TFI International Inc
TSX:TFII
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TFI International Inc
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Good evening, ladies and gentlemen. Thank you for standing by. Welcome to the TransForce Fourth Quarter 2017 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 Tuesday, February 20, 2018.I will now turn the conference over to Alain Bédard, Chairman, President and CEO. Please go ahead.
Well, thank you, operator, and thank you, everyone, for joining us on this evening's call. So we released our fourth quarter 2017 results today. And if you need a copy, please visit the Investor Relations section of our website.2017 was a year of strong progress on our main initiatives at TFI International. Overall, we are most focused on creating shareholder value, unlocking it for our investors and then returning excess capital to our shareholders as appropriate. On a more granular level, this means many things. We look to drive operating efficiency and strive for an asset-light business model. We seek accretive bolt-on acquisition in a disciplined manner, and we maintain a strong balance sheet [ to move ] such as last year's strategic sales and leaseback transaction. I'm pleased to report we generated $376 million of free cash flow from continuing operations during 2017. In terms of allocating this capital, all year long, we worked on reducing debt, which furthers our ability to be nimble in the marketplace, and we also returned cash to shareholders.During the fourth quarter alone, we paid $17.1 million in dividends and repurchased $13.6 million worth of shares. TFI performed well during the fourth quarter with the exception of our U.S. TL, where we are optimistic that the attention we paid to this segment has set the stage for a turnaround.So let's discuss our specific results. Our revenue from continuing operation before fuel surcharge grew 2% to $1.6 billion. Our operating margin of 6.3% compares to 6.7% a year earlier, with the decrease mainly due to our U.S. TL operation. However, our adjusted net income from continuing operation was $54.6 million, up $4 million over the same period last year, which equates to $0.60 per diluted share. This is an 11% increase over Q4 last year.On a segment-by-segment basis, starting with TL. Canadian operations remained strong while the U.S. operation remained weak for the quarter. Revenue before fuel surcharge of $480 million compares to $464 million a year earlier. The increase is attributable to CFI and other acquisition that contributes $56.3 million in the fourth quarter. Operating income was $22.7 million or 4.7% of revenue before fuel surcharge as compared to $29 million or 6.3% of revenue before fuel surcharge last year.Turning to Package and Courier. Our focus on optimal business mix, customer selection and efficiency yielded its intended results. Our revenue before fuel surcharge of $317 million represents a decline of 7%, while our adjusted operating income was $35.8 million, an 11% increase over Q4 last year.Our LTL segment revenue before fuel surcharge of $194.8 million was up 7% of the prior year of $181.3 million. Adjusted operating income was $14.3 million, a 7% improvement over the prior year's $13.3 million. This growth in operating income was a function of successful integration work and growth in our asset-light LTL intermodal business. The growth in operating income was particularly notable because it occurred despite the loss and the replacement of one of our U.S. LTL partners early in the year.At our Logistics segment, revenue expanded 20% over the fourth quarter last year to $79 million, mainly as a result of an acquisition. Operating income, however, decreased 13% or $0.9 million compared to the fourth quarter of 2016 from $7.1 million down to $6.2 million due to higher carrier rates, operating expenses and amortization of intangibles.We're excited about the outlook for 2018 with the North American economic growth on the rise led by strong consumer spending that's driving a recovery in trade volume and rates. This inflection point should be most evident in our U.S. TL operation going forward.The improving demand environment directly benefits CFI revenue and cash flow growth. At the same time, our intense focus on operating efficiencies, asset [indiscernible] and tight cost control should further lift our profitability. We are continually moving towards an asset-light business model and one that's focused on an innovative value-added solution for our customers.Our acquisition strategy will continue to be disciplined and focused finally on tuck-in, immediately accretive acquisition. Our primary goal is to invest in high return on capital initiatives that maximize our already strong cash flow, whether it's acquisition, debt reduction, share repurchase or organic growth.I'll repeat that our main priority is to create and unlock shareholder value and to return excess cash flow to our shareholder whenever possible. During the fourth quarter alone, we returned $47.7 million to our shareholders, including $30.6 million through share repurchase and $17.1 million in the form of dividends.I appreciate everyone joining us this evening. I'd like to open the call for questions. Operator?
