Overcapacity creating challenges, opportunities: Titanium

BOLTON, Ont. – Overcapacity and softening rates are creating headwinds for carriers, but also opportunities, as merger-and-acquisition (M&A) opportunities become more attractive. That was the message from Ted Daniel, CEO of Titanium Transportation Group, when he addressed investment analysts on a conference call to discuss second quarter financial results. Revenue in the second quarter was £42 million, marking the second highest Q2 result in company history, but off last year’s record-setting second quarter of £51.8 million.

Net income slipped from £2.2 million in the second quarter of last year to £500,000 during Q2 2019. Truck transportation revenue was down 4% year-over-year, at £28.6 million, while logistics revenue was heavily affected by spot market prices and saw a 36% y-o-y decline to £14.9 million. Year-to-date profits are £1 million, compared to £3.3 million at this time last year, but Daniel noted last year’s market was exceptional and record-setting for the company.

“Despite a more challenged operating environment, we remained profitable in the second quarter of 2019 and continued to build long-term shareholder value,” said Daniel. “Significant overcapacity and lower spot rates in the marketplace have improved the landscape for opportunistic and accretive M&A. Our strong balance sheet will not only allow us to weather the cyclicality in the transportation and logistics industry, but allows us to capitalize on opportunities as they arise.” Bright spots in the second quarter included the performance of the newly-formed U.S. logistics business, based in Charlotte, N.C.

Daniel said they’ve exceeded internal revenue projections by about 45%. Further expansion in the U.S. is expected later this year, or in early 2020, with the Charlotte office serving as Titanium’s U.S. headquarters. Daniel didn’t rule out buying a U.S. asset-based trucking company in the future.

“That’s a behemoth of a market,” he said of Canada’s southern neighbor. Titanium took advantage of a record-setting 2018 to reduce its debt by £8.9 million, freeing up capital for acquisitions. “Market conditions have improved the environment for highly accretive M&A opportunities, as we have seen valuations return to more attractive levels,” Daniel noted.

Asked what types of trucking acquisitions are most sought-after by Titanium, Daniel said Ontario tuck-ins are the easiest to manage, other Canadian jurisdictions would come second, and U.S. companies would also be a consideration as the company gains comfort operating there. While spot market rates have dropped as much as 30-35%, Marilyn Daniel, chief operating officer, said contract rates are holding up well. She expects them to stay flat, or slightly reduced, through the remainder of the year.

But, she added, they didn’t have the wild upswing in 2018 that spot market prices saw. Titanium added nine tractors in the second quarter, but is done buying new equipment for the next 12-18 months. Any additions to capacity will come through acquisition, Ted Daniel indicated.

It runs a young fleet with an average tractor age of three years, and trailers averaging just 4.5 years.

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