CN Rail cuts profit forecast for 2019 amid ‘softer’ economy

By Christopher Reynolds   

Economy Industry Manufacturing Transportation CN Rail Economy manufacturing rail railroad transportation

Freight volumes below expectations, manufacturing has also fallen off.

Some positives, unemployment is low and consumer spending is resilient. Photo: CN Railway

MONTREAL — Canada’s largest railroad operator cut its profit outlook for 2019 Oct. 22, saying a weaker economy has eroded rail demand.

Canadian National Railway Co. lowered its expectations for adjusted earnings per share to the high single digits, down from predictions of low double-digit growth.

“While economic weakness and geopolitical issues are creating headwinds, unemployment levels are still at record lows and consumer spending so far remains resilient,” said chief financial officer Ghislain Houle.

Freight volumes came in below expectations, he added, noting that manufacturing has also fallen off. CN Rail’s flat volume beat the third-quarter North American industry average, which saw carloads decrease by 4.5 per cent, said chief executive Jean-Jacques Ruest.


“The issue here is more about the broad economic environment than our customers not being able to perform in their space,” Ruest said, calling the economy “softer and uncertain.”

High log prices and dwindling timber supply have prompted announced shutdowns or curtailments in more than two dozen mills in British Columbia, chopping CN Rail’s forest product shipments – revenues fell 11% – amid a crisis in the province’s industry.

“That is a structural change in the BC forest products industry. That business is not coming back,” senior vice-president Keith Reardon said on a conference call.

A delayed grain crop is causing further headaches for rail companies as well as elevator operators and farmers following a dry spring and wet summer.

CN Rail revenue from grain and fertilizers dropped last quarter along with coal and metals and minerals. But strong crude and container traffic helped offset the falling grain sales to leave profits effectively flat.

The Montreal-based company saw net income nudge up about 0.5% year over year to $1.2 billion in the three months ended Sept. 30.

Container shipping revenue – which makes up 28% of the company’s freight sales – rose 13% to $1.02 billion last quarter, though “trade uncertainties have contributed to lower industry volumes,” Reardon said.

Reardon pointed to a rise in so-called blank sailings – “where the operator of the vessel is looking to consolidate volumes and maybe stop calling on a particular port, maybe skip a port.”

Petroleum and chemicals jumped 18% to $788 million.

Revenues ramped up 4% in the third quarter to $3.83 billion compared to the same period in 2018. But CN Rail said higher trucking and repair costs drove up purchased services and material expenses by 14% to $552 million.

On an adjusted basis, CN’s diluted earnings per share rose to $1.66, up from $1.50. Analysts had expected adjusted diluted earnings per share of $1.62, according to financial markets data firm Refinitiv.

The company’s board approved a fourth-quarter dividend of 54.75 cents per common share, to be paid on Dec. 30 to shareholders of record at the close of business on Dec. 9. That was a 1.86 per cent increase from 53.75 cents per share.



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