10/24/2012 02:24 EDT | Updated 12/24/2012 05:12 EST

TransForce cutting costs to drive profit growth as economy remains weak

MONTREAL - Trucking and delivery company TransForce says its focus on reducing the operating costs of recent acquisitions will boost profits by 19 per cent over the next three years, even if the weak economy keeps a lid on revenues.

The Montreal-based company hopes pre-tax operating income (EBITDA) will grow from $385 million in 2012 to $460 million in 2015 even without additional revenues.

TransForce CEO Alain Bedard anticipates the North American economy will barely grow through the first part of 2013.

"In this context we anticipate no organic growth but we will continue to direct our efforts to maximize our return on assets and improve operating efficiency," he said Wednesday during a conference call about third-quarter results.

"Should the pace of economic growth increase, we are in a strong position to realize significant benefits."

Among the cost-cutting efforts is the sale of surplus properties and eventual closure of some 50 offices of recently-acquired companies.

TransForce (TSX:TFI) more than doubled its third-quarter profit to $53.8 million or 53 cents per share, compared to $19.3 million or 20 cents per share a year earlier as the contributions from acquisitions more than offset the impact of challenging market conditions and lower-than-expected volumes.

Adjusting for one-time items, it earned $43.5 million or 43 cents per share, up from $33.3 million or 34 cents per share in the prior year. Analysts had expected the company would earn 42 cents per share in adjusted profits on $840 million of revenues, according to Thomson Reuters.

The company fell short on both measures with revenues rising to $761.7 million from $743 million. Excluding fuel surcharges, revenues were $683 million up from $667.2 million.

"The month of August was a disaster for us," Bedard told analysts. "It's like everybody left for vacation in August."

Volumes at Canpar dropped about nine per cent in the month but came back on track in September and October.

Bedard said the fourth quarter should continue to be slow and take away some of his optimism from the first half of the year.

"Two months ago I was convinced we were going to beat our plan, now I'm convinced we're going to make the plan just, because the little slowdown in the revenues."

The market is particularly slow in Ontario and Quebec, while the energy sector has seen little activity in Alberta to move large drilling platforms.

The situation is dramatically better in the U.S. energy sector and Bedard said he believes drilling will continue to soar no matter who is elected president next month.

"We're very confident that we're going to have a very strong year in 2012 (on the energy side) and it's going to continue in 2013, except Canada," he said.

"The number of rigs there is a disaster, it keeps on going down and down and down ... the only beauty about Canada is my oilsands-related business is growing 15 per cent right now because oilsands is busy."

Bedard said he is working on some acquisition opportunities that could bear fruit next summer and help the company grow for several years.

In the meantime, TransForce plans to purchase up to seven million of its own shares and pare down its debt.

Maxim Sytchev of Alta Corp Capital said TransForce’s results follow the trend of weak revenues by U.S. industrial companies.

He suggested the economic environment needs to improve for investors to consider buying TransForce's shares.

"That being said, TransForce management is doing all it can to counter the difficult operating environment," he wrote in a report, pointing to 13.2 per cent margins, up from 11.5 per cent a year ago.

"With TransForce shares slipping 11 per cent off their 52-week highs, we think we are going to see additional pressure on the transportation universe in general and TransForce in particular as relatively full valuations do not allow for much margin of error."

On the Toronto Stock Exchange, TransForce shares gained 25 cents at $17.32 in early afternoon trading.