[Operator Instructions] Your first question comes from the line of Mona Nazir with Laurentian Bank.
So my first question just has to do with the CFI acquisition. You've been very candid over the last few calls about the level of work and capital that you needed to invest or to turn it around. When you purchased, it was around USD 115 million in EBITDA, and then you stated that it came down to less than half of that. I'm just wondering, looking at the acquisition now, do you believe that most of the heavy lifting has been done? I saw that there was new management there, customer rightsizing, driver turnover. Where are we sitting now on kind of a forward run rate?
Well, you see, Mona, I think that we've turned the corner over there in the U.S. I mean, for sure, the market in the U.S. is definitely going to be improving again in 2018, contrary to a difficult 2017 and '16 market for the U.S. TL guys. We have the right team there at CFI. We've got a lot of faith. I mean, when I look at the month of January, it's very encouraging. These guys are really on the right track. As you know, we've worked hard at reducing our cost, being more flexible, having the right freight mix that fits the network. We've invested a ton of money into the equipment so that our drivers, okay, have a most recent model that makes sense for them to drive with all the bells and whistles in terms of safety. Now I'm very, very positive for 2018. CFI -- what we've seen so far, they've improved Q4 versus Q3. And so far, what I've seen in Q1, these guys are on plan, okay, although it was not a very aggressive plan, okay. But we've stated that what we see in our U.S. TL from what we'd run in 2017 versus our plan, I mean, it's a huge improvement. And these guys are on plan and even better than the plan so far in January. Now a month is not a year, okay. But I mean, those guys are doing all the right things to be successful. Don't forget, the culture at CFI has always been a culture of success for the last 10 years. The crew over there went through a lot of changes. They were owned by an LTL company. Then they were owned by another company, and then we bought it from this company about a year ago, okay. So they went through a lot of change. They went through a lot of storm. Now we're building a base of stability. This is why in Canada, we run such a good ship, is because we have stability, stability in drivers, stability in customers, stability in the lanes, and stability in freight mix. It's always easier to manage a business when you have some kind of stability where it was compared to the up and down that these poor guys had to go through for the last probably 36 months.
Okay, noted. And then just turning to the industry and what we're seeing and hearing from peers, contract pricing is up high single digits. Volume and the demand side of the equation are turning more positive. But then again, driver wages are up over mid-single digits. I'm just wondering if you could speak to the flow-through of such dynamics on TFI specifically and the sustainability from your perspective on the pricing and volume. And with that, are you still comfortable with the previous guidance that you had provided of around $600 million for EBITDA?
Yes. What we've seen so far, Mona is that it's actually what you've said. I mean, on the quality of revenue, the freight rates are improving. The market is really, really tight. And the ELDs that were implemented early in the year are still not in full force. The U.S. economy is really, really strong. There's a lot of projects here in the U.S. So I feel very good about the quality of rates and then the quality of revenue in 2018. In terms of cost pressure, you're absolutely right. I mean, sure, drivers -- we've increased salary for our drivers early in the year because we want to be very competitive with the rest of the industry, okay. But the most important thing for drivers is the rate per mile is very important. But even more important than that is that they need the miles because the paycheck is the composition of rate per mile times the number of miles. So even if you give them a tremendous rate per mile, if they don't have any miles, they don't have any pay. So this is a combination of both things. You need the miles and the rates. And then you have stability because the guy is earning, okay, he's able to sustain his family.
Your next question comes from Kevin Chiang with CIBC.
