TFI International Inc
TSX:TFII
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TFI International Inc
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Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to TFI International Second Quarter 2018 Results Conference Call. [Operator Instructions]. Before turning the meeting over to management, please be advised that this conference call will contain statements that are forward-looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated.I would like to remind everyone that this conference call is being recorded on Thursday, July 26, 2018. I will now conference over to Alain Bédard, Chairman, President and CEO. Please go ahead.
Well, thank you, operator, and thank you, everyone, for joining the call. It's a pleasure to speak with you today. Within the past hour, we posted our second quarter results. If you still need a copy, please visit the Investor Relations section of our website. Our financial results easily exceeded expectations during the second quarter and we continue to have a strong year. As always, our main focus at TFI is on creating shareholder value, unlocking it for our investors and returning excess capital to our shareholders. Our methods to accomplish these goals remain unchanged. We focus on operating efficiencies which means innovating to find value-added solution to our clients. We pursue an asset-light business model. We maintain a strong balance sheet and we seek accretive bolt-on acquisition while maintaining a high level of discipline. At TFI, that's what we call business as usual regardless of the operating environment. And with that in mind, let's take a look at our second quarter results. Our total revenue grew 4% to $1.3 billion. Our operating income climbed 64% to $122 million and our adjusted net income per share on a diluted basis was up 65% to $0.99. Our free cash flow from continuing operation was $97 million during the quarter, which was up a very healthy 108% and on a per share basis, that was $1.10 which was an increase of 116%. We're pleased to say that our focus on profitable growth, not just growth but profitable growth, is having a favorable impact. Turning to our segment. I would first point out that our Truckload results further improved this quarter, which build upon the progress we've made earlier in the year. U.S. Truckload is definitely a driver for us now, and we view the improvement there as a sustainable trend. However, our entire Truckload segment is less than half of our overall business, and I'm pleased to say that the rest of our segments also performed well with margin improvement across all 4.Starting with Package and Courier. We are seeing volume growth and rate improvements. We are improving our efficiencies by consolidated rules and terminals while continuing to focus on business mix. As a result, our operating income grew 17% to $30.2 million on a revenue growth before fuel surcharge of 4%. This reflects a 220 basis point expansion in our exceptional operating margin to 19.6%.Turning to LTL, we saw volume and rate improvements in intermodal and cross-border while our domestic business within Canada is focused on more cost rationalization. Revenue before fuel surcharge was up 3%, the past year to $239 million, benefiting from the acquisition of Normandin at the beginning of the quarter. Operating income was up a very strong 48% to $24 million on a margin that expanded 310 basis points to 10.2%. Within our Truckload segment, improved pricing and increased asset utilization drove substantial margin improvement, both in U.S. and Canada. Revenues of $525 million before fuel surcharge were up 1% over the past year. Our operating income was up 130% to $54 million on a margin that more than doubled to 10.4%. We've been focused on our U.S. Truckload operation and are pleased to see the improving results there with an operating ratio of 94.5 compared to 103 in the second quarter of last year. Our Canadian Truckload operation delivered strong operating ratios of 86% in specialized and 86.6% in conventional Dry Van. Finishing our segment discussion in Logistics and Last Mile revenue were $247 million as compared to $255 million in a year ago. Our operating margin jumped from 6% to 8%, and we had operating income of $19.8 million versus $15.3 million a year earlier.As you might gather from the discussion of our segments, we're seeing broad-based strength across the business. Given the unparalleled breadth of our operation both by geography and service type, I would suggest that there is no other major North American transportation company better positioned for this environment. From a capital allocation standpoint, we returned $55 million to our shareholders during the quarter, including $18.5 million of dividends and $36.5 million of share buybacks. Going forward, we remain active and opportunistic buyers of our stock. We also during the quarter reduced our debt-to-EBITDA ratio to 2.69 down from 2.91 at the beginning of the year. Before I provide an update to our full year outlook, I'll provide a few words on the operating environment and our reason for optimism looking ahead. The general freight environment is strong in both the U.S. and Canada and across every segment in which we operate. Volumes continue to rise combined with ongoing capacity restraint. E-commerce, which is demanding from the last mile standpoint, is a growing portion of retail sales, and this plays to our strength given our extensive Logistics and Last Mile operation. I'll wrap up with a guidance update before opening the call for your questions. So our EBITDA guidance for the year, which was previously $610 million to $615 million including the Normandin acquisition, rises to a range of $635 million to $645 million. In addition, we're introducing adjusted earnings per share guidance for the first time as we believe it's an important measure of TFI's overall financial success and for many investors the preferred way of valuing our company. We expect adjusted EPS for 2018 to be in the range of $3.21 to $3.29. So thank you for joining us on the call today. And we'll now open the line for your questions. Operator?
