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Mullen Group Ltd
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Thank you for standing by. This is the conference operator. Welcome to the Mullen Group Ltd. first quarter earnings conference call and webcast. [Operator Instructions]I would now like to turn the conference over to Murray K. Mullen, Chairman, Chief Executive Officer and President. Please go ahead.
Good morning, everyone. Welcome to Mullen Group's quarterly conference call. We'll be discussing our financial and operating performance for the first quarter, and this will be followed by an update on our near-term outlook as we see it. And -- but before I commence the review, I would remind you that our presentation contains forward-looking statements that are based upon current expectations and are subject to a number of uncertainties and risks, and actual results may differ materially. Further information identifying these risks, uncertainties and assumptions can be found on the disclosure documents, which are filed on SEDAR and at www.mullen-group.com.This morning, I have our senior team again. I've Stephen Clark, our CFO; Richard Maloney, Senior Vice President; and Joanna Scott, Corporate Secretary and VP of Corporate Services.This morning, Stephen will review the financial and operating results of the Mullen Group for the first quarter, after which I'll provide an outlook for our organization and discuss our near-term expectations for both the oil and natural gas industry and the overall economy, and that's from my perspective, obviously, which will be followed by a Q&A session. So before I turn it over to Stephen, I'd like to open with a few comments that I typically do. So I'll start with I do not like starting off any call, any meeting or anything for that matter by focusing on the negatives, but there really was no other way that I could think of for today's call. The first quarter was a real challenge and disappointment for our organization that's primarily due to the lack of an investing activity in Western Canada. But before everyone jumps off the bridge because of our Q1 results, let me just say that a lot of noise we experienced in Q1 was not of our making. Even the railroads were down year-over-year here in Canada, and the oil and gas service industry was down year-over-year here in Canada as drilling and capital deployment slowed.So let me reiterate that the basic fundamentals that have the most influence on our financial performance continue to evolve, and the reality is that our first quarter results do not reflect that the macro trends I have spoken about at length over the past bit have not reached that all-important inflection point where the markets we serve actually start growing, providing both top line growth and pricing leverage. When this would occur, Mullen shareholders will benefit quite nicely. When this occurs remains open for much debate, and as such, I cannot accurately predict the timing of the recovery, but when it occurs, there will be some quick market adjustments that are inevitable. We only need to look at what's happening in the U.S. right now to get a sense of what it could be. Quite simply, it is about how government policy influence the direction of and the flow of capital. For example, down south, the U.S. trucking industry is in the midst of one of the great markets of all time. The oil and natural gas industry is growing their production, they are drilling, they are investing capital and seizing opportunity. As the CEO of a public company here in Canada, I am so envious. But let's move on to reality to what is happening in the Canadian marketplace because we all know wishing doesn't make it so. I can summarize the first quarter as follows: Our Trucking/Logistics segment continued to show revenue growth, along with some margin expansion, although I wouldn't say I'm pleased with this performance. There's no doubt that weather played a part, but I won't put all of the blame on the long and, at times, severe weather. Our Trucking/Logistics business units did a nice job of capturing pricing gains in the spot market, but they were slowed at implementing pricing increases into the contract market. The reality is that pricing increases are an absolute requirement today. The market is tightening, creating opportunity to raise pricing, which we have not seen in a long time, and we need to be cognizant that costs are rising, whether it be for fuel, wages or equipment. Clearly, we did not move fast enough in Q1 on this issue, which partially explains why our Trucking/Logistics segment only improved margins by less than 1% in Q1. We have more work to do. But in saying this, we must remember this about pricing. The spot market is an event. Rates move up and down quickly. Contract pricing is a trend. It requires more collaboration with your customer, but I can tell you that the trend is up.Our Oilfield Services segment had a challenging quarter, to say the least. There were several reasons, but the most obvious relates to what we refer to as are specialized services group, Premay Pipeline Hauling and Canadian Dewatering, for example, 2 of our higher-margin producers, both had projects delayed, but they were for different reasons. At Premay Pipeline, mainline construction of pipelines is extremely cyclical and is very lumpy. Projects either go or they don't. Last year, in the first quarter, we had a very active year of pipeline activity, whereas this year, really nothing happened. There is plenty of work, but the timing of the projects really worked against us this year. At Canadian Dewatering, a similar story in terms of results, but their issue was more weather-related as well as a lack of capital commitment by their customers. No one really needed dewatering or pumping services when winter remained in trench throughout March. In addition, it seems like no one was making capital commitments, whereas last year, there was a general sense of optimism, which translated into solid pump sales. Thus far this year, virtually no pump sales.With spring finally arriving, dewatering and pump services are robust, as flooding emerges as a real concern in Southern Alberta and now in British Columbia. I am pretty sure that the Canadian Dewatering issues were just a Q1 issue rather than anything more long term. Collectively, these 2 business units accounted for the majority of the revenue and operating earnings declines in Q1. But there were some other issues as well. Drilling activity in Western Canada was down approximately 8% year-over-year, cost pressures emerged, at the same time pricing turned competitive, and in some cases, I'll call it stupid, as competitors came under tremendous cash flow pressures. We do not believe this trend will continue for much longer, but in Q1, several of our Oilfield Services business units were negatively impacted.All in all, a very challenging and disappointing quarter to start the year. But in saying this, I outlined our financial goals to everyone on our February 8 call, and I said to everyone, I thought that we would generate consolidated revenues in excess of $1.2 billion, and currently, you can see that we're averaging about $100 million a month, so we're right on target for consolidated revenue. I said we'd achieve, throughout the year, operating margins in the 16% to 17% range, which equates to an OIBDA of approximately $190 million to $200 million. So truthfully, nothing has changed from what I said on February 8. It's just that Q1, we had a couple issues that Stephen is going to talk a little more granular about, and I'm going to turn the call over to him, and then I'll come back with my latest update based upon what we know at this time. So Steph, I'll turn it over to you.
