Executive Summary / Key Takeaways

• TFI International is strategically repositioning itself for long-term growth by focusing on operational excellence, technological innovation, and a significant re-domiciliation to the U.S., aiming to capitalize on an anticipated freight market rebound in 2026.
• The company demonstrates robust financial discipline, consistently generating strong free cash flow, which it strategically deploys for debt reduction, increased shareholder returns through dividends and share buybacks, and targeted M&A.
• Key operational improvements are underway, particularly in the U.S. Less-Than-Truckload (LTL) segment, driven by new leadership, enhanced service metrics, and advanced planning software, despite ongoing challenges with density and claims.
• Technological differentiators, including the implementation of Optym for linehaul and P&D optimization and significant investments in AI for cost reduction and sales augmentation, are foundational to TFI's competitive moat and future efficiency gains.
• While near-term macroeconomic headwinds, including tariff uncertainties and subdued freight volumes, are expected to persist through 2025, TFI's strategic initiatives and a projected U.S. industrial market recovery position it for substantial operating ratio improvement and earnings growth in 2026.

A North American Powerhouse in Transformation

TFI International Inc. (TFII) stands as a formidable player in the North American transportation and logistics industry, a position forged through decades of strategic evolution since its founding in 1957. The company's journey, marked by its conversion to an income trust in 2002 and subsequent reversion to a corporate structure in 2008, has culminated in a diversified enterprise with a significant footprint across the continent. Today, TFI's operations are predominantly U.S. domestic, accounting for approximately 70% of its business, complemented by 25% Canadian domestic and 3-5% transborder activities. This geographic and operational breadth, encompassing Less-Than-Truckload (LTL), Truckload (TL), and Logistics segments, positions TFI uniquely within a competitive and often volatile market landscape.

The industry currently grapples with a prolonged freight recession, characterized by subdued volumes and intense competitive pressures. Factors such as tariff uncertainties impacting industrial end markets, U.S. government shutdowns affecting Department of Defense contracts, and significant declines in OEM truck manufacturing volumes have created a challenging operating environment. In response, TFI has sharpened its focus on operational excellence, stringent cost control, and strategic technological adoption. This proactive approach, rather than passive reliance on market recovery, is central to its investment thesis.

Technological Edge and Operational Precision

TFI's strategic response to market dynamics is deeply rooted in its commitment to technological differentiation and operational precision. The company has made significant strides in leveraging advanced software and is embarking on substantial investments in artificial intelligence (AI) to enhance efficiency and service quality across its diverse segments.

A core technological differentiator is the implementation of Optym software for linehaul planning within its LTL operations. This system has been instrumental in optimizing routes and asset utilization, notably reducing the proportion of linehaul miles outsourced to rail from over 30% to approximately 20%. This shift to road-based transportation, managed internally, has improved service reliability and control while maintaining comparable costs. The company is now extending this technological advantage by implementing Optym for its Pickup & Delivery (P&D) operations, starting in Canada and slated for U.S. deployment in 2025. This initiative aims to further optimize routing, reduce miles driven, and increase freight per stop, directly addressing density challenges and driving down operational costs.

Beyond established software, TFI is making "major investment in AI" in 2026, viewing it as a transformative force for the industry. These AI initiatives are designed to reduce costs, improve efficiency, and enhance service across all segments. Potential applications include automating yard shunters, which could significantly reduce labor costs, and augmenting sales processes to improve productivity by identifying optimal targets and accelerating customer outreach. These AI investments are primarily license-based, incurring minimal expense (estimated at $30-$35 per person per month), and are integrated into existing systems like CRM, avoiding the need for costly data center infrastructure. This strategic embrace of AI is expected to provide a substantial competitive moat, enabling TFI to "do more with less" and position itself for future market leadership.

Furthermore, TFI has addressed long-standing operational inefficiencies with new billing and master file management software, expected to be fully implemented by summer 2025. This system, including the Prism billing software, has already demonstrated tangible benefits, such as reducing the Days Sales Outstanding (DSO) for U.S. LTL from 43 days to 35 days in Q2 2025. This improvement in billing accuracy and collection efficiency directly enhances cash flow and reduces administrative overhead.

Segment Performance and Strategic Initiatives

TFI's diversified business model provides a resilient framework, though performance varies across segments amidst the current market conditions.