[Operator Instructions] And your first question comes from the line of Fadi Chamoun from BMO Capital Markets.
I wanted to kind of get your thoughts on the Truckload. So you made some very good progress into the second quarter, especially in the U.S., down to, I guess, 94.5. Can you kind of lay out for us what do you think the year will end? And how much of that business rationalization and repricing you would have, kind of, achieved this year? And what's the opportunity look like up from where you're going into 2019 as well?
Yes, Fadi. So if you want to talk about the U.S. TL, 94.5 is really the average of TCA and CFI. So when you do an average, there's one guy that's better than the other guy. So what we've seen so far is that our CFI team has done a fantastic job in terms of cost control and being very efficient. I mean, in terms of maintenance, in terms of fuel economy, et cetera, et cetera. So this is an ongoing process and I was in Joplin last week, talking with a management team there where we now have a fantastic team, and I'm feeling so good about where we're going on the cost improvement, okay. When we keep the eye our U.S. operation with fantastic Canadian operation. So on the cost side, I'm really, really happy with what's going on. CFI, I mean on the quality of the revenue side, what we're seeing is that it's an improvement that's an ongoing basis. Every month, I mean, our average revenue per mile is improving. Now are we as good as the best U.S. carriers in the quality of revenue? I don't think so. We still have a young team. Our market intelligence team is probably not as in-depth as the big -- the great U.S. carriers that we are competing with to a certain degree, but we are going to get there. The other group that we have, TCA, it's a little bit of the opposite. If you exclude some of the customer where we have some done deals, I mean crazy stupid deals that will take probably another few months to get rid of, the quality of revenue at TCA is probably closer, okay, to what the good Truckload guys in the U.S. are today. TCA, we've been working with these guys for a long time now. We're working on the costs. Definitely, on the cost side, we still have a lot to do. Their fleet is a little bit older on average than the fleet at CFI. The revenue per truck, let's say, the asset utilization is not as good. But we have also there a team that is aware of the challenge that they're facing and I've got full confidence that these guys will be getting closer to our friends at CFI. Now on average, having a 94 OR, 94.5 OR in Q2 in the U.S. is not -- I mean, there's carriers at 77, right. So we still have a lot of work to do but at least the trend is there. Don't forget, Q1, our U.S. OR was 98, right? So we brought that down 350 basis points. So the guys are really on the right track. Actually if you look at it, Canadian Truckload, we live in the same world. I mean our guys are at 86. That's where you want to be. In today's world, you've got to be hauling at an 85 to a 91. But we're going to get there. I'm very confident.
The Truckload market in Canada seem to have gotten more tight. I guess it looks like the pricing was pretty strong as well in the Q2. Is that something that you can build on more as you go on into the second half?
Well, pricing in Canada is okay. It's good. It's improved. But also don't forget at the same time, it's the same phenomenon as we see in the U.S. is where wages for driver also has to improve, which is the case in Canada and in the U.S., okay? So on the Canadian side, I see that we're a market in Canada but we're taking advantage of improving the quality of the lanes, improving the asset utilization and all that. So an 86 OR in Q2, it's fairly good for Canadian operation and our Québec-based carrier are doing better than our Ontario-based carrier, and we're working on something there that needs to be addressed in Ontario. We don't have as much leadership in Ontario because of our size than we have in Québec, but there's something that needs to be addressed in Ontario that needs to be corrected to have a level playing field that we're working on with the Trucking Association, the CTA, Canadian Trucking Association (sic) [Canadian Trucking Alliance] and the OTA. There's a situation there that needs to be addressed.
Okay, and my last question. On the LTL side, I think you mentioned kind of the intermodal and cross-border being good. But domestic LTL, is this still struggling? What's the pricing situation there?
Yes. So LTL business like I said, transborder and intermodal. We have some growth and the pricing is starting to make sense. On the Canadian domestic LTL, there's still some locations, there's still some areas in the country, and this is not Western Canada. This is mostly in the East Ontario, Québec market where there still way too much capacity. So in order to resolve that situation, as of June 1, we've combined Kingsway LTL with Overland, okay. Kingsway was a regional player, Ontario, Québec whereas Overland is more a national carrier. So we did that to be more efficient because that market needs to be more -- there needs to be more consolidation so reduced cost, be more efficient, more flexibility. Now if you look at globally, for sure our LTL is improving big time bottom line, mostly in the back today of our intermodal and transborder. Now for sure, the over-the-road Canadian LTL, like, for instance, [ TSE ] that I just talked about, it's a little bit of a drag on our average profitability, but the team there is aware. We have a plan and for sure, we're going to get back to the double-digit EBIT. If you remember a few quarter ago I said, "Guys, we're going to be a double-digit EBIT in LTL." Believe me. We're going there.