Maybe I'll just turn to courier operations. I know you've had a little bit of, I guess, customer turnover there as you've looked to reshape that book of business. It looks like Walmart is engaging in a more aggressive -- an even more aggressive e-commerce strategy. But just wondering how that plays into your e-commerce strategy over the next few years here and if you could attach any type of, I don't know, revenue growth or earnings growth we should expect out of your P&C business.
Well, that's a very good question, Kevin, because if you look at our Q4 numbers, I mean, the revenue is down. And the revenue is down, okay, because we lost early in the year a major account, okay, an e-commerce guy that switched sometime in January of '17. So this is why revenue is down so much in Q4 because e-commerce is really busy in Q4. But at the same time, if you look at the bottom line, it's a huge improvement, okay, because we're focused on highly profitable business. That's how we've always been focused. Now in terms of the other, the brick-and-mortar guys that you've been talking about, we're very close with these guys. I mean, we work very closely with them in Canada. We've been working with them for the last, I would say, 1.5 years to 2 years. We've done great with them. In the U.S., it's always been difficult. But more and more people are starting to understand in the U.S., not so much in Canada yet, but in the U.S., that the last mile is the best system to be lean and mean in terms of cost. So we're very close with them. I mean, we're starting one market for those guys as a last mile e-commerce provider in the U.S. And I think this is just the start. I mean, we were really good with the other e-commerce guy. As a matter fact, we did the Florida, California and Texas market start-up for them, but the problem is we were so good that they decided to move that in-house. Now this is what happened. We feel very good about our P&C business. So I was looking at our month of January. We're ahead of plan. We're going through the roof there. I feel good.
That's great color. And then as you highlighted in your prepared remarks, there's a focus within the organization to return cash to shareholders. We have seen a bit of a dislocation in your share price relative to your peers here. Just thoughts on utilizing that for the buyback in the near term here. And if there's any color you could provide, that would be helpful.
Well, you saw that in Q4, we bought close to 1 million shares. We bought back close to 1 million shares. My goal, and I said it publicly, I want to reduce the share count to 85 million. We're at 89 million something right now. So for sure, we're going to be active. The problem that I had in Q1 up to now is that I was in a quiet period and I didn't give any direction, okay, before the quiet period. So I was not really active. But as of Friday of this week, we'll be back. If the price is attractive for us, for sure, we're going to be -- our goal is to reduce the number of shares and it's going to happen.
That's helpful. And then lastly for me, on the Q3 call, you had provided some good color on some of the -- what I'll call nonrecurring costs that you felt you were incurring in 2017 that shouldn't repeat in 2018. I think it added up to something in the range of $60 million to $70 million. Is that still the right way to think about it, that you should be at least rolling through $60 million to $70 million of nonrecurring cost in '18, that provides a pretty good tailwind for this year's run rate numbers?
Most of these costs that we talked about at that time was really attached to the CFI and [ TC ] operation in the U.S. As an example, there was about $25 million more in depreciation versus our plan. There was the equipment. A lot of money was spent in the U.S. for the transition of the equipment. So these costs are gone. Severance, I mean, it's a cost that so far we haven't seen too much. But we will see more of the severance by the end of the year because, as I said, I think publicly, that we're going to be investing a lot of dollars in the new hub in Calgary. We're also moving one of our facilities in Vancouver. So there's going to be some changes there, some severance. That's the cost of improving your efficiency. But all in all, that's why I said I still feel that the 600 mark for 2018, although I said the same thing for '17, but we had a lot of unexpected things that happened to us in '17. It's always the devil that you don't know that came back to bite us, but we have a much better team in the U.S. now, much more solid, much more focused. And we've learned from our mistakes, and we're not going to make the same mistake twice. I'm telling you that.
Your next question comes from the line of Fadi Chamoun with BMO.
Alain, I want to go back to the Truckload conversation a little bit. So can you remind us, kind of what is the revenue run rate now going into 2018 in kind of overall U.S. Truckload? And the opportunities that you have in terms of some of the specific contract renewal that might come up in the cadence, is this kind of H1, in the first half you'll have the opportunity to reprice this business?