The Less-Than-Truckload (LTL) segment, particularly its U.S. operation (TForce Freight), has been a focal point for strategic intervention. In Q3 2025, the LTL segment generated $687 million in revenue before fuel surcharge, representing 40% of segmented revenue, with an operating income of $78 million. The combined LTL operating ratio (OR) improved sequentially for the second quarter in a row to 88.8%, though the U.S. LTL OR remained at 92.2%, matching the prior year's performance. This segment has faced significant challenges, including a "very disappointing" Q1 2025 with a 93.1% OR and a "disaster" Q4 2024 with a 90.3% adjusted OR, largely due to a deteriorating revenue mix (losing higher-margin small and medium-sized businesses to lower-margin 3PL and corporate accounts) and high claims ratios (0.9% in Q4 2024 and Q1 2025, significantly above the Canadian LTL's 0.2%). However, under new leadership implemented in mid-February 2025, TForce Freight has shown tangible improvements. Missed pickups, once a "cancer," are down over 50% year-over-year in Q2 2025, and reschedules are down 34%. The company's next-day service is now comparable to peers, and 4-day service has improved by shifting freight from rail to road. The focus is now on improving 2-day and 3-day service, which constitutes the largest portion of its LTL business. TFI is also adjusting its terminal network, expecting a net positive cash flow of $40 million to $50 million from terminal swaps in Q4 2025.

The Truckload segment contributed $684 million in revenue before fuel surcharge (39% of segmented revenue) in Q3 2025, with an operating income of $53 million and an OR of 92.3%. This segment, significantly bolstered by the April 2024 acquisition of Daseke, has been impacted by tariff uncertainties on steel and other commodities, leading to reduced freight volumes. In Q1 2025, specialized truckload miles were down 10-15%, improving to high single-digit declines (8-9%) in April. The Daseke integration is progressing, with financial and fleet management systems expected to be fully integrated by the end of 2025. A key initiative is shedding excess equipment (estimated at 400 trucks too many) acquired with Daseke, aiming to reduce depreciation and interest costs and target a sub-90% OR for specialized truckload in 2025.

The Logistics segment generated $368 million in revenue before fuel surcharge (21% of segmented revenue) in Q3 2025, with an operating income of $31 million and an operating margin of 8.4%. This segment has been significantly affected by a 40% reduction in truck manufacturing volumes from major OEM customers like PACCAR (PCAR) and Freightliner (DTGFF), impacting its JHT truck-moving business. Despite the downturn, TFI is strategically retaining staff in JHT, recognizing it as a "diamond" that will rebound. Canadian logistics operations are performing well, while U.S. logistics is running at about 92% of its plan.

The Package & Courier (P&C) segment, primarily in Canada, continues to perform well, with Canadian P&C and LTL operations running "very light in terms of assets." While B2C growth is outpacing B2B, leading to some density challenges and aggressive pricing, the segment is benefiting from financial institutions shifting credit card deliveries from Canada Post due to reliability issues.

Financial Strength and Capital Allocation

TFI International consistently demonstrates robust financial health and a disciplined approach to capital allocation, even amidst challenging market conditions. The company generated over $570 million in free cash flow year-to-date in Q3 2025, slightly exceeding the prior year's nine-month results. This strong free cash flow generation, which management aims to grow to "close to USD 1 billion in a normal market environment," is a cornerstone of its investment thesis.

In Q3 2025, the Board approved a 4% increase in the quarterly dividend to $0.47 per share, reflecting a yield of close to 2%. The company also repurchased $67 million worth of shares during Q3 2025, with an additional $17 million repurchased subsequent to the quarter, underscoring its commitment to returning excess capital to shareholders. The funded debt-to-EBITDA ratio stood at a healthy 2.4x at the end of September 2025, with a target to end 2025 around 2.0-2.1x. For large acquisitions, TFI is prepared to temporarily increase leverage up to 3.0x, with a clear strategy to rapidly reduce it below 2.5x.

Capital expenditures are managed prudently, with full-year net CapEx (excluding real estate) for 2025 revised down to $100 million to $175 million from an earlier $200 million. This reduction is partly due to delayed truck deliveries and the ability to extend the life of existing trucks in a depressed truckload environment. Normal net CapEx is typically around $300 million in more robust earnings environments. Furthermore, a cash tax benefit of $75 million cumulatively over five years, stemming from new U.S. legislation, with $40 million realized in the first two years, further enhances TFI's financial flexibility.

Competitive Landscape and Strategic Positioning

TFI operates in a highly competitive North American transportation and logistics market, facing both direct and indirect rivals. Its overall market positioning is that of a diversified player with a strong North American network, allowing it to compete effectively in cross-border and multi-segment services.