Your next question comes from the line of Walter Spracklin from RBC.
I guess my first question would be on free cash flow. You gave some of the guidance here in the left and EBITDA. Can you talk a bit about the free cash flow that you're expecting for the year and how that might have changed? And whether your CapEx spend for the year has changed at all that would drive that? And with that free cash flow, can you update us on how you want to deploy that between debt repayment acquisitions and share buyback as well as dividends?
Yes. So good question, Walter. So what we see as a bump up on the EBITDA is mostly going to be improvement as well on the free cash flow. So the improved free cash flow are the free cash flow's priority. Like I said earlier, we were planning on spending about $100 million on M&A. Probably, I said it's going to be closer to $150 million to maybe $200 million. So we're looking at a few files right now that would be some nice tuck-in in Canada. And also some small tuck-in also in the U.S. No big whales on the M&A side for us in 2018. I don't think so. In terms of share buyback, as I said on that note there, is for sure if we see like for instance today, the day before, we were active in buying back our stock, and we'll keep on doing that. And depending on the stock price, we'll be more active or less active. We believe that probably with this kind of guidance for the year, probably our dividend for next year will again be improved because we think that coming into '19, we're going to see the same kind of picture as we saw in '18. The market is really, really tight in the U.S. Yes, guys are ordering more trucks, but we still don't have the trucks that could be driven without the driver. It's really, really difficult to find drivers, even more now also in Canada. It's getting to be very tight, so we feel very good about where the company is going in 2018, and we believe that this is again going to be a strong 2019. So we're going to use the cash small on M&A, $100 million to $200 million. Okay, our CapEx, we don't see anything changing there versus the guidance that we said. We said net of disposal of equipment roughly about 150. We don't see anything changing there.
You had land sales at about $100 million for the year. Are you still targeting there?
No, no. We did about 20. So far, 20, 25. We'll probably do another 20. But we've done, Walter, is the sales and leaseback project that we have, we have offers. We're just going to do the deal but because of the IFRS 16 influence, I said guys, it's not clear in my mind where we're going with that. Hopefully, by Q3, okay, we could get some guidance to the market because right now, we have some kind of an idea but we're not sure. So that's why, because of that I put everything on the sales and leaseback on hold. What we know is that sales and leaseback U.S. GAAP next year, that doesn't change anything but our friends at IFRS said: "Oh no. Sales and leaseback will have to change is the same as the other leases." So that's what I said, "Oh, based on that, let's hold on for that for now."
Okay. I know you mentioned looking to 2019 and I think it's pretty important. I don't know if you already gave guidance for 2019 yet but you started the year a little slower. You really are taking off here in the second quarter. When you annualize that and look at the full year of what you're seeing in the second quarter going and powering you through into 2019, 2019 should look pretty good relative to 2018 given that the slower start to 2018. Any broad indicators of organic growth rate ex M&A that we can expect either on the top line? And any indication of -- you talked about continued margin improvement, but any quantification of that margin improvement that you might see going into 2019?
Well, what I could tell you today, Walter, is that we'll give guidance of '19 after our Q3 numbers. But what I could tell you is that for the first time, on our P&C side, if you look at our Q2, our organic is up 4%, okay? So we're starting to see a lot of action there in terms of the e-commerce. Because e-commerce, some customers want it next day. Some customer want it the same day. And us, the chance we have is that we're in both businesses in Canada. So that's why our P&C is showing some -- a little bit of organic growth, 2%, 3%, 4%, 5%. So I think it's going to be ongoing into '19. Our last mile, when you look at our last mile logistics, you see your last mile, your revenue was down, okay. Well, our revenue is down a little bit because of U.S. exchange but mostly down in one of our logistics divisions that's cornerstone where we lost an agent. Our last mile business in the U.S. and in Canada, the one in Canada is growing. The one in the U.S. is flat because we're still cleaning a little bit of some customers that we were doing warehousing for them. And when I started looking at my nice IFRS 16, I said, "Hey, I'm not a REIT. I can't afford to service customers today with where we're going with IFR 16. So we are going to have to get rid of these customers because storage, you make small margin on that and it's a huge lease. So this is why we are losing a little bit of revenue because of these customers. But on the other side because we are flat, it's because we're gaining on some other customer where it makes more sense for us to be in the future. So LTL, for sure the transborder thing is going to be growing. The Intermodal will be growing. The over-the-road Canadian business is going to be shrinking a bit. But the sum of that, probably you'll start to see some 2% to 3%, growth into 2019.