Thank you, Murray, and good morning, fellow shareholders. Our first quarter interim report contains the details that fully explain our performance. As such, I will only provide some high-level commentary. And what seems to be a recurring theme, the first quarter saw growth in the Trucking/Logistics revenue and lower Oilfield Services results. Margin was challenged because of a lack of capital spend or business investment in the Canadian economy, and our addition of lower-margin revenue streams by way of acquisition.Overall, consolidated revenue was $292 million, a modest increase of approximately $7 million, or 2.5%, compared to 2017. On a sequential basis, consolidated revenue was uncharacteristically lower than the first quarter, reflecting a decline in the Oilfield Services segment revenue. Specifically, from a segment perspective, the Trucking/Logistics segment contributed approximately 70% of preconsolidated revenue and grew year-over-year by $26.6 million, or approximately 15%, to $207.5 million as compared to $180.9 million in the first quarter of 2017. This is a new record, not just for the first quarter, but for any quarter. On a sequential basis, the Trucking/Logistics segment grew ever so slightly largely because of the effects of acquisition, counter balanced by the well-known seasonal effects in this sector. Notwithstanding the effect of lower-margin acquisitions, operating margin expanded by 0.06% to 2.4%, primarily because of higher margins generated by our truckload business units and higher spot pricing opportunities.Keep in mind, costs are also rising. Fuel prices, for instance, rose by more than 20%, more than that in Alberta because of another round of tax increases. Fuel surcharge rates always lag behind price increases, and fuel efficiency is lower in cold weather. We had a lot of that in the last quarter.This is a major factor in explaining why fuel rose by almost a full percentage point as a percentage of revenue negatively impacting margin. We saw wage and R&M inflation, and we acquired companies that generate lower margins. That being said, this segment was able to generate $25.8 million of OIBDA as compared to $21.4 million in 2017. Overall, not bad, but as Murray stated, we have work to do.The Oilfield Services segment contributed 30% of the preconsolidated revenue, or approximately $85 million, which was a decrease of $20 million year-over-year. Murray spoke to the factors affecting revenues, but specifically, Premay Pipelines and Canadian Dewatering were down a combined $15.7 million. These 2 business units alone accounted for nearly 80% of the revenue decline. Without these 2 business units making a substantial contribution to the segment, margin declined substantially to 14.8% as compared to 20.7% in 2017.Overall, consolidated margin was about 13%. This is quite low in a historic context, but consider the following. We are more Trucking/Logistics focused than we once were. A greater proportion of Trucking/Logistics revenue -- with a greater proportion of Trucking/Logistics revenue, it is only natural that the overall margin adjusts towards this segment's average. In 2018, the Trucking/Logistics segment was a full 71% of revenue as compared to 63% in 2017. We are still integrating the -- our acquisitions. Many of these acquisitions have yet to produce the margins that we expect as we continue to work with them to improve. And lastly, let's not mince words, our Oilfield Services segment margin disappointed. Without the large capital spend in this sector as reflected in natural gas, drilling being down nearly 30%, but more importantly, pipeline projects being virtually nonexistent, combined with sometimes brutal weather, this segment simply underachieved.When it comes to net income, our earnings per share was reduced by $0.13. Yes, OIBDA was reduced by $3.8 million, but the negative variance on foreign exchange at $8.5 million had a greater impact on EPS than lower operating income. This $8.5 million charge is confusing to some, given that we are fully hedged on our U.S.-denominated debt. We have locked in contracts at about $1.11 that we entered in 2014. Yes, at $1.11, they are in the money, and yes, they mature in conjunction with our notes in 2024 and '26. So you might think that changes in our U.S. debt would be offset by changes in our cross-currency swaps, and there would be no accounting charge related to these swaps. However, we are required to fair value these swaps at the end of each month, and we must discount the value for maturity to take -- and take into consideration the cross-currency forward curve, whereas our debt is simply valued at the spot rate at the end of each month. That discounting and the change in the forward curve causes fluctuations in their fair value. Of course, this is a little bit too complex for most, and I would like to thank our friends at RBC that fair value these swaps for us at each and every month-end. So there is an accounting hit, but in reality, there is no, what I would call, economic hit, unless, of course, you want to wind these swaps early, which is not our intent.On Page 20 of our interim report, you'll find the calculation of net income that adjusts for this factor. EPS adjusted, as defined in the interim report, was $0.09 per share versus $0.11 per share. So again, an economic -- in true economic terms, we're fully hedged, fully protected, but in accounting terms, you must discount the value, and it causes some noise in our net earnings. That being said, concentrating on free cash has always been a mainstay at Mullen Group. Our balance sheet remains strong with nearly $125 million in cash. During the quarter, we generated about $22 million in cash from operations, we invested $10 million in PP&E, primarily in the Trucking/Logistics segment and acquired DWS for approximately another $10 million. With ample cash on hand, we intend to repay our $70 million series D notes that mature in June. With the expiry of our waiver, our debt covenant leverage will be virtually the same at 2.5x. So $70 million of excess cash for debt covenant calculations is offset by repayment of $70 million of debt. So after this payment, we will have no scheduled note repayments until 2024. So with ample cash, a $75 million credit facility that remains undrawn and the ability to borrow substantial additional funds given that we're only 2.5x levered, we have substantial dry powder to accelerate growth for the right opportunity.So with that, Murray, I'll pass the conference back to you.
Thanks, Steph. So as we move to the next session and just before the Q&A, I would take you back to our February 8, 2018, conference call, where I indicated that there were some big issues that needed to be resolved here in Canada or, at a very minimum, some clarity before we could confidently predict the outcome for 2018. Clearly, from my perspective and as evidenced by our Q1 results that I can only refer to as messy, the big issues remain. Nevertheless, I'm of the view that the underlying trends that I have outlined over the course of the last few quarters have not been, and I repeat, have not been altered or changed. For example, we are on the cusp of a significant tightening in the supply chain driven by 10 years of easy money policy, which is supported as slow, but steady growth in the Canadian and North American economies, creating millions of new jobs, whether it be in the new economy job area, the service sector or the traditional economy. The result of this steady growth is that we now have virtual full employment situation, the likes of which I have not seen in my career or at least that I can recall.Adding to this is a law of nature, and I'm referring to demographics. The trucking industry, in fact, many traditional economy industries flourish with the age of the baby boomer generation. Today, these same people that were so crucial to the job sector are now either retiring or nearing retirement age. The reality is that the trucking industry, while being a large employer in North America, is short of drivers. At the very same time, demographics is changing the workforce, and the economy is at full employment. This is a trend that is not going to be resolved quickly. As such, it is my firm belief that we've entered a new era of rising prices for Trucking and Logistics. In the first quarter, we saw clear evidence of this reality in the spot market. Furthermore, in the U.S., there's a full on scramble by shippers to secure capacity. In Canada, we are not quite there yet because our economy remains below capacity and behind that of the faster-growing U.S. market. As such, contract pricing, including in our LTL sector, lagged in Q1, but this will change as the year unfolds and contracts are renegotiated. All of our Trucking/Logistics segment business units have been instructed to increase rates, and while we're in the early innings of this trend, it will occur in 2018, which implies that margins will improve as the year unfolds.Now let me digress for just a moment. The ying of the driver shortage and tightening supply chain is pricing will undoubtedly improve. The yang of the driver shortage is that growth will be a challenge quite simply because without drivers, you cannot expand your business. This is why we consider acquisitions so key to the