Direct Competitors:

• Old Dominion Freight Line (ODFL): ODFL is a dominant LTL player known for superior service and efficiency. TFI's broader geographic footprint and diversified segments offer greater operational flexibility, while ODFL excels in specialized LTL execution. TFI's integrated services, combining LTL with TL and logistics, provide a comprehensive solution that may appeal to customers seeking one-stop providers.
• XPO Logistics (XPO): XPO emphasizes an asset-light, technology-driven model. TFI's more asset-heavy approach in TL and logistics, with a larger fleet, positions it strongly in dedicated and expedited services where its extensive network offers greater reliability. While XPO leads in digital processing, TFI's established presence in Canada and Mexico provides a distinct cross-border advantage.
• Knight-Swift Transportation (KNX): KNX is a major TL and intermodal provider focused on cost leadership. TFI's integrated value proposition across LTL, TL, and logistics, coupled with its North American reach, offers a broader solution compared to KNX's more U.S.-centric focus. TFI's independent contractor model provides flexibility, though KNX may lead in pure TL cost efficiency.
• J.B. Hunt Transport Services (JBHT): JBHT is a leader in intermodal solutions with strong rail partnerships. TFI's end-to-end capabilities across borders and its asset ownership model offer greater control and potentially faster response times compared to JBHT's partner-dependent model. TFI's diversification enhances cash flow stability, while JBHT excels in intermodal efficiency.

Competitive Advantages (Moats):
TFI's primary competitive advantages include its extensive North American network and geographic reach, which fosters customer loyalty through reliable cross-border services and supports stronger revenue streams. This broad reach provides operational resilience, particularly in regions where competitors may have less presence, enhancing TFI's pricing power. Additionally, TFI's cost leadership in certain operations, driven by its scale and independent contractor model, allows for better capital efficiency and profitability, particularly in its Canadian segments.

Competitive Disadvantages/Vulnerabilities:
TFI faces vulnerabilities from its exposure to fuel price and regulatory fluctuations, which can impact profitability, and potential technological gaps compared to more digitally advanced competitors. The U.S. LTL segment's lower density and higher churn rate also represent a competitive challenge.

Outlook and Risks

TFI International anticipates a challenging near-term environment, with Q4 2025 adjusted diluted EPS projected to be in the range of $0.80 to $0.90. This outlook assumes a deterioration of the U.S. LTL OR to 96% in Q4 2025, with Specialized Truckload and Logistics ORs expected between 93-94%. These projections reflect a slow start to Q4, influenced by factors like the U.S. government shutdown impacting Department of Defense business and continued softness in truck manufacturing. For the full year 2025, management expects adjusted EPS to be in the range of $5.75 to $6.00, similar to 2024, with the first half likely more difficult than the second.

Despite these near-term headwinds, management expresses considerable optimism for 2026, believing "the sun is going to start coming up." This positive outlook is predicated on several factors: the anticipated impact of U.S. government investments (e.g., "Big Beautiful Bills"), potential consumer tax refunds, and a projected rebound in the U.S. industrial sector. Furthermore, TFI expects a correction in the supply-demand imbalance within the trucking industry, driven by capacity exiting the market due to factors like CDL restrictions, English language proficiency requirements, and reduced truck sales. These dynamics are expected to contribute to a 200-300 basis point global OR improvement for LTL in 2026, even with flat volumes. The Logistics segment, particularly JHT, is also poised for a "boom year" in 2026 due to anticipated increases in OEM truck production related to new engine requirements in 2027.

Key risks to this outlook include the persistence of the freight recession, prolonged tariff uncertainties, and the execution risk associated with the U.S. LTL turnaround. The company's significant investment in AI and other technologies, while promising, also carries implementation risks. However, TFI's proactive measures, including strategic re-domiciliation to the U.S. (expected within 9-12 months) to better align with its shareholder base and commercial presence, are designed to mitigate these risks and unlock future opportunities, including potential M&A of size in mid-to-late 2026.

Conclusion

TFI International stands at a pivotal juncture, demonstrating remarkable resilience and strategic agility in a challenging freight market. The company's disciplined capital allocation, evidenced by consistent free cash flow generation, debt reduction, and shareholder returns, provides a strong financial foundation. While immediate headwinds persist, TFI's unwavering commitment to operational excellence, particularly in addressing the U.S. LTL segment's challenges, and its forward-looking investments in cutting-edge technologies like AI and advanced planning software, underscore a compelling long-term investment thesis.

The anticipated rebound in the U.S. industrial market in 2026, coupled with TFI's internal efficiency drives and strategic re-domiciliation, positions the company for significant operating ratio improvement and earnings growth. TFI's diversified portfolio and strong competitive advantages, including its expansive North American network and a growing technological edge, are expected to drive sustained value creation. Investors looking for a company with a clear roadmap for growth, a robust financial profile, and a proactive approach to market dynamics should find TFI International an attractive proposition, particularly as its strategic initiatives and technological leadership begin to fully materialize in a recovering economic environment.