Fair enough. That's great. I forgot to add on your free cash flow, are you still looking for $150 million in debt reduction for the year?
Yes, well, you see based on our plan right now, Walter, we should end up the year with a debt to EBITDA at 2.3. You see we're at 2.69 now at the end of June. So we believe we'll probably be around 2.3 with not anything major in terms of M&A.
Your next question comes from the line of Cameron Doerksen from National Bank Financial.
I just want to come back to, I guess, some earlier questions on the Truckload segment and maybe just talk a little bit further about what the kind of pricing environment you're seeing there. Maybe we're seeing pretty much across the board, contract rates up double-digit plus. And I know you had a lot of business that kind of repriced during Q2 so I'm just wondering if you can just talk about how things -- are we mostly through that repricing? And how much more is there to come in Q3, Q4? And how does that affect margins as we move through the rest of the year?
I think that on the U.S. side we still have lots to do with a certain specific customer, Cameron. I wouldn't say that if you look at our average revenue per mile today, there's still above 10%, 15% improvement there. But we have some customers at TCA, for instance, that just don't make any sense. The OR is still 150 OR with this account. That will be corrected in October. So there's still some room there to be at least market level for our U.S. guys, that's what they're improving. Now, it's an ongoing process because it's not just a rate that we're improving. It's also the lane that fits the network. Because there again, if the lane doesn't fit the network, you could have a good rate et al. But you have no good rate coming back so your et al. rate could be good but then if you look at the loop, it's a disaster. So this is why we have an ongoing process of making sure, like we do in Canada. I mean, in Canada, we've been doing that for a long time because that's what we do every day. But in the U.S., this is the kind of discipline that working with the team there, this is what we're doing. So still a lot we can do to improve the asset utilization, the lane, the quality of the lane, using the loop. But most importantly is we still have a lot of cost to shed and cost is us. When you talk customers, you have to convince the customer. You could lose some business but cost is your baby. So this is why I'm so optimistic about what we could do in 2018 and 2019 is that we still have a lot of cost improving measure that we could do working with our team.
Okay. That's great. Just on the cost, just sort of shifting gears to the P&C, you've done a lot of consolidation of roots there and terminal reductions and I guess some other optimization things. Where are we on that process? I mean, is it mostly done at this point?
Yes. It's mostly done, Cameron. We still have Alberta that we haven't done anything because of leases. You can't do anything until your lease expires. So we have a nice project in Calgary. Our team was in the final mile of deciding on the equipment that we're going to install there. And after that, we still have Edmonton to do. We're going to be moving in Vancouver by the end of 2018. So that's going to be -- so we still have lots to do in terms of reducing our cost. But now our focus is going to be more and more now into growing the business because costs, being lean and mean and efficient, is like your base. Just when you're building house it's your foundation. And a lot of guys say, yes, even if your foundation is not so solid, why don't you grow the business? No, no, no. Us, we need solid foundation, solid team, solid people, which we have now. When you get out with a quarter of 19% EBIT, I mean this is exceptional. This tells you that you've got the A team plus. So with that now, our focus on the P&C side is going to be more -- okay, let's focus now more ongoing this business because we got the A team, solid team, solid foundation.
Okay. And just on that move, my last question here related to what you were just talking about that we had P&C growth. I don't know if this is an opportunity or not but we've seen in Western Canada Greyhound announced that they are going to shut down all their operations there. And I think they did a fair amount of package delivery. I'm just wondering if there's an opportunity there for you guys to pick up any of that business?
Yes. Absolutely. Absolutely, for sure. They're talking to us. They're talking to those customers. They're talking to Canada Post. They're talking to Puro. For sure, it's one player that just said,"Enough is enough, I'm gone."
Okay, were they particularly aggressive player in pricing?
If it's not your forte, and that was not -- sometimes you don't understand the market and you don't know what the price should be. And that's why you have to shut down the business, okay?
Your next question comes from the line of Mona Nazir from Laurentian Bank.
So the first question just has to do with margins and OR. And you did good color about micro drivers. But I'm just looking back to my notes. At the end of April when you reported Q1, you were talking about potential margin upside for each division. And at that point, it was anywhere from 150 to 200 basis points margin improvement kind of further out. And looking at the Q2, we're seeing a breakthrough above that 200 basis point upper limit for all categories. So I'm just wondering if you could discuss this a bit more and if you wanted to perhaps referencing the OR which is holding that sub-90 and what's really caused the surprise on all of the categories? I know you discussed P&L a bit.