future growth of our Trucking/Logistics segment. To grow, you will have to acquire. And acquisitions is precisely what we've been doing for over 25 years. And of course, since 2012, you will recall that we've focused the majority of our acquisitions in capital allocation strategy towards the Trucking and Logistics sector of the economy. I am pretty confident that the rationale behind this strategy will become even more evident to our shareholders over time because the trend I spoke about earlier appears to be irreversible today. So clearly, the optimism I spoke about in my annual Chairman's message and over the course of the last year or so as it relates to our Trucking/Logistics segment remains high on my list.The second trend I'm a little less confident in, however, but still believe will occur and that is recovery in the oil and natural gas industry. And it's not just me, there are a lot of people more optimistic about the future of this industry than over the last -- course of the last few years. It's funny how rising oil prices bring optimism just as low oil prices brought pessimism. But let's be honest, this is the oil and natural gas industry and even though the trend shows a sign of recovery is emerging, this is a cyclical business. And as commodity pricings rise, the industry will definitely recover. But growth, that's more complicated. It's a function of policy, it's a function of pipelines, and it's a function of LNG. We saw firsthand in Q1 a slowing in the oil and natural gas business. Our Oilfield Services segment results, bottom line, they were awful. And while I feel better about the future, the reality of the moment is that Q1 was not good for oilfield services industry.The drilling rig count in Western Canada was down approximately 8% year-over-year. Customers are taking advantage of the situation, and the competition is pricing like they're going to go out of business, which they are. There is, for example, a spring auction sale being held in Ritchie Bros. in Edmonton this week. There is so much equipment up for sale that they've had to extend the sale to 5 days. So service companies are either outright dispensing all of their assets or are forced to sell some to reduce debt. And in my view, this is just the beginning of a significant service industry change. And when demand increases, and it will as commodity prices improve, virtually no service companies will have the cash to grow. This will become our opportunity. So while I'm confident that Oilfield Services business will recover from today's dismal state, I'm not exactly sure of the timing. But I wouldn't be surprised if activity starts to pick up in the second half of 2018 and, trust me, we will be prepared.The third trend. It also relates to the oil and natural gas sector, and this is what I refer to as energy infrastructure, namely, crude oil pipelines that would provide additional takeaway capacity for crude oil from Western Canada and, of course, LNG, liquefied natural gas, sanctioning on the West Coast of British Columbia, which is the only viable way to move Western Canadian natural gas to Asian buyers. There are other potential projects being contemplated. And as these big capital projects become reality, I would expect Canada's oil and natural gas industry to at least see a path towards some future growth. Of course, the issue, once again, is one of timing, and while I'm more optimistic than I've been in years on these important projects, the fact is that all we had in Q1 was more consultation, more protests, more of the same. But I'm an optimist, and my optimism is gaining momentum in terms of both energy infrastructure and improving crude oil pricing. And as such, I've started to prepare our organization for what I believe is a potential recovery in this sector.And since we're now on the topic of positioning in the future, I will close with comments on 2 initiatives that I consider important to our future. The first is acquisitions. We continue to evaluate several opportunities. However, we will not chase growth. I'm not interested in chasing growth to give a 95 operating ratio. That's not our business model. Any acquisition we make will meet the dual thresholds of strategic to Mullen Group, and it must add value to Mullen shareholders. We have a strong and well-structured balance sheet as Stephen talked about, which we will use to our advantage.And of course, when talking about the future, you must incorporate technology into the discussion. By investing in Moveitonline, we are positioning our organization for the digital world. Not only is the platform we are building adding value to our many business units, it has the potential to open up new markets. The digital marketplace is inevitable, and we are giving our shareholders an opportunity to realize on this potential. And not unlike any startup, there's a lot of work we must do before we can talk about value to shareholders. But let me give you an update of what we've achieved thus far. We've released MOV version 3.0 with a new look and a private marketplace concept. In one year, we've added almost 300 carriers, representing approximately 20,000 trucks to our platform. The load count continues to grow, reaching over 1,000 loads for the month of March 2018; and in March of 2017, no loads. We had no carriers, no loads, no nothing. So we've made substantial headway. And more recently, we're starting to actually see shippers use the platform and not just other trucking companies.We're in a race to build content to earn the trust of users and to capture their time in the digital marketplace. It's exhilarating, it's exciting, and it is challenging the way we think about the future of transportation.Thank you very much. And I look forward to addressing your questions.
[Operator Instructions] Our first question comes from Walter Spracklin of RBC Capital Markets.
So Murray, you mentioned how you kind of touched on your -- the outlook you had given a little while ago, $1.2 billion in revenue and 16% to 17% margin, with $190 million to $200 million in EBITDA. But you -- by the same tone, you sounded pretty negative on -- reflecting on the first quarter results. So are you building in, therefore, kind of a higher expectation for rest of year? And how comfortable are you with that? Or did you have buffer in there that has now been eaten up a little bit? Just curious as to how -- what seems to be an unexpectedly bad first quarter didn't result in you changing your forward forecast.
Yes. So we were off from last year by $4 million of EBITDA, I think, Stephen, is the...
Correct.
Is what we're off year-over-year. The maturity of that we can explain to -- due to some project timing delays and the pipeline business and some weather-related issues, et cetera, et cetera. But I would say to you that when I articulated our financial goals on our February 8th meeting that I said we'd get to revenue and EBITDA or OIBDA of $190 million to $200 million, our view hasn't changed on that because we're off by a few million dollars in the first quarter. As I said, the rails were off and drilling with off. These are all things that we kind of knew back in February. I didn't know about March being quite as bad in terms of weather. I didn't know spring was not going to happen till the end of April, but that's only a little bit of it. So from the overall perspective, I don't think our view of the rest of the year has changed because of what happened in the first quarter. Part of it, as I said, is Premay Pipeline, and in the first part of last year, they were busy in the first half, and they did nothing in the second half. This year, they're not doing anything in the first half, but they might be busy in the second half. The pipe for Kinder Morgan's coming in. Is it going to be laid as a pipeline? I don't know. The Trans Mountain, Enbridge Line 3, the pipe is ordered, the contracts are out to at least complete the Canadian portion later this year. So pipelines are project business. Project business is choppy. It's lumpy. And when they have good quarters, we look really smart. And when they have bad quarters, we look really dumb. But at the end of the day, it's still a great business, and it's just part of our diversified portfolio, just 1 or 2 of the companies. But when they go good, they have high margin. When they don't go good, they have low margin. So it kind of skews the numbers a bit. So I wouldn't -- as I said, I wouldn't jump off the bridge because pipelines weren't busy in the first quarter. That's all project related. Candian Dewatering was a little bit different. Yes, we didn't have any pump rentals out when the ice was still out there. You're not moving any water when there is ice. But right now, they got nearly all their pumps out because you got floods in Alberta and floods in British Columbia and the snow melt is going to happen. So not worried about Canadian Dewatering. They got behind in the first quarter. Will they make it up that in the less -- the rest of the year? I'm not sure about that. But the rest of the year looks pretty solid. They've got their projects starting, and they just got late because of weather. So some of it's noise and some of it's this and some of it's that, but I'm not changing my outlook for the year. Not doing that. Don't need for us to do that.
