TFI International's Q1 2025 Results: Navigating Stormy Seas with a Strong Balance Sheet

TFI International (TSX: TFI), a leading North American freight and logistics provider, delivered its Q1 2025 earnings report, revealing a mix of challenges and strategic progress. While the company missed top-line and bottom-line estimates, its robust free cash flow and operational adjustments suggest resilience in an uncertain economic environment. Analysts at RBC Capital Markets, who scrutinized the results during the earnings call, highlighted both near-term risks and long-term opportunities. Here’s what investors need to know.

Financial Performance: Mixed Results, But Cash Flow Shines

TFI reported a diluted EPS of $0.76, falling short of the $0.99 consensus estimate—a 23% miss. Revenue totaled $1.96 billion, below the $2.07 billion forecast. Year-over-year comparisons were also weak: EPS dropped from $1.24 in Q1 2024, while operating income fell to $115 million (a 6.7% margin) from $152 million (9.4% margin) in the prior year.

The silver lining? Free cash flow surged to $192 million, up from $137 million in Q1 2024. This improvement stemmed from disciplined working capital management and reduced capital expenditures ($200 million projected for 2025, down from prior years). The company’s 10% free cash flow yield and a “GOOD” financial health rating (InvestingPro) underscore its liquidity strength.

Despite the misses, TFI’s shares rose 2.64% post-earnings, closing at $78.43, reflecting investor optimism about its cash flow resilience and strategic pivots.

Operational Turnaround in the U.S. LTL Segment

The U.S. less-than-truckload (LTL) segment—a critical profit driver—remains the focal point of TFI’s turnaround efforts. Key developments:
- Leadership Overhaul: Mid-February reorganization of the U.S. LTL division, with executives focused on operations, sales, and finance, has boosted morale and operational discipline.
- Strategic Shift: A pivot from unprofitable corporate accounts to small- and medium-sized businesses (SMB) has yielded early success. SMB account volumes grew 2% sequentially, and renegotiated pricing terms have stabilized margins.
- Technology Investments: Implementation of Optum software (for linehaul planning) and upgraded pricing tools aim to reduce costs and improve route efficiency.

The segment’s operating ratio (OR) improved sequentially to 93.1% in Q1 from 99% in Q4 2024, though it remains above the sub-90% long-term target. Management aims for a 96% OR in Q2, with further reductions to follow.

Sector Challenges and Risks

TFI faces headwinds in key markets:
- Cross-Border Declines: Cross-border freight volumes dropped 10-15% year-over-year, driven by tariff uncertainty and soft industrial demand. Canadian truckload operations outperformed their U.S. peers but couldn’t offset the drag.
- Industrial Sector Weakness: Customers in agriculture and manufacturing (e.g., tractor producers) delayed spending, reducing freight volumes in the U.S. truckload division.
- Competitive Pressures: UPS’s entry into TFI’s guaranteed freight program (GFP) space poses a challenge, though TFI emphasized its focus on optimizing existing accounts over price competition.

RBC’s Key Takeaways and Analyst Questions

RBC’s analysts, including Walter Spracklin, probed management on critical issues:
- Customer Behavior: TFI acknowledged losing U.S. LTL market share but stressed progress in SMB retention and pricing discipline. Industrial customers’ delayed spending (due to tariff risks) could improve if trade policies stabilize.
- M&A Outlook: Minimal acquisitions in 2025, with capital prioritized for buybacks ($56 million in Q1) and deleveraging. A potential truckload division spin-off is under consideration for 2026–2027.
- Free Cash Flow Use: The company returned $94 million to shareholders in Q1 (dividends + buybacks), with a focus on repurchasing undervalued stock.

Conclusion: A Buy-the-Dip Opportunity?

TFI’s Q1 results reflect broader industry struggles, but its financial flexibility and strategic adjustments position it to outperform peers as macro conditions stabilize. Key positives:
- Cash Flow Machine: A $192 million free cash flow beat and a 10% yield suggest the stock could be undervalued.
- LTL Turnaround Progress: Sequential OR improvements and SMB account growth signal early “green shoots.”
- Balance Sheet Strength: A debt/EBITDA ratio of 2.21x leaves room for strategic moves.

Risks remain, including tariff volatility and cross-border declines, but TFI’s focus on discipline—cost controls, capital returns, and leadership changes—mitigates these. With shares up 2.64% post-earnings despite the miss, investors appear to agree: this is a company to watch as freight markets rebound.

For income investors, TFI’s 24-year dividend streak and 3-year payout growth add to its appeal. While near-term EPS guidance (Q2: $1.25–$1.40) remains cautious, the long-term picture of a logistics leader with a reinvigorated LTL segment and shareholder-friendly policies paints a compelling case.

In short, TFI International’s Q1 results are a reminder that in volatile markets, strong free cash flow and strategic execution can turn headwinds into opportunities.