Canadian National reported lower first-quarter profits today, as revenue declined despite an increase in overall freight volume.
“We are pleased with how we started the year,” Chief Executive Tracy Robinson said on the railway’s earnings call. “I am proud of how the team is performing. It speaks to the strength of the network and to the quality of the operating model we’ve built. We’re handling volumes more efficiently with fewer people and locomotives. And that matters because it positions us to convert growth more effectively and improve financial performance as the year unfolds.”
Operating income declined 4%, to US$1.13 billion, as revenue declined 1%, to $3.14 billion. Both profits and revenue were affected by unfavorable currency exchange rates. Earnings per share increased 1%, to $1.37.
The railway’s operating ratio increased 1.2 points, to 64.6%. Adjusted for the impact of one-time items, the operating ratio was 64.2%.
Overall volume increased 2% when measured by carloads and containers, or 3% when measured by revenue ton-miles, CN’s preferred metric. The RTMs were a first-quarter record and were led by a 13% increase in grain and fertilizer traffic.
“Volumes were slightly ahead of our expectations, supported by strong execution across the network,” Chief Commercial Officer Janet Drysdale said.
CN (NYSE: CNI) will set a Canadian grain volume record in April, the seventh record in the last eight months, with January coming in as second-best on record. “That’s a hell of a performance,” Drysdale says, noting that grain-car cycle times improved by 15% during the quarter.
CN’s forecast remains for flat volumes overall for the year due to economic uncertainty and ongoing trade tensions.
“In this environment, every carload counts, and the team is bringing it home,” Drysdale said, noting that the railway’s “boots on the ground” regional sales approach generated $100 million in revenue during the quarter and likely will do so in the second quarter as well.
The spike in global energy prices since the Iran conflict began presents short-term opportunities for the railway, Drysdale said. Among them: exports of natural gas liquids through the Port of Prince Rupert, British Columbia; crude oil; refined products; thermal coal exports; potash; and sulfur.
“Now I don’t have a crystal ball, so I don’t know how long higher prices are going to last and what the broader impact may be on the macro,” Drysdale said. “And I think that’s why we’re remaining appropriately cautious. But near term, we’ve actually seen some nice segments with some benefits that we’re certainly capitalizing on.”
Key operational metrics improved during the quarter, with car velocity up 6%, dwell down by 4%, train speed up 6%, and the local service commitment up by a point, to 91%. CN had a record quarter for fuel efficiency, while crew productivity improved 12% on the basis of gross ton-miles per train and engine employee.
“Once again, this team delivered another disciplined quarter … building on the consistency we’ve been driving across the network,” Chief Operating Officer Pat Whitehead said. “That consistency matters because it allows us to handle volume efficiently, make better use of our resources, and support better financial performance as the year unfolds.”
CN’s train accident and personal injury rates were both up 11% during the quarter.
“We take this very seriously and are actively addressing it. One important finding so far is that there is no single underlying cause driving this increase,” Whitehead said. “Some incidents relate to wheels, some to track conditions, and in one instance, a landslide impacted the train. We have taken targeted and concrete actions to ensure that the learnings from each of these incidents are fully understood and translated into safer outcomes in the quarters ahead.”
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