And if there was a little bit more softness in oil and gas, I mean, it might be feasible to say there might be a little bit more strength in your Trucking segment. When you're looking at that business, I recognized you were saying that a lot of what's happening in the U.S. has not really permeated into Canada quite yet or if at all. What kind of environment would you characterize your Trucking business having on an organic basis? And would you say your pricing is positive even if not to the extent that you're seeing in the U.S.?
Yes. We have -- like I said, in the first quarter on our Trucking/Logistics side in the spot market, we saw -- and spot market pricing is an event. It's just supply and demand. It's -- there's no contracts here. It's just what do you want done, what do you need done, how much you're going to pay. And in that pricing, it was up 20% on average in the spot market. Now your costs go up because your subcontractor costs go up. But generally speaking, there is a -- there was a real shortage that happened in the spot market. Now to be blunt, that really didn't have as much to do with the Canadian trucking industry as it had to do with how robust the U.S. economy is. And the U.S. truckers were busy, and when they're busy, they don't come to Canada quite as often. So -- but that tightened the market. Doesn't matter how the market tightens, the question is the market tightened. So contracts takes -- it just takes a little longer. That's all. But I can tell you, I've already told all of our people, every business unit, I'm not asking you to raise prices, I'm telling you to raise prices. And either your customers are going to be mad at you or I am. Pick your poison, but you're going to get this done. Period. So it will have happened over the course of the year. I'm convinced of that.
Got it. And in terms of trucking, are you still focused on growing trucking -- like, from this point forward, if you're going to direct acquisition dollars to 1 segment, are you still kind of focus on trucking? And as a subsequent to that, is there any other larger opportunities out there in terms of other companies you could get a deal with where a bit more of a significant leap forward in your tracking exposure can happen? Or are you just going to do it by kind of just small tuck-in after small tuck-in after smart tuck-in?
That's a very good point and a very good observation. So thus far, we've done -- we've chosen a strategy of tuck-in acquisitions. We've been focused on regional LTL and warehousing. When you do smaller ones, you don't have quite as big impact, obviously, but you do derisk it. And truthfully, smaller trucking companies valuations are much more compelling from our perspective. We will continue to allocate dollars towards the Trucking/Logistics segment, which is more of the consumer-driven part of the economy and, for the reasons that I said. I think we've got employment shortage, we've got a demographic issue getting trucking, and as such, I think the trend for trucking and the pricing is upward that I haven't seen in quite a while. So that would tell me that we will continue to do acquisitions in our Trucking/Logistics side, and we're going to continue to look at building on our record performance in terms of revenues in Q1. That will happen as the year unfolds, and we're working diligently with all of our business units to move margin up. And so that perspective we've got top line, and we're going to have margin improvement in Trucking/Logistics in this sector. Now let me talk a little bit about the oil and gas industry because that's the other part of our business. The facts are, and we've got to be honest with each other, is that the industry and by that, I would say, by definition, Alberta is not really supported by our federal government. It's really not supported by Eastern Canadians or by British Columbians. So what this ultimately means, in my view, is that the oil and gas industry is no longer a growth industry, which is why we've moved our business model to focus on the consumer part of the economy and why we've invested heavily in the Trucking/Logistics segment. We've done this since 2012. But in saying that, the oil and gas service sector is not a growth industry. That doesn't mean that once we get through this rationalized -- rationalization period that there's not going to be some opportunity. And I think it's more just pricing and supply driven, but I think there'll be some opportunity and then we'll consider deploying capital into that sector as we see fit. But the growth sector -- we don't view it as the growth sector right at the moment because our federal government and our fellow Canadians are not supportive of the oil and gas business, at least not from what I see. So I've just got to read the tea leaves, and I've just got to do what I think is best. And we saw this trend back in 2012, which is why we focused nearly all of our attention, all of our capital in the Trucking/Logistics side and thank God we did because trucking -- the Oilfield Services side is a bad business at the moment. That's just the reality.
Our next question comes from Elias Foscolos of Industrial Alliance Securities Inc.
Thanks very much for all the color earlier, but I do have a couple follow-up questions.
I know you're going to have questions for me. You're always insightful, so I'm looking forward to what you're going to be asking me. I better be on my -- be better -- pretty sharp [indiscernible].
Well, I think Walter beat me on a couple of them. But focusing on the Oilfield Services segment for a moment. When we saw the $16 million of revenue loss in both specialized services side, let me keep it at that. Would you consider all of that or the majority of that to be a slide from Q1 to the later part of the year? Or did we actually have something fall off the table that might not come back?
I would think the majority of it is a slide because it's a good chunk of it, I think, Stephen, we talked about this, about $9 million was in the Premay Pipeline division that on a year-over-year basis that I think, because it's project related, I think it comes lumpy later in this year rather than last year it was in the first quarter. So I think a good half of that is going to be picked up, and we factored that into our -- into all of our models that we've given everybody back in February. So the second part, some of the sales of pump-- pump sales at Canadian Dewatering, I don't know if that's going to come back. I think that might be lost at least until we get some evidence that capital is going to start flowing into Canada again. But right now in Canada, capital is on strike, and so I can't accurately predict whether that comes back. I think we're getting pent-up demand, Elias, but I don't know when it comes back. I know we're using all the stuff, and we're wearing it out. I know the oil sands has to order new rock trucks, and they have to order new -- whole bunch of new stuff because things are wearing out. But people have just put their wallet books and just tightened it up. And that's just where we're at right at the moment. So...
And Murray, I would add that Canadian Dewatering was a little bit off budget, but Premay Pipeline was largely on budget and what we were expecting. And so when we made the announcements in February and just now we reiterated like we sort of knew that project. Sometimes, the timing is uncertain. So...
Yes. Canadian Dewatering, I mean, the weather did hurt us just like, as I said, it hurt the rails. I mean, they came out and said, jeez, we're down year-over-year. Yes, costs were up and then things just didn't go very smooth and business was delayed, part of it because of weather, part of it because capital is on strike and part of it's just project timing.
Good. Got it. And do appreciate that because as analysts, we kind of work off the quarterly cycle, and you might have your budgets that we don't necessarily hear or see quarterly, so I appreciate that.
We're not publishing them yet.
Yes, I would -- just on that, Elias, I would say, some of that Q1 that we've lost, it's going to be tough to recover in the last half of the year. When you're down to be nothing after the first period, you can still win the game, but you can't make that the 3 goals. So part of it, we're not going to make that. But what happened in the first quarter has nothing to do, in my view, with what's going to happen in the remaining 3 quarters.
