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TransForce sees early signs that lower loonie helping Canadian manufacturing

MONTREAL - The Canadian dollar's decline is showing early signs of helping the country's manufacturing sector, says the head of the TransForce trucking and delivery company.

The loonie has been worth less than the U.S. dollar for about a year and recently has been hovering around 90 cents US, providing some help for Canadian exports and for TransForce (TSX:TFI).

"Maybe it's going to be short-term but we're starting to see a little bit more activity in our truckload sector right now," CEO Alain Bedard said Thursday during a TransForce conference call.

The Montreal-area company which has operations throughout Canada and in the United States, reported a big drop in fourth-quarter profits on Wednesday after markets.

TransForce cited harsh winter weather, the closure of its oil rig moving business in Western Canada and severance costs as profit fell to $12.3 million in the fourth quarter, from $36.1 million a year earlier.

Earnings per share decreased to 13 cents from 37 cents even though revenues increased to $792.6 million from $778.4 million.

It said the 1.8 per cent increase in revenue in the quarter ended Dec. 31 was due to higher revenue in its package and courier segment as a result of its enhanced same-day delivery network in the United States.

Bedard said TransForce has seen the impact of Canada's dwindling manufacturing sector, including in Ontario's auto industry.

"Five years ago in Ontario we had lots of industrial customers...today we're down 50 to 60 per cent of what we were serving. Those guys are all shut down, closed, gone," Bedard told analysts.

The problem has been compounded by a weak Canadian economy, whose slow growth has been fuelled mainly by grain and commodities in Western Canada, he said.

The Canadian dollar's value has dropped partly because oil, gas and metals are priced in U.S. currency, which has risen due to economic recovery and the Federal Reserve's adjustments to its monetary policy.

Notwithstanding the currency change, Bedard said he doesn't foresee economic or market conditions changing significantly in early 2014, although the company expects to benefit from recent acquisitions and a drive for greater efficiency at its operations, including Vancouver.

Consequently, TransForce continues to shed jobs, close operations in small cities and trim expenses until economic conditions improve, he said.

TransForce has been auctioning off its Canadian rig moving equipment — used in the oil and gas industry — and the company took a $63-million impairment charge during the quarter.

It plans to reduce rig-moving operations in the U.S. this year and Bedard threatened to get out of this highly cyclical business entirely unless conditions improve.

"If things don't improve then we'll probably have to (look again) because we're in the business of making money, not losing any, and if we cannot support a profitable operation we're just going to walk away, sell the assets and do something else."

TransForce said its results in the fourth-quarter and in January were hurt by extreme weather that disrupted operations in Canada and the United States and even claimed the lives of three employees.

Operations especially in Canada's largest city were disrupted for several days in December after a major ice storm knocked knocked out electricity and clogged streets with broken branches and fallen wires.

"When it hits Toronto it's the worst for us because everything comes out of Toronto at 75 per cent to feed the network," Bedard said.

TransForce said its adjusted net income in the quarter was $21.5 million, or 23 cents per diluted share, compared with the year-earlier $37.8 million, or 39 cents per share.

The company was expected to earn 40 cents per share in adjusted earnings on $805.3 million of revenues, according to analysts polled by Thomson Reuters.

Maxim Sytchev of Dundee Securities added the weak results don't suggest there's anything "wrong with TransForce's business model" as its competitors also face challenges that have hurt their stock price.

"There is no reason to move TransForce's 2014 or 2015 numbers as the strategy of extracting synergies from existing assets, M&A, stock buybacks has not changed," he wrote in a report.

Sytchev added that the move to scale back the TransForce energy services division is welcome, given its deterioration.

On the Toronto Stock Exchange, TransForce's shares gained 37 cents or 1.61 per cent at $23.30 in Thursday morning trading.

The Canadian Press


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