CN celebrates centennial with 6pc profit increase to US$587.7 million

THE Canadian National Railway in the first quarter of its 100th anniversary posted a 6

21 June 2019 - 19:00

THE Canadian National Railway in the first quarter of its 100th anniversary posted a 6.01 per cent net profit increases year on year to C$788 million (US$587.7 million) drawn on quarterly revenues of $3.54 billion, up 10.9 per cent.

CN's operating expenses jumped 14 per cent year on year in the first quarter, largely because of weather conditions and partly because of foreign currency translations, both of which are outside of the company's control.

The third reason was higher labour costs on two counts - a higher headcount as CN acquired TransX in March - one of Canada's largest and oldest transport companies - plus outsourcing of some services to battle what Old Man Winter hurled at the company, said New York's stock portal Seeking Alpha.

'The fourth factor was a charge related to the replacement of a back-office system. And, a weather-related crude oil train derailment in Western Canada in the first quarter also impinged on CN's operating expenses,' it said.

The railway also bore the brunt of the Canadian province of Alberta's decision to force production cuts to deal with the oil glut in the province. As a result, demand for crude shipment plunged in February.

Total carloads - the amount of freight loaded into cars - rose less than one per cent in the March-ended quarter. All of these factors can be considered one-time events for the purposes of CN's Q1 2019 results; none are ongoing concerns.

Rail is a crucial conduit for Canadian crude in the absence of new export pipelines, which have been long delayed by regulatory and environmental concerns. As a result, oil production curtailments, which were meant to wrap up by the end of this year, may have to continue into 2020 because of delays to Enbridge Inc's Line 3 pipeline project.

Excluding one-time items, CN earned C$1.17 per share, missing slightly the analyst average estimate of $1.18, according to Institutional Brokers Estimate System (IBES) data.

CN has reaffirmed its 2019 guidance, which calls for low-double-digit EPS growth. The company now expects mid-single-digit volume growth versus high-single digit volume growth previously, but it has reacted quickly to make compensating adjustments to the cost structure.

The Montreal-based railway's bumped-up profit forecast for 2020 through 2022 exceeds its prior target of 10 per cent annual growth, while it reiterated its 2019 goal of low double-digit growth.


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