Okay. Appreciate that. And just confirming again from the past that in your number, you really don't have any major pipeline work baked into that at this point in time. Is that correct?
We've got a little bit of pipeline work just what we knew baked into the second half, but it's not a whole bunch, like we haven't baked in anything for LNG, we haven't baked in anything for -- really for Kinder Morgan. We're doing what we know we have to do, which is just moving the pipe. All the Kinder Morgan pipe has been ordered, and we've moved that pipe off the dock because it's all been sourced overseas, it's a high-pressure, high-intense line, so that's been bought offshore. It's moving through the Port of Vancouver right now, and it's just being stockpiled. So we're doing that part, but the real fun part of the pipeline business is when you take it from the stockpile and you lay it on the line. So when does that go? Give our prime minister a call. He knows more about this stuff than I do.
Okay. I'll put that on my to-do list. Moving to the trucking and logistics segment and margin, I see 2 offsetting trends here. Number one, you've talked about pricing pressure because of demographics, because of the economy, which could move margins up. But long term, as you begin to focus more on asset light type of operations, do you think that, that would sort of counteract that? I mean, top line, as revenue will grow, I'm just trying to get a more longitudinal feel on margin beyond, let's say, the 2019 window.
Yes, I think that's a good observation. And so look, if we can't find drivers, clearly, it's difficult for us to go by the asset to do the work. So in that kind of scenario, we would be going into the more logistics market, which would typically say it has a lower margin but it's got at least the same cash flow generation than if you have to buy the assets. So we will take a look and see what -- you know how that all plays out. But you're right, as you move towards a more asset light, your margin goes down a little bit, but not your cash. Cash is different, as you know. But it really depends. But I'm getting a little bit troubled on what I'm seeing with this collision course of a very tight labor market and the changing demographics that are -- would clearly impact our long-haul truck load business more than our regional LTL business. Regional LTL is different, we'll do just fine in that side because we can get drivers home, it's a better quality life and people don't want to be doing the long-haul portion now. That implies to me that the supply chain is changing and it's going to change dramatically over the course of the next -- for a long time. No more you're just going to call up and say, "Hey, go get this and get it delivered to me." So that's why we're getting more and more into the warehousing business. I think that supply chain is going to change dramatically over the next number of years.
Okay. I'll close it off with one last question. We did see a bit of an uptick in cap -- I believe in capital commitment year-over-year. And given that you like to lead instead of sort of lag the indicators, there's 2 things that would get you to put more capital particularly in OFS. Number 1 is industry fundamentals, and number 2 is the political climate, I would say, aligning. Do you need both of those to get into place, one, or even if the fundamentals are there, would you back away if the political climate was not conducive?
No, we won't back away because it's still business. We'll still make a good investment where we think that we get a good return in the oil field services side. My issue is with the oilfield side is that we're not going to lead with our chin in the oilfield side and put a lot of capital work until we see, really, a conviction by the government and by politicians and by Canadians that we want to invest in the industry. Now in saying that, we've had some good news on LNG that they've -- that came out in the last week. So if projects like that -- if you're going to get a $40 billion project sanctioned by Shell Canada or by Shell, that's probably a pretty good indication that we should start putting a little bit of capital to work. So the projects appear to be getting closer and from that perspective, we're watching intently. I personally believe, LNG is our -- is the path to our future. It's a path to get natural -- the natural gas out of British Columbia and Alberta to the Asian markets, which are in desperate need of natural gas. So that they can move away from coal. And natural gas is the cleanest path towards electrification. And the only way you'll get natural gas to Asia is through LNG, liquefying it off the West Coast. If that goes, those are massive projects and to me, that's our growth potential for our industry over this next decade. Oil sands is dead. We aren't investing any money in the oil sands.
Our next question comes from David Tyerman of Cormark Securities Inc.
First question is on the trucking and logistics. I'm wondering if there's any risk to your outlook from a subcontractor tightness? A number of logistics guys seem to have had margin compressions. So I'm just wondering whether this is an area where there could be some challenges through the year?
David, that's what I've said. The contract market for pricing went up quite nicely, up about 20% but in saying that, the contract -- in the contract market, you use a lot of subcontractors. You use a lot of the -- that excess capacity. So that tightened and those rates also went up by 20%. So you're right, the logistic companies are going to get squeezed here to the extent that they make commitments to customers on a contract pricing, and then you had to go into the market and buy spot market trucking. So yes, that's a trend that we got to watch for. It's a trend that we looked for, and we saw, and we managed the situation pretty good in our group, because we were pretty aggressive with our business units. Don't lock-in, because the spot market's going to change. And when it changes, it's going to change rapidly this time. So that's a good observation though. You have the logistic guys are going to get trapped. I think we'll be okay in the trucking/logistics side because we do have our hard assets, our own and as such, I would expect we will -- that will help us improve our margin over time, and it needs to, as I've talked about. Now I don't know whether that spot market is going to go up anymore, I think that delta's nearly over. I don't think it's going to up another 20% over the first quarter. I think the spot market's where it's at now. So I think it's found kind of a new equilibrium point where we're at. That's my general sense.
That's helpful. And then the other question I had was just on Moveitonline. It's obviously growing very fast. Is there any way that you can help us understand the financial implications for this? Because I'm not clear whether this is -- or can be material financially to the company.
Well, it's not yet. Because as I said, we're in the early stages of building the business model out. I said we've got to build the content, and really, a marketplace is really like -- it's like a publication. You got to get leadership before you can monetize. So we're focusing all of our efforts right now, David, on just providing a marketplace for the trucking companies to come to, with which to transact loads, to do those things. If we're successful, then you'll build a good -- you'll get people coming to your site and once you get people coming to your site, you can monetize that. But thus far, 100% of our attention is all on just building the site and on moving into the digital area. So it's premature to talk about revenues. It's -- certainly, there's some cost to it that we're investing in this but from that side, we're kind of keeping that close to the best, and we'll see where this takes us. We got a lot of work to do, but I got to tell you that if we get it right, it's a home run. If we don't, our existing business units are using it. We get more data than nearly -- we get real time data on what's happening with low posting, what's happening in the spot market and that's helping us run our business more efficiently.
Do you have a sense of when you would be able to determine whether this can be turned into something that you...
2020. That is my best guess at the moment.
Our next question comes from Turan Quettawala of Scotia Bank.
I guess, maybe on the first one, Murray, I was just wondering -- if I look at your Trucking/Logistics segment, I mean, there's already quite nice some 90% already. I know you've been a little bit lower in the past, but things are also moving around with, I guess, with some of the acquisitions. I was wondering if you can sort of give us a sense of how high that margin could go in the TL segment?
I think we've guided towards that our traditional is around 15%, 16%, Stephen? Richard?
Correct.