Yes well, Mona, for us it's not a surprise. Don't forget, we're very conservative. And I still remember 2017 where we gave a guidance and we missed it. And we missed it because of our U.S. TL operations did not perform according to plan. We had all kinds of questions and our stock has been penalized, et cetera, et cetera. So this is why when we talked at Q1, when we had the first real quarter on the U.S. TL where we could see some improvement like turning the corner, but I said also at the same time that guys, be careful. Our LTL is improving. Why? Because our intermodal, which is -- it's a diamond. It's a diamond in the rough, where we bought a few companies a few years ago and now we have a team there that's very aggressive on costs and that makes all the difference. So can I say that, "Guys, be ready, we're going to improve our OR by 200 basis point." No. This is a real achievement. We did better than that. Yes, we did better than that because our guys took advantage on different segments of the market that has improved. But also, we were really, really efficient in taking advantage of our improved asset utilization. So I said it, P&C if you go back to 5 years ago, I said that we're going to be double-digit EBIT in our P&C. And we were at 6% when we bought Dynamex and DHL Canada. Today, we are at 19% on the P&C. And on the last mile, if you would exclude the logistics, we're double-digit over there, in our last mile combination of U.S. and Canada. So we made a lot of headways. We said. okay, LTL, we will definitely improve there. Our Canadian TL, we've always done a great job there. But this year, it's a special year. We increased salary. We had to. But we also took advantage of better pricing in the market. So can we sustain that? And that's why I said, yes, we can sustain that in my mind unless the market goes crazy, but I don't see that because, I mean the economy is doing well both in Canada and in the U.S. There's a lot of shippers that got big issues trying to ship their products. And if you look at the U.S., the policy of the country there is to limit immigration. So a lot of these unqualified workers would be a truck driver to start with. So I see that we are going to keep improving. And this is why we are cautious. We are saying our EBITDA, call it, [ 635 ], maybe [ 645 ]. Hopefully, we're going to beat that.
That's very helpful. And just secondly, you mentioned this just now in your remarks, but just on the cost pressures, on tightening capacity, driver shortage. I think on the last call, you had said that you were looking at taking a different perspective to compensation packages and schemes. I'm just wondering, given the guidance, is it safe to assume that this has been addressed? Or do you anticipate further increases?
Yes. No, no, no. Absolutely. This has been addressed. And as a matter of fact, we just approved a salary revision on the U.S. TL and this was also part of our plan. Please don't forget, those guys are doing a great job. And because of pressure on the market, we were not able to do anything on the salary side on the U.S. Now, it's ongoing. Everybody's doing it and everybody's got some pretty good results, I think. So, no, it's all in the plan. Same thing in Canada. But there again, we are working closely with our people to make sure that our drivers are efficient. That means that they have the miles. So they have the miles with the rate of pay so they have a decent salary. Because you can have a great rate per mile but if you don't have any miles, that doesn't help you.
And just very lastly for me. With the current beat and taking into consideration your current visibility for the back half of the year and 2019, any further thoughts on the U.S. listing or spinning out the Truckload again?
No. No. The U.S. TL doing some kind of a spinoff. This is always been based -- this discussion has always been based on the issue of valuation. If we see something that's not valued properly, then we need to address it. So because right now, if you look at TFI's valuation, it's a Truckload that is not very good. So we still have a problem with valuation. But to do the spinoff right now, it's not something that I'm working on. I'm working on different things. For sure, a lot of our revenue now is U.S.-based. We have now more and more U.S. shareholders that understand that it's a hell of a discount buying TFI based on -- although over the last few days, it seemed like valuation in U.S. has come down but still, us, we're still below the average. So let's see what happens. I mean, now we have more U.S. analyst coverage that are able to tell more of the story on the U.S. side about TFI. So we are working -- we're very focused on delivering those results. We had to -- we delivered some great results in Q2 and it looks pretty good for Q3, so that's mostly our focus for now. And then, if valuation is still an issue, then for sure we'll address it.
Your next question comes from the line of Kevin Chiang from CIBC.
Maybe I'll just start off with I guess some of the comments you made around driver shortages and I guess it's something the industry is dealing with. Are you doing anything from a training or retention perspective to try to reduce your churn? I know you've talked about it in the past of increasing miles driven, not just your rate per mile. If you can give an update there, that would be helpful.