Yes. Well, the run rate in the U.S. in USD for our Truckload -- and you'll see, Fadi, as of Q1, okay, we will be reporting U.S. TL separately because it's -- we want to show exactly what's going on and we're getting too many questions because it's not being disclosed, okay. So as of Q1 of 2018, it will be reported separately. So to answer your question, so USD, it's about a little bit more than USD 800 million now. This is ex fuel, or with fuel, it's always the big question. So I would say that ex fuel at 10%, you're talking about USD 800 million. Now in terms of the price increase, as you know, 2017 was a difficult year for all the truckers. So what happened when it's a difficult year, all the customers are -- and they see that '18 will probably be different, then they try to lock you up in a 1-year contract, 2-year contract, 3 years. And well, I don't know of any trucker that's stupid enough to say 2 to 3 years, but you are -- like on -- forced then into a year contract unless you're a spot guy, okay. And most of the U.S. TLs are not spot guys. Most are under agreement. So contrary to our business in Canada, where it's mostly a 30-day deal, okay, in the U.S., on average, it's about a year. So to make a long story short is we have -- it's scaled over the course of the year. So we have a little bit in Q1. We have more in Q2 and Q3 and much less in Q4, okay. So you should see the result. Already we're seeing the results when we look at January. We will definitely see results in Q1 and Q2 and in Q3, okay, on the quality of revenue, no doubt about that.
Okay. And I'm guessing just backing into some of the numbers that the operating ratio right now in the TL in the U.S. is probably closer to 100. Is there an opportunity to kind of get this down to the low 90 by the end of this year as we kind of engage in all these things? Or there's more to do with the fleet maintenance cost that has to come maybe after 2018?
Yes, yes. Well, to give you a little bit of color, our Q1 last year was 106, okay, the combination of both of those 2 guys, which is terrible, okay. We believe that in Q1 of '17, we're not going to be 100, okay. We're going to be less than 100. Are we going to be 90, 91, 92? No because it's very difficult to turn 106 into a 92. But can we be like high 90, 98, 96, 97? I think that's a fair challenge for our guys, okay. But that's Q1. So over the course of the year, by the better control in cost and also improving quality of rates and all that, can we end up the year at better than the high 90? Well, like some guys will say, we'll see.
Okay. And what was the operating ratio for the full year '17 for the U.S. TL?
Full year, it's a little over 100.
A little over 100, okay. But that business should normally run in the low 90, I guess, over some period of time?
If you're middle of the pack, if you're not a star, you're just a middle of the pack, you have to run between 90 to 92 on the van side, okay, on an average year. A stellar year, we should be like closer to 90 or maybe even under 90. On a difficult year, you could be like a 94, 95. But you can be 100 or 105.
Okay. And my second question is on the LTL in Canada. I mean, the environment seems to be a little bit more positive this year, I guess. I'm wondering, do you see it kind of the same way on your side, kind of organic growth gets a little bit stronger this year? Or are we still in the kind of same mode of managing cost to...
Well, Canada is different. I mean, if you talk to a guy that's really running an operation in Alberta and Saskatchewan, I agree. I mean, those markets will be better in 2018. But if you're talking to a guy that runs an over-the-road regional LTL, Ontario, Québec, no, okay. It's just going to get worse. So the way we're set up at TFI is we run 3 kinds of business. So our intermodal business, for sure the revenue should be up a bit, but the bottom line will be up big time. On our transport LTL, we're going to do well. We're going to do well. And on the over-the-road, okay, in Western Canada, we're going to do better than -- better improvement. We'll improve more in Western Canada, bottom line and a little bit of top line. But in the East, Ontario, Québec, our volume will go down but our profit will go up because don't forget, all these guys, all the LTL, our largest customer are the brick-and-mortar guys in [ mall ]. And those guys are all suffering from the e-commerce. So if you're not in the P&C business and you're only an LTL guy in Canada, good luck.
