TFI International: A Logistics Leader Leveraging Strong Cash Flow Amid Earnings Slump

TFI International (TSE:TFII) has long been a bellwether in North American logistics, but its stock has faced turbulence in 2025. Despite a recent earnings miss and margin pressures, the company's robust free cash flow (FCF) generation and conservative balance sheet suggest resilience. For investors, this creates an intriguing opportunity to buy into a logistics powerhouse at a discounted valuation—provided they can stomach near-term volatility.

The Financial Foundation: Cash Flow and Debt
Let's start with the positives. TFI's Q1 2025 FCF surged to $192 million, a 40% jump from $137 million in Q1 2024. This strength stems from disciplined working capital management and controlled capital spending, which remains on track at $200 million for the year. Meanwhile, funded debt-to-EBITDA of 2.21 is comfortably below the 3.50 target, indicating ample financial flexibility.

The company's balance sheet is a key advantage. With net debt below $1 billion and a manageable maturity profile, TFI has room to weather macroeconomic headwinds, invest in growth, or return capital to shareholders. In Q1 alone, it repurchased $56 million of shares, part of a $200 million program that underscores confidence in its long-term prospects.

The Earnings Dilemma: Growth vs. Margin Pressures
The challenge lies in TFI's top- and bottom-line performance. While revenue rose 6% to $1.7 billion in Q1 (excluding fuel surcharges), this growth was driven by the Daseke acquisition rather than organic momentum. Operating income fell to $115 million from $152 million in Q1 2024, with margins compressing to 6.7% from 9.4%. The LTL segment, which accounts for much of TFI's legacy business, saw a 13% revenue decline, reflecting broader industry softness.

The Q2 2025 report exacerbated these concerns. EPS of $0.76 missed estimates by 25%, sparking analyst downgrades. However, revenue rose 5% year-over-year to $1.96 billion, and FCF remained robust. The disconnect between revenue growth and profitability underscores a recurring theme: TFI is navigating a tricky transition. Freight volumes remain sluggish, and cost inflation in labor and equipment continues to bite. Yet the company's FCF resilience suggests it can manage through this phase without compromising liquidity.

Stock Performance: A Discounted Valuation, But Why?
The market has been unkind to TFI. Year-to-date through June 2025, shares have plunged 33.6%, with the stock trading at $90.32—a 27% discount to its 52-week high. This underperformance contrasts with a five-year total return of 163%, signaling a sharp shift in sentiment.

Analysts now see risks. The “Very Negative” Estimate Revisions Grade (8/100) reflects downward EPS revisions from 11 of 15 analysts, who now project Q3 2025 EPS of $1.27—a figure that still hinges on margin recovery. The stock's trailing P/E of 17.6 is below both its five-year average (23.2) and the sector median (23.6), suggesting investors are pricing in near-term uncertainty.

Why Now Could Be a Buying Opportunity
Despite the gloom, three factors make TFI worth considering:

1. Cash Flow Dominance: FCF remains the company's backbone. Even in a tough quarter, it generated $192 million—a figure that could grow as the Daseke integration drives synergies and automation investments reduce costs.

2. Undervalued on Metrics: At a 16.3 forward P/E (based on consensus estimates), the stock is cheap relative to peers. If FCF continues to outpace earnings volatility, the market may reassess its valuation.

3. Debt Flexibility: With leverage well below targets, TFI can withstand a prolonged slump in freight demand or interest rates. It has no major debt maturities until 2026, buying time to stabilize margins.

Risks and Considerations
- Freight Recovery: If demand remains weak, TFI's organic growth could stay muted.
- Margin Pressures: Cost inflation and unionization efforts in the sector pose ongoing risks.
- Peer Performance: Competitors like Knight-Swift (KNX) and Saia (SAIA) face similar challenges, but TFI's FCF and scale give it an edge.

Investment Thesis
TFI International is a prime example of a company where fundamentals outpace sentiment. While earnings have disappointed, its cash flow and balance sheet are in solid shape. At current levels, the stock offers a 2.8% dividend yield (though it's suspended for now) and a potential upside if margins recover. For investors with a 12–18 month horizon, this could be a bargain.

Actionable Takeaway
- Buy: For long-term investors willing to overlook short-term margin headwinds.
- Hold: For those who prefer waiting for clearer signs of margin stabilization.
- Avoid: If you're risk-averse or demand immediate earnings growth.

The logistics sector is far from dead, and TFI's scale and FCF machine position it to outlast the current slump. The market's focus on near-term misses may be ignoring a resilient business—and a potential rebound.

In short, TFI International isn't just surviving—it's positioned to thrive when the cycle turns. The question is whether investors can afford to wait.