Yes. Absolutely. If you look at our turnover in Canada, it's like it's very close to 0, Truckload, I'm talking, Truckload driver. If you look at the U.S. LTL, their turnover is very low, like 15%, 20%. Where everybody has got a big problem is the U.S. TL. So we're trying to address that with the philosophy that, guys, let's spend more money in trying to retain the ones we have versus chasing the ones we don't have and don't care if one leaves. And that creates a high turnover. So everybody agrees with this philosophy. And for sure, having a stable wage for those guys is priority number one for us at the operations level. Customer also that don't take care of drivers so I'm explaining. If the guy gets into the yard and he's got to wait 5 hours to be loaded. We are addressing those customers now and saying, listen, Mr. Customer, if you don't change your behavior, I'm going to have a big problem. I'm going to lose customers all the time. We have a dedicated customer at TCA where people didn't look at that before. And that guy is the worst churner of drivers. My turnover with this customer is probably 240%. So we said guys, hey, wake up and smell the coffee. This has got to be addressed. We have to sit down with the customer and tell them, listen, it doesn't work. So we are very conscious in working with a team there that, hey, this churn costs a fortune. And if you look at a specialty TL, the churn there, the turnover is about what the companies that we've looked at is 30%, 40%. But there again, if you have a plan and you hire always a guy at $10 an hour, you're going to have problems with turnover. But if you hire guys at $20 an hour, you will have less turnover. Because they can make a living. And you have a guy that will be with you for a long time. So that's also another issue of salary, where salary was really low. And now, it's been corrected by everybody in the industry. So it should, down the road, if we focus on these people working condition with the customers, working with customers, we should improve the quality of these guys and it's going to be more efficient for us.
That's helpful. Maybe just turning to your balance sheet. You provided good color as to where you want your leverage ratio, where you think your leverage ratio will be at the end of this year. But longer term, what is the leverage target you'd like to have? Is it something below 2x? Are you comfortable in the low 2s here and kind of redeploying free cash flow elsewhere once you get to 2 to 3?
Yes. Very good question, Kevin. Leverage is still very cheap. But one thing is for sure is that it's going to become more expensive. We all know that. Unless something happens, interest rates will go up. So when interest rate goes up, I mean you have less -- you will do less leverage. So this is why from close to 3 last year, now we're down to 2.69 and our intention is to be like in the 2 to 2.5 before the end of the year. Now where are we going to be in 2019? It's with the free cash flow that we generate, we could be under the 2, which is where most of these U.S. TL guys, a lot of them have no debt in the U.S. Some that have debt will say 2 maybe is the right number. But our free cash flow is so strong and as we can afford to use leverage because equity is way more expensive than leverage. So to answer your question, we're going to be at about 2.25 to 2.5 maybe by the end of the year and the trend is to go down unless we have a major acquisition, but I don't see that in 2018.
That's great. And just lastly from me here, if I look at the EBITDA you've done through the first half of the year, it's about $316 million. So kind of doubling that gets you to in and around where your guidance is, maybe just a tad under. But it sounds like in back half, there are significant tailwinds still, whether it's the pricing, the cost cutting. I'm just wondering why your guidance wouldn't be higher. Or if you are being conservative, what worries you the most in the next 6 months? Is it unexpected cost inflation? Is it -- it doesn't seem like it's a deceleration of pricing. So I'm just wondering what maybe worries you in the back half of the year to not make that guidance may be a little bit higher than it is today?
Well, like you said, Kevin, we want to be very conservative. I went through a very difficult year 2017 and I don't want to have that again. So we're fair. We're saying that we believe this is attainable. Can we beat that? Well, we're going to work hard to beat that. No question about it.
Your next question comes from the line of David Ross from Stifel.
I want to talk a little bit about specialized Truckload. I noticed that it has an older average tractor age versus the Canadian or U.S. fleets. Is there a reason for that in terms of how they're used? And is it expected to change?
Yes, yes. Absolutely. There's a reason for that is that those guys are mostly regional players so the truck is not -- our U.S. TL or Canadian TL, the truck leaves on Sunday night and is back on Friday afternoon. On the specialty Truckload, it's not so much. So we touched the truck probably like at least 2 or 3 times a week. So that permits us to be more efficient. And keep the truck -- instead of keeping the truck 5 years, we will keep the truck between 6 or 7 years depending on the application of the truck.
Okay. So in the 6 to 7 years, it probably gets as many miles as your other trucks doing 4, 5.
Absolutely. Because the real rule is that 500,000 miles or the 800,000 kilos.
On Logistics and Last Mile, you talked a little bit about that and how changes have been made. You talk about it in the terms of the foundation being set that you discussed with some of the other segments. Is the foundation there at the moment? Is there some more work to do before you really go after the growth?
Well, the foundation on the Canadian side is really, really solid. Solid, solid. On the U.S. side, Scott Leveridge has done a fantastic job with this team and we are very solid. As a matter of fact, I mean the PPM acquisition because Scott was really, really busy in 2017 with all the changes because if you remember, early in 2017, we lost $50 million of the e-tailer business so Scott was really, really busy in scaling down and making -- coming back with a very efficient operation. So this is when, when we bought PPM, we asked one of our Canadian guys to oversee PPM. Now, as of September, PPM will be transferred back to Scott Leveridge, which is like irony so that tells you we've got a lot of faith now in our U.S. operations being very solid, like our P&C in Canada.
