CN Revenue Fell 6% in 4th Quarter

Canadian National said this week that a labor strike and weak freight business contributed to a decline in revenue in the fourth quarter of 2019.

In a news release, CN said revenue declined 6 percent to CA$3.6 billion; diluted earnings per share (EPS) fell 22 percent to CA$1.22, adjusted diluted EPS dropped 16 percent to CA$1.25; and operating income and adjusted operating income each tumbled 16 percent to CA1.2 billion and CA$1.25 billion, respectively.

All figures are in comparison to the fourth quarter of 2018.

CN posted an operating ratio of 66 percent, up 4.1 points, and an adjusted operating ratio of 65.2 percent, up 4 points.

For the 2019 calendar year, CN had revenue of CA$14.9 billion, up 4 percent; a diluted EPS of CA$5.83, down 1 percent; an adjusted EPS of CA$5.80, up 5 percent; operating income of CA$5.6 billion, up 2 percent; and an adjusted operating income of CA$5.7 billion, up 3 percent.

The 2019 operating ratio was 62.5 percent, up 0.9 points; and an adjusted OR of 61.7 percent, up 0.2 points.

Traffic volume in the fourth quarter dropped 7 percent on a carload basis, or 13 percent when measured by revenue ton miles. Every commodity category fell during the quarter.

For the year CN’s traffic volume fell 1 percent on a carload basis or 3 percent on a revenue ton mile basis.

“We remain focused on executing our strategy of long-term sustainable growth at low incremental cost,” said CN President and Chief Executive Officer J.J. Ruest in a statement.

“”Our strategic deployment of technology, the next step in our precision scheduled railroading model and our next driver of value, is well underway. At the same time, we continue to closely monitor the freight volume environment and rightsize our resources and costs to demand.”

CNS said that during the past years it has spent CA$7.4 billion in capital expenditures to increase network capacity, efficiency and resiliency

Ruest said the 2020 capital spending budget will rise to CA$3 billion.

Although CN sees growth opportunities in 2020, it expects low single-digit volume growth in terms of revenue ton miles.

“The first half will be a challenge,” Ruest said.

CN is targeting an EPS growth in the mid single-digit range this year compared to adjusted diluted EPS of CA$5.80 in 2019.

Ruest said CN will look to additional small acquisitions and partnerships as a way to boost freight volume.

“We’re very mindful for the rail industry to be successful, including at CN, we need to grow the pie,” he said.  “Just exchanging pieces of pie, that’s not a long-term solution.”

In the long run Ruest said CN needs to do a better job of competing with trucks.

CN has discarded 5,000 freight cars, returned all leased locomotives, vacated some office space in Montreal, and eliminated 1,300 positions.

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