no, they're not affected by auto strikes at all. Okay, number one. Number two, is their profile of margin is similar to ours, right? So they're not in the business of 2%, 3% bottom line because we're not big fan of that. We're not a big fan of 3% -- 2%, 3%. So they're close to ours. And they I think that JHT will do better than the average TFI, okay? logistics earnings in '24, '25.

We see probably in '24 a little bit of a dip in volume okay, at JHT versus '23. While we see a major improvement for '24 according to over the forecast that I've seen so far.

In terms of the integration, I mean, this is so new to us. I mean we're just learning, okay, with the team there. I mean, JHT is a fantastic company. It's a great acquisition for TFI group of companies. As a matter of fact, after this call, I'm going to be with the management team of JHT to talk about their plan for '24.

And I think that even with less volume, I think that JHT will do as well in '24 as they did in '23. So very happy with this transaction. And this is the kind of deal that's going to help us create value for our shareholders long term.

[Elliot Alper, analyst]

Got it. And then maybe separately on logistics. As a whole, I mean, you had some organic operating income growth, I believe, in the quarter. I think you called out some strength in the same-day package business. Any other color there on this would be helpful.

[Alain Bedard, executive]

Yes. You know what? Our logistics arm, our last mile operation in the U.S. is doing really well. I mean our volume is about stable year-over-year in a more difficult market. We're down a bit in Canada because one of our customers, we just cut them off because of issues with credit, so this is why in Canada, our volumes are down a bit, okay, year-over-year in Q3. But we have new business coming on stream for Q4. So probably Q4, we're going to be flat year-over-year in terms of volume.

Again, in a softer market, okay, in '23 versus '22. So we're doing well on the medical side of things. The e-commerce, for sure. I mean, e-commerce is not as good today as it was 2 years ago. So it's a little bit of a fight, but we have a fantastic team over there that's doing a great job. So volume is about stable, but profit is up. If you look at year-over-year, I mean, JHT is helping. U.S. logistics is also helping our volume is down at WW quite considerable, okay, because of market condition, but the bottom line is down just a few points.

So mean all in all, our logistics is performing really well. And I think that we're going to do even better in '24.

[Operator]

The next question comes from Cameron Doerksen of National Bank Financial.

[Cameron Doerksen, analyst]

So maybe just a quick couple of questions on the packaging courier business. Just wondering if you can talk a little bit about the outlook as we head into kind of the peak volume period for that business? I mean, what does it look like this year, year-over-year? And maybe secondly, just on the margin, some pressure year-over-year. I mean how much of that is, I guess, maybe a little bit lower volume environment, how much is also perhaps the benefit from -- or the lack of a benefit from fuel surcharge revenue.

[Alain Bedard, executive]

Right, right. Absolutely, Cameron. I mean, our volume is down 7%, right? So if you look at our piece count and all that, if I remember correctly, I mean, we're down about 7%. On revenue, we're down $8 million. And basically, we're down $8 million on OE Q3 year-over-year. And some of that is attributable to less volume, okay?

Our cost is about stable, okay? But the volume is just killing us and because we're so dense because we're so good, okay? When fuel is expensive, we make a little bit of money on fuel. When fuel not expensive like it is now, that profit is gone, right?

So that is a little bit of a headwind for our Canadian LTL and our package. When fuel is low, I mean, we don't have a little bit of profit from fuel. When fuel is high, we do well on fuel because of our density, which is very different than our U.S. LTL operation because we never make money on fuel in the U.S. LTL world, right, today.

Now that's going to also help us because our MPG because of the new equipment is doing way better, okay? There's about a 17%, 18% saving on our new trucks versus the old trucks that we used to run. So over time, I mean, we -- when fuel is going to go back a little bit higher, that should help us in the U.S. as well. But that's the story. The way we see Q4, Cameron, into the volume for our P&C, volume will not improve year-over-year. The market is too soft and us, we're focused on bottom line, like we've said many, many times. So I mean this is why guys, let's protect the margin, and let's not fight this fight with customers that don't want to pay the fair price.

[Cameron Doerksen, analyst]

Okay. That's helpful. And maybe just a quick follow-up just on, I guess, how we should think about CapEx for 2024. Obviously, you haven't set your budget yet, but this kind of framework, is there anything, I guess, directionally you can tell us to CapEx as we look into next year?