And then you talked about cross-border a little bit. Any impact you're seeing? Or when you talk to customers about tariffs, are they changing business strategies? Are they nervous or...
No. No. So far, we haven't seen anything. The only thing that we saw a little bit is a little bit of steel on the early days. But I would say that right now, it's business as usual.
Got it. And the last question on the LTL front. Are there more tonnage losses to go? Or do you think that the book of business that you have now is the book of business you want to keep?
No. I think we're done with that because what we did, Dave, is very simple. A small shipment where I have to pick it up, deliver and do some line haul for $50 because it's a minimum. I said guys, get rid of that. You can't make money. So it's a loss leader. And no, thank you, give it to somebody else. So this is all the tonnage that we've been losing is all those small shipments that we just said, no, give it to the other guy. So to answer your question, we're done with that. I would say at 95%. We're making sure that nothing comes back because sometimes you say adios to the customer but he can't find anybody. And then he tries to sneak back in your network. So we are done on that, Dave.
Do you raise the minimums to take care of that? Or...
No, no, no. Because I would have to raise the minimum to $150 to make my money. So I just said goodbye.
Your next question comes from the line of Benoit Poirier from Desjardins Capital Markets.
Just coming back on the OR for Truckload. In the previous quarter. You mentioned that you were kind of targeting the low 90s for the U.S. TL somewhere in 2019, 2020. But given the nice surprise you brought in Q2, could you kind of achieve 85 to 90 in the same time frame?
Well Benoit, I think we have to look at Q3. So I said when we came out with 98 in Q1, I said guys, we've got to be at 98 in Q2 without a doubt. So we came out at 94.5. If you ask me the question, are you going to beat 94.5 in Q3? I think so. Are we going to be at 90? Probably not. But can we be like 92, 92.5 in Q3, on our way to a sub-90 in 2019? Probably. But we have to see what's going to happen with our Q3. My guys are telling me, Alain, we're going to beat 2 in 3. I'm convinced that we're going to do that but we are going to beat it from 94.5 to 94 or 93.5. We're still just in July. So it's still unknown, but for sure, we are on the way, on the road to a sub-90 OR with our U.S. TL operation. If we can deliver 86 OR in Canada, U.S. guys should be at least 86. So we're going to get there. But it will take some time. It's not going to be in the next 2 quarters, an 86 I'm talking about. But for sure we're on the right track, we're on the right road to get to a sub-90 OR in 2019.
Okay. That's useful. That's pretty great color. And if you look at the last 2 days, there's been a pullback in the Truckload ships overall. Some people are questioning whether there was a lot of buying activity before July 4 so they wonder what are the first 2 weeks where we saw is kind of a reversal in terms of trends. So any color with respect to the latest 2 weeks, whether it's indicative of a new trend or it's basically indicative or important at all, Alain?
No. Our business is really, really strong and when we talk to the other trucking company, this reaction of the market is not the reflection of what we see us on the ground. That's the only thing I could tell you.
Okay, okay. That's very good. And also if you look at the P&C, there was an announcement made by 1 big, let's say, Amazon that's opening a new facility in Canada. I'm just wondering whether I'm looking at your margin expended a lot, you also mentioned opportunities to further increase your customer base for P&C. So could you talk a little bit about the initiatives that you put in place and whether the margins we saw in the P&C can sustain and grow may be from current levels?
Well, you see, on our P&C side, we can't afford to service the customer that you just talked about. So we are not -- we are servicing the same customer but with our Last Mile division. So the e-commerce customer that we service, our brick-and-mortar guys retailer that understand the value that we can offer to them. So we've built great, great business right now. This is why our revenue is up. Without saying any names, we're really involved with the large brick-and-mortar guy in Canada. We're just opening up some market for them in Florida. We are starting that as we speak. So absolutely. I mean, it's -- we are focusing on everything else. But in Canada, for those -- that e-tailer that you talked about, it's quite difficult to deal with -- without TFI. We're so big. We're so huge that they will probably try to do without us because us, we're about making money for shareholders. We're not there just to practice delivery.
Okay. And maybe longer term, could you talk a little bit about the platooning, Alain, to give us an update on where do you see platooning involving in the next 2 to 5 years?
Well, I'm not a specialist on that, Benoit, but what I can tell you is that everybody tells me is that it's coming. I don't know when. Could it be in the next 5 years? Probably. But on that, Benoit, I'm not the specialist. One thing though that I could say is that this is going to be so helpful for the Truckload industry. In my mind, it's going to be fantastic. But again, I don't know when.