Your next question comes from the line of the Turan Quettawala with Scotiabank.
I guess I was wondering if you could comment a little bit on the spin-off for Truckload. Is that still sort of on the cards? Or has your thinking changed in that at all?
Well, as I said, we're in business to make money and to create value for our shareholders. And the problem is that if you look at the valuation of TFI right now, we're valued as a truckload company. Now people will say, well, okay, are you a truckload guy? Yes, we're a truckload guy for about 45%, 47% of our revenue, okay. Fine. So what about the rest? So the rest, is it worth the same as a truckload company? We know it's not. So this is why -- to answer your question, this is always something I've got on the back of my mind, and we'll see how it goes. But our priority right now, Turan, working with Greg and the rest of the team in the U.S., is to get this company on the right track, okay. That's our main focus. Now we get into the fall of 2018 after 2 good quarters, let's say, Q1 and Q2, we see Q3, and then we look at this market and maybe we'll do something. I don't know. Right now, it's not my focus. My focus is, with Greg, we've got to show that we can turn this thing around in the U.S. And I'm convinced that it's going to get done. But it's a show me thing there, okay. So this is what we have to do first.
Okay, great. And I guess my next question, I was just wondering if you could -- I think in a lot of your commentary, it sounds really positive. Like you're seeing LTL is doing pretty well. Overall Truckload is ahead of plan in the U.S. P&C is ahead of plan. Your EBITDA guidance is sort of around the $600 million mark here. Like are you comfortable that you could beat that this year? Or like I mean...
Too early. Too early to say that. But maybe after 2 good quarters, we'll be in a position to say yes, we can or no, we cannot. But right now, it's too early.
I guess what could go wrong, right? I mean, like pricing is good. Demand is pretty strong overall in both countries, right?
Yes, yes, you're right. I mean, all the ducks are well aligned. But you cannot sell the fur of the tiger before you kill the tiger.
Okay, fair enough, fair enough. That's fair. And I guess my last question on P&C. Just wondering, we've seen this a couple of times, I guess, in the past where things seem to be -- like obviously, the last mile is the most difficult and the most expensive part of the whole e-commerce equation. Like what sort of risk that your pricing is going to continue to be under pressure here as retailers try to continue to reduce that pricing number on the last mile? Like how much pricing kind of discipline is there in that market?
Well, you know what, it's something that is growing, Turan. So right now, to tell you that with my e-commerce guy, I've got a lot of pressure. My competition is not the other guy. My competition in the U.S. has been the e-tailer that decided to do it themselves, okay. So that's my competition. The other guys are just the small guys. So yes, you've got one major that was supposed to be sold and finally, something happened. It doesn't seem that he's going to be sold anytime soon. But we don't have a lot of big competitors in that. The largest competitor is like this large e-tailer, okay. So price pressure, I mean, us, we're in business to make money. We're not in business to make 2 points. So as you look at our P&C, we are improving. I said it 3 years ago. We're going to be double-digit EBIT in that business and people were laughing. Where are they now? And we're going to keep improving. Now true that our volume was down in Q4 because we lost that guy in Q4 with big volume, but we still were able to make more money with less volume. So we are efficient. We're lean and mean. We're the tiger. And don't forget, the tiger is always the last one to survive in the jungle. So e-commerce, last mile, it's a great business. We're just starting with the big brick-and-mortar guys in the U.S. We're just starting now. So we'll see what happens.
Your next question comes from Cameron Doerksen with National Bank Financial.
I guess just a question on our free cash flow expectations for 2018. Maybe you can just talk us through what you're thinking there. And any, I guess, additional sale-leaseback deals you're expecting to do in 2018?