[Alain Bedard, executive]

I would say about the same as this year, Cameron, so far, what I could think of, okay? So for sure, we did a lot of CapEx in TForce Freight that was well warranted and we will continue to make sure that the average age of our fleet keeps going down closer to 4% versus 4.7%, it is right now. Our trailer fleet is -- needs some improvement, too. So it's underway. So I would say, overall, for TFI, CapEx should be in the same league as what we've seen in '23.

[Operator]

The next question comes from Bruce Chan of Stifel.

[Andrew Cox, analyst]

This is Andrew Cox on for Bruce. I just wanted to get any color on hiring and retention, acknowledging that the facility managers are still lacking necessary IT systems to react as rapidly as you like in kind of want to know if there's any impact of the tens of thousand [indiscernible] becoming available on the market, it's been easier to add post Yellow and do you feel you need to add a need to manage the target of 25,000 shipments per day next year?

[Alain Bedard, executive]

No. No, we don't need to add any management. That's for sure. And your question is really a good question, and we can't really answer that. So those managers have not been trained in managing costs, right? So that's what we're going to do in '24. Once we provide them the financial information, we're going to train them.

Now if you ask me what's going to be the success ratio of those managers that I've never done that. Hard to say. So we know one thing for sure is that it's not going to be 100%. So we have guys that are going to make it. And probably, we have guys that are not going to be able to make it and pass the test of being able to manage costs.

It's a transition year for these guys over the course of '24. And to tell you what the success ratio is going to be, I don't know, okay? One thing we know is that they've never done it before. So we'll see how good these guys could be.

Now listen, I mean, if you look at TForce Freight 2 years ago and TForce Freight today in terms of the executive. Paul, the President has retired. The pricing guy, David Meyers has gone away. Eileen, the sales leader has been replaced, okay? So the fleet managers, okay, is new.

So at the top level, we have a lot of new blood here. New [indiscernible], right? And if we need to do the same kind of adjustment in the people at the terminal level, that's what we'll do.

[Andrew Cox, analyst]

Okay. in, that's very helpful. Can I just ask a bit about the volume churn. There were some intra-quarter swings throughout the quarter. And I just wanted to know if that, if you think that was more a function of just normal seasonality? Or is this more a function of Yellow Freight finding a home. We've heard from other executive teams that there's been kind of ways that Yellow Freight go from one carrier to the next, depending on service levels. Just wonder if you give a sense of whether that's functionality of seasonality or finding the home for Yellow Freight?

[Alain Bedard, executive]

I think that we've said it. I mean they want for shippers, okay, they go wherever they can. And then they start reacting. And that is probably -- I don't think that is seasonality so much as just shippers trying to find a home where they feel that it's a better deal for them.

[Operator]

The next question comes from Benoit Poirier of Desjardins Capital Markets.

[Benoit Poirier, analyst]

Okay. So sorry, I was on mute. So just looking back at U.S. LTL to get towards the 80%, 85% or longer term, just wondering if you need to get rid of railroad similar to the best-in-class players in the U.S.? And what about the pricing and the service these days?

[Alain Bedard, executive]

Yes. Good point, Benoit. So for sure, okay, we will do more with the rail, okay, because the service with rail is always an issue. And the customer cannot blame the rail, they talk to you. Right?

So there's, again, I mean, we have to bring our cost of our own fleet down, okay? So then there's no real benefit to move freight on rail. So this is -- there's 2 things that's going to happen. The improved okay, fleet that now our guys are working, better trucks, okay? That's number one. Number two, better management, okay, for our linehaul provider. I mean, our linehaul team with this new software that we are implementing now that's going to be fully implemented by the end of '23, that's also going to help us.

For sure, I mean if you look at our Canadian operation, we run road and rail. And the only reason we want rail is because some customers want it cheap, but they know that their service is never going to be the same. And we have to fight with the rail because the service is not there. But we see to miss the customer. You want a cheap deal, well, he's going to live with cheap service, right?

U.S., it's a little bit different because customers are not really always saying, "I want it on the rail. And then the rail is not successful. They don't deliver and then so it's a transition, okay? And like you said, the best of class in the U.S. LTL world, don't use too much rail. So yes, it's the trend that you're going to see us moving slowly away from rail as much as we can and to service us through our own team directly.

[Operator]

This concludes the question-and-answer session. I would like to turn the conference back over to Alain Bedard for any closing remarks.

[Alain Bedard, executive]

Well, thank you, everyone, for being on this morning call. We appreciate your interest in TFI International. And as always, if you have any follow-up questions, please don't hesitate to reach out. Please enjoy your day, and we'll speak soon. Thank you again.