I mean, we've -- the first quarter for trucking/logistics is always the softest, so we come out of that. We're improving margin over last year and that's what doing acquisitions that don't -- no acquisition we do adds to our margin when we do it. We already operate good companies. It takes a while to take companies and make them into -- get them into our margin territory. So even with some of the acquisition noise that we had over the last bit, which are typically lower margin than our core business, along with some of the weather-related issue and cost-related issues, we still improve margin and it's the softest quarter. So I got to tell you, we're going to get back into that range of 15%, 16% over -- on an annual basis. That's my -- that's our goal. It might come down a little bit, Turan, because the more we go to asset light -- I don't think you're going to get 15% to 16% in an asset-light model situation. I think that's more 10% to 12% in an asset light. But you got to have 15% to 16% in an asset -- in our view, in an asset-intensive business.
Okay. But just so I can clarify, because your margin's been almost, like, 14% to 15% on EBIT as well, we're talking EBIT or EBITDA here? Sorry. Just so I'm clear.
EBITDA, Turan.
Okay, okay. Just yes -- just, yes, okay. Fair enough. Because you're doing EBIT margins of more, like, 10%, 11% right now, right?
That's correct. In an asset-light business, your EBITDA is your EBIT.
No, no. Okay, fair enough. Fair enough. But I guess what I'm trying to get to though is if you're doing about 14-ish percent of margin last year, 14.5% EBITDA and so you can get to about 15% this year. Is that sort of reasonable for 2018?
15% to 16%, I think, is what we've guided towards.
Okay, fair enough. And then I guess on the flip side, just asking the same question on the Oilfield Services segment. I mean, it seems like revenue growth has obviously been quite hampered here. I know you're expecting it to get better. Do you think the margin there is sort of at the low now? Or do you think there's a bit more downside risk?
No, I think the margin's at -- is at the low now. Our business has changed dramatically over the years. So our first quarter always used to be our best quarter because we were so heavily dependent on the Oilfield Services side. Now that's not the case now because of market and because we're deemphasizing oilfield services. But I think the margin, once you get in the first quarter, is what you're going to see for the year and it's just a matter of whether we're going to get some top line growth or not in the last half of the year. I'm getting a little more optimistic that the second half of the year, the drilling activity is going to improve. It's starting to tighten. We're hearing more evidence that our customers are rebuilding their balance sheets, and that they're going to be a little more aggressive on drilling side in the last half of the year vis-a-vis the last half of the last year, but clearly thus far this year, they're behind 2017.
Okay, perfect. And I guess, just one last…
The margins are there, but it's going to be a little choppy based upon when those nice projects to come. Projects are lumpy. And if you get a good project, you're going to make good margin and that can skew it a little bit, which it did in the first quarter. It looks a little awkward in the first quarter because some of our high-end margin guys did nothing. So I don't think that's the trend for the year. I think our -- once again, I think our trend is more middle-of-the-road up to 15% or so, 16% in the Oilfield Service side. And realistically, when you get a little bit of growth, it may [indiscernible] around 20%.
Fair enough. Yes, because that's been 20% in the past for sure, right?
That's correct.
And then maybe just 1 more. Was there a big fuel headwind in the Oilfield Services segment in the quarter? Because the pricing, I guess, it doesn't adjust as quickly, does it, on the Oilfield Services side?
Turan, it's one of those strange things, and I know as a trucking analyst, you might not understand this, but you don't get fuel surcharge from an oil company. When oil goes up and your price of diesel goes up, typically, activity levels go up. But in this first quarter, what we saw was WTI was up nicely but WCS was down 22% and yet fuel prices were up 20%. So we got -- kind of got caught because we didn't have that natural rise that follows a rise in oil prices because Canadian producers were just punished because of lack of access and other factors, and so we typically do not have fuel surcharge in the Oilfields Services side.
No, that's right. So I guess, then there was a bit of a headwind, was it not? So would you expect that to come back a little bit as we go through the year? Presumably it will.
Yes, not in second quarter. We usually price fuel for the Oilfield Services segment in the fall, and implement rate increases but you just can't do it. There's no activity level in the second quarter. So we'll monitor it. Obviously, we're having conversations with our customers because they know it's not sustainable and so do we. You saw it in the numbers, right? Fuel was up as a percentage of revenue. Definitely more so in Oilfield Services than Trucking/Logistics.I think, Turan, the big thing that we have to look for in the oilfield service side is, we just are not relying upon a significant increase in demand. I think there might be a little increase but not a significant. I think the biggest delta that could happen in oilfield service is on the supply side. As I said, they have one of the largest equipment dispersal sales ever in the history of Alberta. 5 days up in Edmonton, at Ritchie Brothers. So service companies are throwing in the towel. It's too tough.
Our next question comes from Michael Robertson of National Bank Financial.
So I had a couple of questions that I got answered already. Sort of just generally speaking, is there anything outside of a major LNG project or pipeline that would get you more optimistic about capital inflows coming back to OFS?
No.
Those are the 2 lynchpins?
The biggest one is LNG. Let's just do the follow the math. I mean, you can do -- Kinder Morgan is maybe a $7.5 billion project. That's going to help some of the oil sands companies and maybe some price differentials for oil. But realistically, I don't think that really adds a whole bunch to incremental demand. LNG, $40 billion, not $7.5 billion, and that's just the start. Because once you get the LNG, you're going to have the feedstock. Feedstock is drilling. And once they can get access to that, the price of natural gas most likely would stabilize. And to me, the single most important thing that can happen for our business and for our fortunes for the Oilfield Service side is drilling. Drilling is a function of natural gas.Lots of drilling is light oil and conde (sic) [ condensate ]. I mean, that's what we're doing right now. And it's getting a little bit squeezed out because there's just not a lot of pipeline capacity. But when you find light oil, as you know, you're not just finding light oil and conde, you're finding a lot of natural gas, which is why natural gas production is skyrocketing in Alberta and nobody's looking for natural gas, but we're finding it. We need to get it out of our province. And if you do that, that would be economic activity 101 and that would get us excited.
[Operator Instructions] Our next question comes from Ian Gillies of GMP Securities.
Just, hopefully, 2 quick ones from me. With respect to acquisitions and, I guess, bolt-ons, for a lack of better term, are you yet looking at anything in the U.S. just given the strength of the economy there and how it may be able to tie in with some of your, I guess, operations in Western Canada? Or is the focus still largely towards Eastern Canada and call it the Golden Horseshoe?
Yes, it's more Canadian-focused, Ian. There's a lot of business in the United States. But as I've said to you, a lot of business down there is at low margin. It's -- and they got -- particularly in the truckload side, it's -- there's only a few carriers that have great operating margins, the rest of them are going to be in the high 90's and that's just not where we see value for shareholders. And the bottom line is we're chasing it and using our balance sheet to get a low margin business that we just -- I don't know how to change it, to be honest with you. Yes, the market gets a little bit better but certain costs go up. So the question is the delta, what you keep. So we don't really see where we have a competitive advantage in the United States, and we would be dabbling in a big market and I'd rather be bigger in a smaller market than dabbling in a big market. I just -- it's just not our business model.