Yes, yes, yes. So if you start, the starting point is, let's say, our EBITDA and then our net CapEx, net of equipment disposal, not real estate. Real estate has nothing to do with that. So net CapEx in 2018 should be, let's say, around $150 million. And then our tax bill is probably -- cash tax will probably be like around $60 million, $65 million. And then you're down to the interest, and the interest should be probably like $45 million, maybe $46 million depending on what happens with the interest rate. So CapEx and interest, you're talking, let's say, $200 million. Tax, you're talking $60 million. So let's say you're $260 million or $250 million. So you're down to about $335 million to $350 million. Now from there, okay, we also have to pay our $70 million dividend because we've increased it about 11%. So you take that and then you're down to, let's say, what, $250 million, okay. And with $250 million, well, we pay down debt. Now I think that we're going to be spending about $100 million in M&A. So that means that the debt would be reduced by, let's say, $150 million, okay, at the end of 2018, with $100 million invested in small tuck-ins, M&A. On the real estate side, we believe that this is going to fetch about $100 million. And this is the cash that will be used to buy back at least $100 million of shares, okay. So the share buyback in 2018 will be funded by the real estate that we're going to be selling. And if you look at our statements right now, we've got -- I don't remember exactly the amount. We already have assets held for sale in there, and those are 2 properties that we already have a deal with a buyer that 1 or 2 will close either in Q1 or in Q2 of 2018, okay. So that is probably what's going to happen in 2018 on cash flow and use of cash.
Okay, no, that's great detail. Appreciate that. Maybe the second question is more, I guess, is probably more short term. We're seeing, I guess, some challenges that the Canadian railroads are having right now. And I'm just wondering how that might be affecting your business. I mean, maybe there's a positive there because the railroads can't meet all their expectations from customers. But also, you have a deal with CN or a partnership with CN on the LTL and they seem to be having some logistical challenges these days. So I'm just wondering if you could maybe talk about what the near-term impact might be for you guys.
Cameron, we work very closely with CN. I mean, we are very close with them. And for sure, I mean, we're going through some issues because our service is piggybacked on them, okay. But we're not in the blame game. We're in there to be successful. So we protect our customers and we work with CN. And one thing is for sure. I think that we are lined up with the right partner long term. And like I said earlier, our intermodal LTL will do even better in 2018. I mean, we have a very aggressive management team there now. We're turning every rock. We're making a lot of improvements in our LTL. Same thing with the over-the-road guys. So this is why I feel good that even with some areas of a shrinking market, we're going to do way better in '18. Don't forget that the LTL used to be a double-digit EBIT division. I'm not saying that now, okay, but let's see what happens in 2018. We're not going to be double digit in '18, but we are putting the seed to be back to where we were, okay, I would say, like 8 years ago.
Okay, very good. And maybe just one final clarification for me. Just on the -- you mentioned that as of Q1, you're going to start reporting the U.S. TL as a separate segment. So that will be a brand-new, I guess, dip segment or reporting segment for you, is that correct?
Yes. We have to show it because we want also to report all the different KPI that all the U.S. TL guys are reporting, okay, because a U.S. analyst will definitely ask for that. So this is why it's got to be available. And we can't mix up KPIs of U.S. with KPIs of Canada because the costs are different, okay, and the operation is different. So we will have to separate that.
Your next question comes from the line of Benoit Poirier with Desjardins Securities.
Alain, if we come back on the P&C business. I mean, you mentioned that Q4 obviously, you lost some volume, down almost 10% year-over-year. But you seem quite confident about 2018. So I was just wondering if you have any expectation in terms of organic growth for P&C. And also, what is the remaining exposure to the big e-tailer and whether it represents some risk going forward?
