United Parcel Service Inc. agreed to sell its short-haul trucking business for $800 million, the first substantial move in the “better-not-bigger” strategy that Carol Tome developed since taking over as chief executive officer in June.
Canada’s TFI International Inc. will acquire the unit, one of the largest less-than-truckload carriers in the U.S., UPS said in a statement Monday. The eight-decades-old operation, separate from the package deliveries for which UPS is known, is primarily a business-to-business enterprise hauling large industrial cargo in big trucks.
Tome’s plan to get lean is a change from 2005, when UPS paid about $1.25 billion for the trucking unit in an effort to become a one-stop shop for transportation services. She has pledged to increase return on capital investment by focusing on the core parcel business, brand and culture while maintaining UPS’s dividend and investment-grade credit rating. Everything else is under review, Tome said in July.
TFI expects the acquisition will add to earnings this year and will increase profit as the company improves efficiency. “This is the most strategic acquisition that TFI has ever done,” CEO Alain Bedard said on a conference call with analysts.
Monday’s “agreement allows UPS to be even more laser-focused on the core parts of our business that drive the greatest value for our customers,” Tome said in the statement. The Atlanta-based company will take a $500 million charge related to the sale, which is expected to close in the second quarter.
The unit had sales of about $3.1 billion and 14,500 workers last year, according to a UPS presentation. It operated 6,340 tractors and 23,400 trailers in 197 facilities.
The business, whose customers include Best Buy Co., Honda Motor Co. and Home Depot Inc., has a “roughly break-even” operating margin, according to TFI. The unit moved cargo at below market rates and was a loss leader for UPS so the courier could offer a bundle of services to customers, Bedard said. He intends to increase prices while retaining customers.
Bedard plans to reduce costs by purchasing new vehicles that are more efficient and by streamlining cross-border freight between the U.S. and Canada, among other things. The St Laurent, Quebec, company, which had a market value of C$7.54 billion ($5.91 billion) from Monday’s stock surge, expects to increase sales in Mexico as well.
“This opens a lot of opportunity for us,” said Bedard, whose company has made more than 90 acquisitions since 2008. The unit will continue to provide service to UPS under a five-year agreement.
The sale won’t affect UPS’s package-delivery business’s operations and will raise the company’s operating margin by 0.2 percentage point, the courier said.