Your next question comes from the line of David Tyerman from Cormark Securities Inc.
I'll keep it to 1 question. You've made really good progress on margins here obviously and it looks like you're getting most of the businesses into the kind of optimal operating level in terms of percentage margin. So I guess the question is, what next? Does the project go to organic growth? Or step up the acquisition program? I'm just wondering if you could just talk a little bit about that.
Yes, David. You're absolutely right. Like I said on the P&C, is that now that we've got such a solid base, for sure now, our focus is going to be a little bit more on organic growth. M&A is in our blood. It's in our gene. So for sure, if you look at our specialty TL, we like to grow this business. Even in the U.S., we would like to do something there. So it's going to be a combination now more and more. We are really happy with our people, with what's been done. Can we do better? Absolutely. Every day, we're trying to do better. But when you're running a 19% EBIT company, it's starting to be a little bit more difficult to get better. So this is why I said to the guys, listen guys, okay, we're good. Let's see how can we grow a little bit more organically because this is going to be fantastic. On the LTL side, the same thing. We've cleaned the house. We got rid of all of those small shipments that nobody can make money with small shipment on the LTL side, minimum. You can't make money with that. So let's not, don't do that. Let's focus on something else. And for sure M&A in every sector is a something that we look at. But as I said earlier, nothing big is going to come out until 2018. All the small tuck-ins here and there, yes. Anything big? I don't think so. Not this year.
Okay, do you think you have the footprint now that you want in all the businesses? Or are there any that where something big that would be quite helpful at some point?
Well, on the Canadian side, for sure. We could be bigger in Western Canada but we're fairly large. On the U.S., we're just scratching the surface. We could do a lot more there. But then again, we're not solid there like we are in Canada. Like I said earlier, we have to build a foundation. We have a new team. I'm very happy with this new team that we have now in the U.S. and the guys are building the foundation so after that, then we can start moving ahead.
Your next question comes from the line of Jason Seidl from Cowen and Company.
This is Adam on for Jason. So the first question is, I was just kind of looking into 2019. Maybe around what percentage of your TL business is already under contract? And what are the rates after seeing there with regards to your TL business for 2019?
Well, good question. You see, most of our business is under contract and we keep on renewing those contracts at a fair market price. But we're not done. We're still reviewing Q3 and Q4. We still have some revision to do there. In terms of 2019. It's still early. I don't have really the information of what needs to be done in 2019 with our customers. But what I could tell you though is that we have a program, working with our team to reduce our costs. And that's going to be the name of the game for us, even more importantly in 2019. When I say reduce our cost, at the same time improve your asset utilization because that reduces your cost at the same time.
Okay. And maybe just a second one. I know something we talk about, it kind of seems like investors might be worried about that we're nearing the top of the trucking cycle and definitely not trying to call the top or bottom but it does seem like a large percentage of your trucking business maybe has barely seen the beginning of an up cycle yet. So could you maybe shed a little bit of light on this?
Well, I don't know what the guys are saying in the U.S. I'm looking at their reaction on the stock price. It seems like everybody believes that. But what I'm seeing and what we're seeing us, is that absolutely not, I mean we still have lots to do. Yes, we came out with 185, 186 in terms of EBITDA in Q2 but we still have lots to do. Can we do 10% more? Yes, we're working on that. But to say that the party is over and that something is going to be, like, every cycle, that now we're at the peak and everything is going to start coming down? I don't think so.
[Operator Instructions] And your next question comes from the line of [ Eric Berar ] from [ Transport Roadshare ].
You talked about the basis at which TFI is renewing its fleet of trucks. And I'd like you to comment on the truck manufacturers' backlog and to see if it had any impact on the base of which you renew your own fleet. And if this increased demand in trucks, can eventually be a source of revenue with your used trucks becoming more valuable on the market?
Well, one thing is for sure is that the preowned trucks for the last probably 2 years market was really depressed. And what we're starting to see now is that, that market has changed. And selling a truck today, normally, if you've depreciated the truck in a normal fashion, you'll get the price and you'll make a small profit on it. So we're back to a better valuation of the preowned trucks. Now in terms of the manufacturers' backlog, it doesn't affect us because we've gave our orders early in the year and are delivering equipment according to the plan that was agreed upon between us and the manufacturers. So as an example, CFI gets 18 trucks a week. Then it was 15. We had an option to buy 100 more. And we said okay, let's do it. So now from 15, we're up to 18 a week. So no issues for us.
There are no further questions at this time. I will turn the call back to over to Mr. Alain Bédard for some closing remarks.
Okay. Well, thank you all for joining our call today, and we'll talk again as we come up with our Q3. Thank you. Bye.
This concludes today's conference call. You may now disconnect.