Well, with this big guy in the U.S., I mean, we're down to nothing. I mean, the only market -- I think we have only 2 small markets, one in California right now and one in the Carolinas that we're still serving for them. So from USD 75 million, we're down to probably USD 15 million to $20 million. And most of it is line haul that we still do for them regionally. Now in Canada, we do probably a little bit more than that with them. So we're servicing like Toronto, Vancouver, Victoria, and we don't service anything in Alberta or in Québec. But still, we have a large share with them. But you never know with these guys. You never know. So this is why we're remaining very cautious about that. This is why we've been working hard with other companies that have a different mentality, okay. So we're very happy with the relationship that we have with other people. And this will definitely grow. So if you ask me the question, what do you think could be your organic growth in P&C? Unless we lose again with these guys in Seattle, if this business stays steady with them, then I would say that probably we're in line for a 3% to 5% growth. Now guys will say, yes, but I mean, the e-commerce is growing way more than that. But us, we're not growing e-commerce to make 2%, okay. So it's -- again, it's a question, okay, so if you look at -- there was an IPO from a Chinese company that its philosophy is market, market, market share, market share, they don't make money. And they just did an IPO in New York and it's crazy. Now -- so I'm questioning myself, is it the way to go? Or is it my way that we want to make 10 to 15 points? Is it the way you have to grab the big market and nobody cares if you make money? Well, my experience with my investors is that when I don't make money, okay, like my Truckload in the U.S., they don't like it, okay. So maybe I need a second life in order to build the company that has a huge market share, doesn't make any money but worth a lot of money. For now, so for us, we've always been focused on growing the business, maybe not as fast as others, but growing it profitably with a double-digit bottom line. And the way we get that is because we're lean and mean and efficient.
Okay. And looking at your Truckload, could you break down the profitability between the Canadian and the U.S. operation?
Well, right now, it's day and night, okay. It's day and night. We ran 2017 with a triple-digit OR. It doesn't make any sense. But I'm telling you, with Q1 and Q2, I think that on the van side, those guys will be very close by the end of '18 to what we do in Canada. So it's a show me thing, okay. So we'll be talking about our Q1 numbers at our annual meeting sometime in April. And hopefully, we'll be in a position to show our shareholders and investors the progress that we've made in Q1 with our U.S. TL.
Okay. And looking at the almost $85 million of EBITDA improvement in 2018 that you expect, I mean, you were close to $515 million. How much will be driven by the U.S. TL? And does the $600 million include some gains on asset disposal or exclude this item?
No. The equipment is always included. Like everybody else in the U.S., the equipment is always included, okay. But the equipment this year is like we didn't make a lot of money on the equipment. I'm talking truck and trailer. Real estate is always out of there. It's not included in there. Real estate gain -- because we're going to make huge gain again in selling real estate in 2018 and it's not included in our $600 million. But equipment, trucks and trailers, that we're selling, although if you look at my Q4, I lost money in my Truckload operation, nobody talks about that. But I lost money, okay. So that being said, for sure the brunt of the increase in profitability from, let's say, the $515 million that you were talking about to $600 million, for sure, a lot of it has to come from the U.S. TL, okay.
Yes, okay. And tax reform, Alain, what should we be modeling going forward with the effective tax rate on a consolidated basis?
Well, for us, it's a wash. I mean, we have a little bit of a gain here, a little bit less there. So in your model, besides that deferred income tax that went down by $70 some million, besides that for 2018, I would say it's a wash. So our tax rate is already like at 26%. So there's not much that you can do, okay. And I like to pay tax because when you pay tax, you make money. And right now, with my U.S. TL, I'm not paying any taxes whatever the rate is because I'm not making any money.
Okay. And your CFO, Mr. Rumble, will retire. We saw the announcement. So could you talk a little bit about the CFO search process? I know it might be still early, but any thoughts about the CFO search, Alain.
Yes. Well, we have a lot of good candidates. And within the next 6 months, we'll be announcing who is going to take over. This is why we announced Greg's retirement more than a year in advance because Greg has got a huge responsibility within the company. He is also responsible for our U.S. TL operation. So it's important that we also come up with his replacement in the U.S. So it's 2 guys that we need to find to do the job of actually one, right?
Yes. And looking lastly on the logistics side, we saw some margin decline versus last year, but you talk about the acquisition. I was just wondering if we should strip out any elements. And also, what kind of improvement you're looking for the logistic division going forward, Alain?