Okay, fair enough.
If you go to the U.S., you got to have to go big. And if you're going to go big, you're going to have to be big to do it. You're going to have to make some major, major moves, and that's not what we'll use our balance sheet for.
Okay, understood. And then with respect as well in the trucking side, I mean, you talking about tightness of labor, which I believe means rising wages. And I mean, I know on the services side, most of the customers there typically understand that, making it pass through reasonably easily. On the trucking side, I mean, it feels like it's been so long since this happened. I mean, when you go talk to your customers, are they accepting of this? Or do they just tell you to deal with it? Or how does that dynamic play out?
I think the biggest thing that's happening in the trucking/logistics side on the contract side is that it just takes a lot longer than what -- I can send a memo out to all of the business units, move your pricing. But the facts are with that relationship, you got contracts in place and it's just going to take a little bit of time. But in saying that, I can tell you contract prices are moving and they're moving quite nicely in Eastern Canada, little bit slower in Western Canada but it's coming. And the economic -- and Eastern Canada's doing quite well right now. It's quite busy. Western Canada, we're still kind of struggling because capital's not moving, but the pricing's coming. I told people it's coming for 2 reasons: one is the cost structure's going up, and I have no appetite to haul for free. We're not Amazon. And number 2 is, is that I think the market's going to tighten and pay us or you can have somebody haul you free, for nothing. I don't really care. My patience has run thin.
Our next question comes from Jon Morrison of CIBC Capital Markets.
What would be the average term length in the contracted LTL market would be, call it, fairly typical that you operate under in? What I'm really trying to understand is if you felt pricing for some of your contracted work was below the current market rates. Do those contracts reopen for pricing every few months? Or is it something longer than that?
Well, you don't have all contracts tick to for January 1 or whatever. It's kind of a trend that everybody's got their time when they sign up and stuff like that. So some of those are yearly contracts and some of them are kind of -- they're always open for 30-day or 60-day negotiation on both sides, but I'll take part of the blame. As I said, I think we were a little slow, trying to be a little too nice to customers in the first quarter, but we were a little slow. Part of it's us. I think we got out and negotiated. Our sales people and our business leaders and they heard it loud and clear for me, unacceptable. So get the price increases or I'll be coming knocking on your door and having a chat, and it won't be a pleasant one.
So it's fair to assume that, that pricing likely growing higher throughout the year and you'd recapture some of that opportunity that you think is there, but it's not like it's all going to be recaptured by Q2? Is that fair?
That's fair to assume. I think it's in a -- as I say, it's more of a trend, Jon, that will evolve over the year. It's not something I can say will happen on -- we put up 5% rate increase on April 1, that's not the case. Some customers got 5%, some got 3%, some got 22%. So we're having to be very, very selective of how we do it. But I can tell you all prices are going up. It's a matter of to what degree they're going up.
Okay. On the trucker shortage side, is there anything that's giving you more heartburn, call it, in the last 6 to 12 months in terms of shortages? Because high level, there's been talk of a trucking shortage for 5 years, 10 years. Has it just been that people have stayed in the industry longer and now we're starting to see a migration out of it? People officially retiring even though they would retire earlier? Like, it just -- it feels like this issue has been percolating for a while. Is there anything that is saying that it's really on the cusp, that it's a major issue and it's going to come into a head in the next 1 year to 2 years?
Yes, the next 5 years as the baby boomers are out. And now let me be clear, I'm talking about the trucking -- the long haul trucking business. That is where there is going to be a major, major problem that's coming up. Because most of the demographics on our trucking logistics, truckload side is significantly higher, and we have aging baby boomers that are going to be done in 3 to 5, and we have virtually no young people coming in to the long haul business. So that's why I was saying to you. The supply chain is going to change dramatically. That's why you're going to have to go to a more regional business, you're going to go to a more rail intermodal, all those kind of things, which we're changing our business model to that. It's also, Jon, why we continue to evolve our business towards more of the regional business in the last mile, if you will, because it's easier for us to get people to go to work in that business where we can get them home, give them quality of life, all those kind of things. We're not having quite the same issues on that side.
So that's where we could see the statistics within your own company, you would say, that your short-haul trucker average age is it's really lower than your long haul?
That's absolutely correct.
Okay. With Canadian Dewatering, how much different was the first 6 weeks of Q2 versus the last 6 weeks of Q1? And I realize that breakup didn't come until the end of March, but I'm surprised given the snowpack and all the indicators that we saw on the horizon, that people weren't in a little bit early trying to get ahead of things and perhaps renting things even when you knew you wouldn't need them for a few weeks.
Nobody rents unless they need. Like nobody -- they know it's coming, but nobody gives you a check. They just say, "When it comes and I need it, I'll use it." So we got all of our pumps out today but it was pretty -- it was still pretty cold the first 2 weeks of April. So I think then the last week. And I think we're going to have another round coming up. which is because of the snowpack in the mountains and the Rockies. So that's come -- what Mother Nature took from us, Mother Nature will give us. But the core business of Canadian Dewatering is the same, but other than we lost some pump sales on a year-over-year basis. Now what I can't tell you with absolute clarity is, was some of the pumps sales that we had last year was an anomaly in which people did this or was it just people just tightened their books this year? It's maybe a combination of that on terms of the sales, but in terms of their pump rentals and all that stuff, the last 3 quarters of the year will be just fine for Canadian Dewatering. It was the -- there's no pump. There was no water moving in March this year. Zero, anywhere. It was even cold in D.C. And then that delayed other things like getting on the sites to start what we call wellpoint and laying pipe in the ground and doing all those kind of things. So it was an awkward, tough quarter for Canadian Dewatering. Part of last year was they had really good first quarter last year, so it looks even a little bit -- it's kind of a half of this, half of that, but the rest of the year looks just fine for Canadian Dewatering.
Okay. I realized that you've always messaged that you're not going to invest in the services sector until visibility improves. But you also have a history of being somewhat countercyclical. So when you see things like the large loss of equipment that's going to be at Ritchie Brothers this week, does it make you want to go and buy things at a discount to replace some value to get ahead of that? Or because visibility is so weak that, that doesn't even make sense from a risk reward perspective?
No, we will look at consolidation opportunities, Jon, where it's compelling. But there's been difference bid-ask and so I go look. Fundamentally, I'm not at that point yet where I say the oil and gas service side is a growth business again. Therefore, it's just business. And we don't knock the price in any new margin increase, no nothing. It's just -- there's $1 million and what do we get for the return on it. And if we can justify that, then we will invest but it's going to have to be a consolidation play just as we're doing in the trucking/logistics side. And if we see that opportunity, we'll do it. Are we going to run up to Ritchie Brothers and be an acquirer of some trucks and trailers and hope that a customer gives us a price increase? Not a chance. Not doing it.
