Canadian National reports strong earnings growth amid operational turnaround

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MONTREAL — Canadian National is working its way out of a capacity crunch faster than expected, which helped the railroad report strong earnings yesterday and raise its expectations for higher volume and revenue for the remainder of the year.

“Our railroaders are energized and are strongly behind the business plan. We are ahead of our turnaround plan and we expect progressive improvements during the second half. We have a strong pipeline of growth opportunities,” CEO Jean-Jacques Ruest said Tuesday on the railroad’s earnings call.

CN’s quarterly net income was up 27 percent, to $1.31 billion, as revenue grew 9 percent, to $3.6 billion. Adjusted for one-time items, earnings per share was up 13 percent, to $1.51. That easily topped analyst expectations of $1.39.

CN reclaimed the industry lead in operating ratio. The key efficiency measure was 58.2 percent for the quarter, squeaking by CSX Transportation’s 58.6-percent mark.

The pace of the railroad’s operational turnaround and ongoing traffic growth prompted executives to raise their outlook for the rest of the year. CN now expects adjusted earnings per share of between $5.30 and $5.45, up a nickel from the prior forecast.

CN is being mindful of trade tensions, which have not yet had a negative impact on its traffic, and still sees strong demand across the board, Chief Financial Officer Ghislain Houle says.

The railroad’s new outlook assumes 5- to 7-percent volume growth for the full year, which implies double-digit traffic growth in the last six months of the year.

Executives had a negative outlook for only two traffic segments: automotive and potash. Continued strong growth was seen for international intermodal, lumber, frac sand, aluminum and steel, Canadian grain, and Canadian export coal.

For the quarter, CN’s volume was up 7 percent based on revenue ton-miles, the favored metric of the Canadian railroads, or 6 percent when measured by carloads. Pricing was up as well, by 4 percent overall and 4.4 percent for new contracts.

CN also boosted capital spending for the second time this year, by $100 million, largely to purchase new centerbeam flat cars to carry lumber traffic, which currently exceeds demand.
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