MONTREAL – Trucking and courier company TransForce is getting out of the rig-moving business in Canada early next year as it tries to stem losses by focusing on its growing U.S. operations.
“It’s a tough market; the pricing pressure is very, very hard there on the rig-moving side,” CEO Alain Bedard said Wednesday in a conference call to discuss its third-quarter results.
The move will reduce annual revenues by up to $25 million but also cut losses. It sold $5 million in equipment in the quarter, raising its total for the year to $12 million. TransForce will continue to provide other services to Alberta’s oil sands sectors for which it receives about $100 million in annual revenues.
While the U.S. market has been “really soft” this year, Bedard said his team if very confident that the oil drilling environment will slowly improve next year as the number of competitors is reduced.
“Guys are just walking away and saying the gold rush is over,” he said, noting that TransForce did very well in the Bakken region, in North Dakota and Montana, for nearly a decade until about 18 months ago.
Exiting the business of moving drilling rigs and equipment for oil field companies and contractors will allow TransForce to focus on business opportunities that can generate cash, he said, pointing to the August acquisition of Texas-based E.L. Farmer, a pipe storage and hauling specialist.
“That’s why I’m very confident that we will deliver a way better year because this year 2013 has been a disaster for us,” he said.
TransForce (TSX:TFI) announced plans Wednesday to boost its quarterly dividend by 11.5 per cent despite lower profitability in the third quarter due to economic weakness and soft demand in the energy sector.
The dividend payable Jan. 13 will be 14.5 cents per share, up from 13 cents per share. Its says the increase reflects the company’s strong free cash flow despite a tough market.
Free cash flow measures how much cash a company has left after operating expenses and current debt obligations.
The Montreal-based company’s net income decreased 18.2 per cent to $44 million in the three months ended Sept. 30, from $53.8 million a year earlier.
That translated into 45 cents per diluted share in earnings, compared with 53 cents per share a year earlier.
Excluding one-time items, it earned $36.7 million in adjusted income or 38 cents per share, one penny below analyst forecasts.
Total revenues were $775.1 million, including fuel surcharges, up from $761.7 million last year.
The quarter’s results were primarily affected by lower earnings and revenues in its drilling rig moving operations and losses at Velocity Express, a U.S.-based same-day package delivery firm acquired nearly a year ago.
Operating income from energy services fell to $2.8 million from $12.6 million a year ago, on a 12 per cent drop in revenues to $87 million.
Walter Spracklin of RBC Capital Markets said the results were in line with expectations.
He said that the dividend increase came two quarters earlier than he had expected.
On the Toronto Stock Exchange, TransForce’s shares gained 31 cents at $22.12 at the close on Wednesday.