Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Mullen Group Ltd (MLLGF, Financial) reported consolidated revenues of $495.6 million, consistent with last year, despite economic headwinds.
- The company generated OIBDA of $85.7 million, marking the second highest Q2 ever recorded, with an increase of $2.3 million compared to the prior year.
- Operating margin improved to 17.3% from 16.9% last year, indicating better cost control and efficiency.
- The acquisition of ContainerWorld contributed significantly to revenue and is expected to enhance profitability in future quarters.
- Mullen Group Ltd (MLLGF) increased its monthly dividend by nearly 17%, reflecting confidence in its business prospects and strong balance sheet.
Negative Points
- Revenue in the Less-than-Truckload (LTL) segment decreased by $3.6 million due to softening freight demand and demarketing underperforming business.
- The Logistics and Warehousing (L&W) segment faced competitive pricing pressures, leading to a decline in operating margins by 1.8% to 19.2%.
- Economic activity levels in Canada slowed due to a lack of capital investment in the private sector, impacting overall freight demand.
- The Specialized Industrial Service segment saw a reduction in revenue from major construction projects, including the completion of the Trans Mountain and Coastal Gas Link Pipeline projects.
- The US 3PL segment experienced a decrease in revenue by $3.9 million due to lower freight volumes and excess supply of trucking capacity, creating competitive market conditions.
Q & A Highlights
Q: Murray, you mentioned like the second quarter was pretty good, I know. But you also mentioned that you are seeing some stability across your business, I guess. I just wanted to kind of dig in a little bit here, especially on the freight side. From what a lot of your competitors are telling or saying or reporting, seems like we are still kind of finding an inflection point in the market. So I just want to kind of like grab your thoughts. Where do you see the stability and where do you see sort of green shoots in your businesses today? And what could be your differentiating factors versus some of those competitors who are still struggling?
A: Well, you're spot on, is that most of our competitors, and we're talking about our public company competitors or those of us that are in the supply chain logistics, and it doesn't matter if it's real or my fellow competitors in trucking, blah, blah, blah. But at the end of the day, I think all of us see the same thing at the same time today, which is, the market, it looks like demand is stabilized. It doesn't appear to be going down anymore, which is really good news. The supply chain issues have generally been resolved. So that's the good news, Clark, is that it's stabilized. The other part of that is, though, if you're in the wrong verticals, it's stabilized and it's crappy. Like it's, you know, they're, they're stabilized at virtually variable cost. So if you're in the wrong verticals, it's still going to be a tough grind in our view. Um, but not every vertical is in that position. Every vertical has got more competitive, but some have become ridiculously competitive, but for the general part, we have avoided investing in those verticals over the years. So. But most of our competitors, everybody wants it to improve. We do too, but it's going to take some time for it to prove. Our point is we think it's stabilized and we think that the verticals that we're in and the businesses that we've got, they'll be able to hold their own. And as the competitive competition, the little guys are really getting squeezed on arc in this market. And customers will have no choice to start migrating more towards the stability of those that are going to be around for the longer term. That might take a couple more quarters, but it's just going to be part of a natural cycle in our view. And we're situated pretty good.
Q: Okay, that makes sense. Thanks for that. And just of M&A if you can help us map out the lay of the land, the new debt issuance and, the payment or the diamond coming up in October, plus the facilities you have. So, net-net, it seems like you have maybe more than $0.5 billion of capital to deploy. How do you want to allocate the capital here? Dividend obviously is growing. I don't think it's going to be a huge impact or consumption on your capital maybe, but you continue the buybacks. How much do you really want to put aside for M&A and where are you seeing more imminent opportunities?
A: Deep discussion that we have with the senior executive level and at the board level too, which is M&A, which implies growth. That implies growth on the top line. It doesn't always really translate into bottom line or in free cash. Acquisitions, particularly major acquisitions, are complicated and we are extremely disciplined, Konark. I do not chase growth. I want to -- every acquisition we do must have the ability for us to generate free cash over and above our cost of capital. So that's why we say to you the easiest ones, the best ones, the ones that give us the best opportunity for us to drive margin growth is tuck-ins because we already have the infrastructure in place. We already got great seasoned management teams and all we got to do is layer in some more business to them. And realistically, you get rid of an undisciplined market platter when you do that. But doing big transactions, it's really not our game, unless we see one that is really, really strategic. And that might be LTL as an example. The last big one we did, Richard, was [GART 1]. And that was 2015 in the LTL business. So we're picky. We're not going to lose that discipline, I can tell you right now. That's not going to happen. And every acquisition that we do, we will do it to drive margin improvement. I'm not doing it just for top line growth. That's a fool's game in my view. And we're not pursuing that strategy. That means we got lots of capital available. Carson just explained that. We got a lot available. And we can use that to continue to invest in the strong business verticals we've got, and some tuck-in acquisitions, and we'll give the rest of the money back to shareholders, and then it's, when you give it back to shareholders, it's either through dividend or share buyback, and I think we've, with the dividend increase, we've highlighted is that the little shareholders that we've got, the individual that invests in our stock, and we have a lot of them, the dividend is very, very important to them. We've got some big shareholders, big funds that are in us. That's not important to them, but to the small investor, the increased dividend is very, very important. So we took the path that says what -- we're going to look after those, the little shareholder, and we gave them a nice return because our balance sheet's in great shape and our business is solid. That's our strategy.
Q: Murray, just speaking of verticals that are operating on thin margins, I think in your MD&A, you guys did call out exiting some businesses in the specialized and industrial space that aren't meeting your return thresholds. And it may be a bit too early to comment on it, maybe you can speak to some of the general pockets that you're seeing that are no longer attractive, and maybe even commenting if that's a large portion of your S&I book.
A: On the verticals, there's two parts of the verticals that don't meet our thresholds. One is, we just don't have any businesses that are generating some type of cash. We'll shut them down. We don't wait on them. Where we get concerned, David, is we start taking a look, and this is primarily in the specialized side, where future capital requirements, we don't know whether the market will be able to justify those capital replacement cycles. So we said, well, we might as well-cut bait. And ROK drilling and TRIO drilling, Richard, are prime examples of that. So we just said, you know what, there's no growth. They might need more capital in a year or two. We just said, you know what? We're not going to support the new capital. If you're not going to support it, you might as well get out of it. So that's what we're going to do. And we'll just have a transition plan for some of them. Those are not big verticals for us. Those were
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
