It looks like Canada’s export sector may soon deliver the growth that the Bank of Canada (BoC) has long been awaiting. According to a new report from Export Development Canada (EDC), the government’s export credit agency, a resurgent US economy along with growth in the emerging markets should trigger a rebound in exports starting in the second half of the year.

As we’ve noted on numerous occasions, the BoC has been waiting for Canada’s beleaguered export sector to relieve the country’s economy from its dependence on debt-burdened consumers. A rise in exports is also expected to kick off a virtuous cycle of business investment, followed by hiring, wage growth, and presumably additional demand.

Of course, the economists with the EDC seem to view the global economy through a more optimistic lens than many of their fellow practitioners of the dismal science. They observe that it can be difficult to discern that the world’s economy is strengthening because of the dampening effects of one-time events, such as political showdowns in the US and periods of severe weather.

That likely includes the harsh winter that essentially stalled growth in the US during the first quarter, though it’s important to note that the EDC’s report was published before the US Commerce Department released its latest numbers.

So what’s the source of the EDC’s optimism? It notes that both businesses and consumers have been deferring major spending decisions for years.

On the consumer front, the replacement cycle will eventually dictate renewed spending. On the business front, companies have stretched existing capacity to avoid investing for growth until a more robust recovery is apparent. In other words, both groups are relatively flush with cash from saving and will soon feel compelled to spend.

The EDC also sees a seemingly unlikely dividend from strengthening public finances following various governments’ austerity measures the past few years. And the developed world’s imminent recovery should reignite growth in the emerging markets, whose economic fortunes still hinge on first-world demand.

Even so, Canada still faces considerable headwinds, including lower commodity prices. But the EDC believes the export sector and the country as a whole should be the beneficiary of a lower exchange rate, which could add as much as half of a percentage point to gross domestic product (GDP) growth this year, through stronger exports and weakening import growth. And certain exporting industries still have sufficient spare capacity to ramp up activities to meet incremental demand.

That additional capacity is due in part to the fact that a number of Canadian exporters turned toward the relatively strong domestic economy during the downturn, and now weakening demand at home will free up sales capacity to accommodate foreign markets.

Real export growth is expected to come in at 2.5 percent this year, before jumping to 5.8 percent in 2015. This growth should offset downward pressure from weak commodity prices.

Among the sectors poised to benefit from rising export activity are machinery and equipment, aircraft, metals, chemicals, consumer goods, and forestry products.

The forestry sector is forecast to be the biggest winner, thanks to surging US housing starts that are driving lumber exports. The sector is expected to sustain last year’s double-digit export growth for another two years: 12 percent in 2014 and 11 percent in 2015.

The next biggest winner will likely be the industrial machinery and equipment sector. After last year’s 1.9 percent decline, the sector’s exports are projected to grow 7 percent this year and 13 percent the following year, as US businesses start to invest for growth again.

The overall tone of the report was downright exuberant. Though the agency should be a cheerleader for the country’s export sector to some extent, we’re assuming that as economists they still took a hard look at the data and are liking what they see.

Portfolio Update

Transportation and logistics firm TransForce Inc (TSX: TFI, OTC: TFIFF) reported first-quarter revenue of CAD770.5 million, up 2.8 percent from a year ago. However, all of this gain was derived from the contribution of the company’s recent acquisitions of Clarke Transport and Clarke Road Transport, in a CAD100.5 million cash deal that closed Jan. 6.

Clarke Transport is a fully integrated provider of less-than-truckload (LTL) intermodal transportation services and operates a network of 15 terminals across Canada. Clarke Road Transport offers regular and specialized truckload transportation services. The acquisition is expected to generate annual revenues of approximately CAD190 million.

Excluding these two new businesses, revenue actually declined due to lower volume and a planned reduction in rig-moving activity in the energy sector. Adjusted earnings fell 23.1 percent, to CAD0.20 per share.

Management attributed these results to the severe winter weather, as well as persistent softness in certain key sectors of the North American economy. Among the company’s segments, operating profits were most noticeably affected in the Package and Courier (P&C) and LTL divisions, which accounted for 39 percent and 23 percent of first-quarter revenue, respectively.

In the former, earnings before interest and taxation (EBIT) dropped 25 percent, to CAD12.9 million, while in the latter EBIT plummeted 50.6 percent, to CAD4 million.

Although management acknowledged that business conditions remain challenging due to a weak economy, they see signs of firmer pricing in the LTL and Truckload segments. Still, the current environment will likely limit organic growth, so the company will have to wring growth from greater efficiencies in existing operations, while continuing to pursue a disciplined acquisition strategy.

As such, TransForce is working toward improving the efficiency of its P&C and LTL networks. Additionally, the company is finding savings by rationalizing its asset base–TransForce owns and operates 425 terminals altogether (319 in Canada and 106 in the US).

Over the past year, TransForce has achieved synergy savings through the closure and consolidation of 89 service centers, mostly in the P&C and LTL segments, in the US and Canada. In the first quarter, the company continued its progress in this area by closing four rig-moving terminals in the US and putting these assets up for sale.

As for acquisitions, in addition to the two mentioned earlier, TransForce also closed its USD136 million acquisition of Vitran Corp toward the end of the quarter. Vitran’s LTL operations are expected to contribute CAD200 million annually to revenue. Over the past 10 years, the company has acquired and integrated more than 100 businesses into its operations.

Also of note, TransForce has now adopted a dividend policy that calls for 20 percent to 25 percent of the company’s annualized free cash flow to be paid out each year as dividends to shareholders. The board of directors determined that this would still allow the company to maintain sufficient financial resources as well as the flexibility to execute its operating and acquisition strategies.

If the quarterly dividend is not within the aforementioned range, the board will then determine whether the dividend should remain unchanged or if it should be adjusted upward or downward.

On Bay Street, analyst sentiment is almost evenly divided between bullish and neutral, with six “buys” and six “holds.” The consensus 12-month target price is CAD25.89, which suggests potential appreciation of 8.2 percent above the current share price.

The company’s first-quarter results missed analyst estimates for earnings per share by 2.4 percent, the third consecutive quarter in which it’s fallen short of the consensus forecast, though last quarter’s miss was significantly wider. Sales also disappointed by 2.7 percent, the eighth consecutive quarter in which the firm’s failed to meet expectations on its top line.

For full-year 2014, analysts forecast adjusted earnings per share to grow 22 percent, to CAD1.54, while sales are projected to climb 10 percent, to CAD3.41 billion. Although sales growth is expected to decelerate the following year, rising by just 4 percent, to CAD3.56 billion, earnings are forecast to jump by another 25 percent, to CAD1.93.

The stock hit an all-time high of CAD25.77 in late November, then began a jagged swoon into early March before renewing its ascent. The stock has declined somewhat since the company reported first-quarter earnings and currently trades near CAD23.99, down about 6.9 percent from the aforementioned high.

Canadian Edge first recommended TransForce in November 2007, and since then it’s generated a total return of 200.9 percent in US dollar terms. Over the trailing year, the stock has produced a total return of 23.7 percent in local currency terms and 14.4 percent in US dollar terms.

The company’s quarterly payout is CAD0.145 (CAD0.58 annualized), for a forward yield of 2.4 percent.

TransForce remains a buy below USD23 in the Conservative Portfolio.