It can be hard to identify companies to steer clear of if we’re looking at year-over-year results. These companies can look like they’re still doing well, but zoom in just slightly and you’ll see the start of potential problems.
Such has been the case for TFI International (TSX:TFII). The transportation and logistics company still has shares up 24% in the last year alone! However, shares came down after first-quarter results and are now down 18% from 52-week highs.
So, let’s go over what those results were and why I’d stay clear of this stock … for now.
The earnings
First let’s go over the most recent earnings reports, which missed estimates set out by analysts. The company’s operating income decreased from $166.4 million in the first quarter (Q1) of 2023 to $151.6 million in Q1 2024. This drop is primarily due to weaker market conditions affecting the transportation and logistics sector.
Furthermore, TFI International’s net income fell from $111.9 million in Q1 2023 to $92.8 million in Q1 2024, reflecting a 17% decline. Adjusted net income also dropped from $116.5 million to $105.5 million. Diluted earnings per share (EPS) decreased from $1.27 in Q1 2023 to $1.09 in Q1 2024. Adjusted diluted EPS also saw a decline from $1.33 to $1.24.
Finally, the net cash generated from operating activities decreased from $232.1 million in Q1 2023 to $200.7 million in Q1 2024, indicating reduced cash flow. As well, there was a significant drop in free cash flow from $195.7 million to $137.2 million, highlighting lower liquidity and financial flexibility.
Why the fall
The drop in earnings came from a drop in segment performance pretty much across the board. Revenue decreased in three major segments. Package and Courier revenue fell by 11%. Less-Than-Truckload revenue dropped by 4%. And Truckload revenue decreased by 6%
What’s more, this could only continue. The transportation and logistics market has been experiencing tough conditions, contributing to decreased volumes and revenues. This environment has also impacted the company’s profitability and cash flow.
Add to this uncertainty from the United States election in November. The upcoming U.S. election is causing uncertainty in the market. Customers are holding off on shipments, waiting to see the election results, which is affecting demand and revenue.
Investor’s unsure
All this adds up to uncertainty regarding the future, especially as the company made several acquisitions costing TFI stock a ton of cash. Despite recent acquisitions, such as Daseke and JHT Holdings, the company is facing integration challenges and higher costs, impacting overall financial performance.
So, now, with the results below analysts’ expectations, particularly the 7% year-over-year drop in adjusted earnings per share, this disappointment likely contributed to the negative investor sentiment.
In the long term, it may not improve. The forecast of continued difficult market conditions until at least 2025, as mentioned by the chief executive officer, Alain Bédard, has likely made investors wary about the company’s near-term prospects.
So, while an 18% drop in share price has been bad, it may only be the beginning. Weaker financial performance, a challenging market, and strategic issues are all piling up on TFI stock. And it’s unclear when that might improve.
