CN posts positive forecast, Q1 profits down


Canadian National Railway has boosted its earnings guidance for the year as it anticipates a recovery of the North American economy.

“The economy ahead of us looks good. The operating metrics are solid. So a lot of good things that look good for the quarters to come,” CEO Jean-Jacques Ruest said in a conference call about first-quarter results.

The Montreal-based railway, the country’s largest, anticipates delivering strong growth for the year despite reporting slightly weaker earnings and revenues in the winter first quarter.

CN Rail earned $974 million or $1.37 per diluted share, down from $1.01 billion or $1.42 per share a year earlier.

Excluding one-time items, adjusted profits were $872 million or $1.23 per share, compared with $870 million or $1.22 per share in the first quarter of 2020.

Revenue for the three months ended March 31 were $3.54 billion, down from nearly $3.55 billion in the prior year.

CN said it recovered in the quarter from a polar vortex in February with its terminal business growing 19 per cent. Train length and velocity both increased five per cent.

CN Rail was expected to post $1.24 per share in net and adjusted profits on $3.58 billion of revenues, according to financial data firm Refinitiv.

Investing in equipment

The railway said its board has approved the acquisition of an additional 75 locomotives over the next 12 to 24 months to support projected growth and economic improvement, with 25 coming this year.

The railway, which is in the midst of a battle with rival CP Rail to purchase U.S. railway Kansas City Southern, says traffic volume increased five per cent in the quarter, prompting it to project double-digit adjusted diluted earnings growth for the year, up from its prior guidance of high single digits.

“We are encouraged about the economic recovery and the vaccine rollout, which is giving us strong confidence for the balance of the year,” added chief financial officer Ghislain Houle.

He said adjusted profit in the quarter would have increased 11 per cent adjusting for the impact of fuel lag and a stronger Canadian dollar.

It also expected to deliver free cash flow of between $3 billion and $3.3 billion.

KCS offer

Many of the analyst questions focused on CN’s proposal to acquire KCS.

The railway expects to gain access to the KCS data room starting Tuesday and take about two weeks to conduct due diligence before submitting a merger agreement in 30 to 40 days.

Overall, it expects to have its deal close as soon as the second half of the year with a potential KCS shareholder vote in June.

“We believe this combination will enable better solution to our customers, speed of movement of goods from country to country, coast to coast, enhance competition, create jobs up and down the railroad and prevent millions of tons of greenhouse gas from entering the atmosphere by converting truck traffic to rail supply chain,” added Ruest.

“Overall, we have a better bid, we are a better partner, better railway and the best solution for KCS and the North American economy.”