BUSINESS

TransForce doesn't see improvement in Alberta oil rigging business

04/19/2013 12:40 EDT | Updated 06/19/2013 05:12 EDT
MONTREAL - TransForce's Alberta oilsands activities may be thriving, but the transportation company doesn't foresee any improvement this year for North American oil drilling.

The trucking company, which among other things moves drilling equipment, posted weaker results in the first quarter as energy sector revenues dropped 24 per cent and margins plummeted.

Chief executive Alain Bedard told analysts Friday that he foresees an eventual improvement in the U.S. energy sector as the country seeks energy independence.

But he said the outlook is dark in Canada because of the challenges of moving oil to market.

"All the service that we do for the oilsands is growing and is doing great," he said during a conference call.

"The disaster in our company is the rig moving business. The rig moving business in Canada it's a mess."

Energy services revenue decreased by $20 million in the U.S. and by $8 million in Alberta, while the adjusted profit margin was 3.6 per cent, compared with 12.4 per cent a year ago.

The Montreal-based company has sold and mothballed drill moving equipment to reduce its capacity by more than 10 per cent.

TransForce (TSX:TFI) shares were down nearly two per cent, or 38 cents to $19.62 in trading Friday afternoon on the Toronto Stock Exchange after having reported weaker results after markets closed on Thursday.

The transportation and logistics company's profits dropped 37 per cent to $18.9 million in the period ended March 31. It earned 20 cents per diluted share, compared with 31 cents in the prior year.

Adjusting for one-time items, including abnormally high asset sale gains, it earned 18 cents per share, below the 26 cents per share forecast by analysts.

Revenue decreased 4.9 per cent to $749.7 million, below the $786 million forecast by analysts, due to energy weakness and a 10 per cent drop in less-than-truckload sales.

TransForce revenues were helped by a $24.9-million contribution from the acquisition of delivery company Velocity Express on Feb. 1.

The quarter included three days less of business than last year, which accounted for some of the decrease.

Bedard said he expects the overall economy to remain weak in 2013.

He added that demand for some of its trucking services have been hurt because the corruption scandal in Quebec has slowed the awarding of contracts.

Meanwhile, he said the company hopes to reach agreement with its bankers in the coming weeks to alter the covenants of its loans to provide more flexibility.

And it will continue to look at selling $100 million worth of real estate as it sheds surplus transportation terminals acquired through various acquisitions.

Benoit Poirier of Desjardins Capital Markets downgraded TransForce and reduced his target price by $3 to $24 due to the weak results.

"Although we expect the company to continue to improve profitability by focusing on efficiency initiatives and cost optimization, challenging economic conditions, soft results in the energy segment and the overall lack of visibility justify taking a slightly more conservative stance for the time being," he wrote in a report.

TransForce offers courier and trucking services, including specialized services to the energy sector and waste management to customers across Canada and the United States.