Logistic is always difficult when the market starts to tighten up, okay, because truckers will ask for more money. And this is exactly what's going on right now. So all the brokers' operation are suffering to a certain degree because the truckload guys are saying, "I need more money." And then you have to get in touch with the customer and say, "Hey, Mr. Customer, the market has changed. We need more money." So there's a lag there. So this is why our results were negatively affected in Q4. It's still going on now, okay. It's still going on now because the prices in the U.S., huge pressure, tight capacity. A lot of customers are saying, "Hey, I can't get any truck. Can you help me?" Say no. I mean, so unless you pay a better rate, I mean, maybe I could find a truck for you guys. But at these kinds of rate that we have, I mean, I got no trucks. That's why logistics has got a little bit of pressure right now.
[Operator Instructions] Your next question comes from the line of David Tyerman with Cormark Securities.
My 2 questions are on P&C. So the first one is you have been running around, call it, $340 million to $350 million a quarter on revenue in that business. Is that the kind of level you expect? Or do you think you can grow it? It wasn't clear from the comment about growth on e-commerce whether that'll push the overall number up or whether we're kind of in that range for now.
Well, if you look at our revenue before fuel surcharge this year, we're close to $1.3 billion, okay. And this is after a lot of cleanup that we did in Canada on our last mile, which happened late in 2016. And it's also after the loss of that big e-tailer, late January of last year. So God forbid, we don't lose anything. Now from that point on, okay, we should be able to grow that, like I said, by 3%, 4%, 5% maybe. So if you grow 3% on $1.2 billion, I mean, it's $30-some million.
Right. Okay, that's very helpful. And then the other question just on the margins in the business. They were up a lot in the quarter. They were up a lot sequentially and versus the margins we've seen in the business for quite some time. Was there anything that caused them to jump so much in one quarter? And is this sustainable?
Yes, it is. Wait till you see our Q1. I mean, I've said it many times, guys. I mean, we are focused on cost and efficiency at TFI. And we made some changes in our last mile division in Canada. We let go the guy that used to run it in the fall of 2016 because this guy's culture was about volume and not bottom line. Well, he kept on saying he wanted to do 10 points, but he didn't walk the talk. So that guy has been gone. And the guy that took over, he had a fantastic Q4. And when I looked at this month of January, I just fell off my chair. I said, "Gee-whiz." So it is the team and the focus. Now like I was saying earlier, maybe I should talk to my guys and say, "Get me more market share and less profit as a percentage, okay." But our culture is no, we're in business to make money. We're not in business just to practice delivery, okay. So no, there's nothing special and don't forget that if you look at my severance, we've got lots of severance. Well, the only reason we have severance is because we're investing in equipment because we're doing the same work and more with less people, okay. So we have the huge hit for the severance, but then we get the benefit for the next 10, 15, 20 years, okay. And still in P&C and in LTL, you'll see severance again this year because we are building for the future.
Okay. So you could actually even do better as that comes down at some point?
We'll do better in '18.
So when we're thinking about from a quarterly standpoint, when you say January was very good, we should still expect some kind of seasonal decrease though, I would imagine?
Yes. Well, what I'm saying is that P&C in '18 will definitely do way better, way better. I mean, they will improve by 50 basis points. If you look at their operating margin for the year, I mean, we're just shy of 10, okay, with the depreciation of intangible and all that. In 2018, we'll be double-digit even with the depreciation of intangible. So...
But Q4 was a lot higher than just over 10.
Yes, sir. Yes, sir.
Could you do 11 for the year?
We'll do 11 for the year.
There are no further questions at this time. I will now turn the call back over to the presenters.
Well, thank you, everyone, for your interest in TFI International. So I guess we'll see you in a few months and talk about our Q1. So thank you and have a great evening. Bye.
This concludes today's conference call. You may now disconnect.