Within the services sector, we can obviously back into what the margin impact could be or estimated based on what you said around Premay Pipeline and Canadian Dewatering. But in other business units, is it fair to say that pricing and margins were fairly static or were there decent rates of change that we might not be able to pick up on, just given the disclosures that we have?
It was -- they were down -- they were compressed a little bit. Not -- the rest of our businesses are not -- not significantly. The 1 area that where we really got -- maybe the delta's changed a bit and that is in our pipe storage and tubular business that we highlighted. That said we had some competitive pricing pressures come in and one of the pipe suppliers ended up doing more. So we probably -- that is probably more longer term and is going to play itself out. That's not a huge part of our business but it's a part of our business, and we were down in the first quarter and I would expect that to be down over the next bit until we get some clarity as to who's going to bring the pipe in? Who get the jobs? And our yards are full but we're just not calling as much pipe out to the site. The rig count was down so that, I can get that. Rig count's down. That's not as much pipe moving out. But we did lose some business to new competitor that came in, which is Tenaris Pipe that got a couple of their own yards, and they took some pipe out of our yard. So when they take the pipe, I wasn't going to hold for them. I'm not going to go out and hold them up.
Is it fair to assume that fluid hauling is starting to get marginally better? I know it's been a challenged segment for a while for competitive reasons, but is it still fairly lethargic? Are you starting to see pricing there growing slightly higher?
It's starting to get higher because supply -- our competitors are dying on the bind. And nearly all of our competitors in Northeast Alberta up around the Lloydminister, nearly all of our competitors are in COD. They can't move. It's only a matter of time until that comes in. But let's be clear, our customers are not going to pay us more than they absolutely have to. So we have to let the market on the supply side take care of itself because I don't see tremendous demand growth. I do see opportunity because of supply contraction and that's just because they're running out of money.
Okay. Last one just for me on the P&L side. The Canadian market obviously has a couple of large operators but there's still a number of fragmented players out there. Are all of the smaller private operators looking at the tightening market conditions and pricing accordingly? Or would you say that they're leaving opportunity on the table and that's ultimately not allowing pricing to go through the rate at which fundamentals would argue that it should be?
Yes, that's a good point, and one that we -- I can't give you a true definitive answer on that but I can -- let me just phrase it this way: I think that most smaller companies, and particularly the ones that we've acquired, they don't -- they can't play poker quite as tough as we can. Our customers are very good at driving leverage, and they know they own you. And if you're a small entrepreneur, you walk a tightrope everyday because you don't want to lose the -- you can't afford to lose the customer. We're big enough, and we go look. I look at the macro scene and I say, "Look, if you're not using us, you got to use the other guy and this is what here's going to price." But generally, you're right. I mean, smaller companies are -- they're afraid to lose a customer. Therefore, they price a little more competitively. They're tough competition.
Our next question comes from Jeff Fetterly of Peters & Co. Limited.
Just a clarification question. On the T&L side, given the secular trends and comments you mentioned earlier, Murray, does that change your approach to M&A or how you think about acquisition metrics?
On the T/L side, Jeff, or on...
T/L.
Well, we've -- as we've talked about, and I'll make sure I get this right. And I'll answer it this way and if I get it wrong, just shout back at me. But thus far, we've been bonds and singles. We've been putting together smaller tuck-ins and whatever, because that's where we see value. We didn't see enough pricing leverage in the market place to go out and buy standalone companies. We had to find synergy through cost. It's way easier when the demand is growing like crazy and you're getting pricing leverage, and you just go blah, blah, blah. But in a tight market where the economy is not growing that much, typically, you're going to have to find the synergy on the cost side. If you -- in a tuck-in, we get it. We just get rid of terminals, we get rid of a layer of people. We just roll it right into an existing business unit. If we go after a larger acquisition opportunity, and let's take Gardewine as an example. We've moved the margin up, but it hasn't moved up as much as I want or that I expect. And truthfully, I think we've got a damn good management team there. But even they're having trouble moving the margin up to where I think it needs to be. So if that's the case with a good management team, and then we go get a company that's underperforming and it's large, how do I move the margin up in that? You've got to find synergy or else, you can't make it up on volume.
So if you think we're in a secular upswing in pricing, obviously, the cost side's there but secular upswing in pricing. Does that increase your willingness to look at something at 6x or 7x multiple?
Yes. Yes, it does. But then the question becomes, one, who gets the benefit? The buyer or the seller? And of course, we're always looking at the benefit must go to Mullen shareholders. We're the ones that are putting the new capital up, and we're the ones that are going to change the dynamic. So we're always looking and that's always been abrupt with us. I go, "Why would I do an acquisition and help the seller out?" I can help the seller out but only if I can be satisfied that we're helping out Mullen shareholders. And that's why we generally stuck to the tuck-in acquisitions over the last little bit. We've looked at a lot of acquisition opportunities, but once again, you -- if you do that, you use up your whole balance sheet on a big one and then you kind of -- you better be right. You can't be wrong.
This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Mullen for any closing remarks.
So folks, I'll just close by saying it was a little noisy in the first quarter, but I -- honestly I'll go back on my original one, I wouldn't jump off the bridge. We're still on target for our 2018 financial goals, which we've articulated at $1.2 billion of sales and achieve operating margins in the 16% to 17% range at the end of the year, and that will equate to an OIBDA of about $190 million, $200 million. I would get a lot more excited if we get Canadians and our federal government and politicians behind the oil and gas business, but that we need to be realistic on it. But let's say, right for the moment, I think the Canadian oil and gas industry is not a growth industry but that does not imply that there won't be future opportunity in this business. And the senior team here is looking and evaluating a number of opportunities. We just need to stay focused, and we got to stay central to our strategic and plan and we got to be patient. On terms of the oil and gas business, I know that the rest of Canada maybe isn't in love with the oil and gas business today, but the world really doesn't care whether we invest in the oil and gas sector industry here in Canada. It's only Canadians and the environmental movement that seem to care because around the rest of the world, the demand for crude oil continues to grow at around a 20-year average of 1.3 million barrels per day every single year. And globally, we're now at or near our 100 million barrels of oil consumed every single day of the year in the world. Canada's contribution to meet this demand is around 4 million barrels a day or 4% of the world's daily consumption. I don't think the rest of the world really cares. This is the reality. I hope that we can find some way to make the energy industry and the oil and gas business a viable business, so that Canadians will support it and it can be a growth industry again. But at the moment, we seem to be challenged, but as I said, the rest of the world doesn't care. Thank you very much. We look forward to chatting with you in the summer.
This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.