CN Seeking to Bolster Financial Performance

Having failed to acquire Kansas City Southern, Canadian National management is now turning its attention to fighting a challenge by an activist investor group by seeking to boost its financial performance.

CN announced Friday a plan known as “Full Speed Ahead” that will seek to cut the railroad’s operating ratio to 57 percent, slash capital spending to 17 percent of revenue and resume buying back shares of its stock.

These measures will provide $700 million in new operating revenue next year, CN said, through improved operations, volume growth, a review of its non-rail businesses, and cutting management jobs.

In the first quarter of 2021, CN posted an operating revenue of 62.5 percent. Last year the operating ratio was 65.4 percent.

In a statement, CN called a 57 percent operating ratio “optimal for a world in which customers and regulators are putting a greater emphasis than ever on expanding customer choice, service and reliability.”

An operating ratio is the percentage of revenue spent on operating expenses.

The capital budget will be $3 billion next year a decline of 25 percent of revenue in 2019.

CN has in recent weeks been attacked by the TCI Fund, a London-based firm that holds $4 billion worth of CN shares.

TCI wants to replace CN CEO J.J. Ruest, Chairman Robert Pace and four members of the CN board of directors.

In response to CN’s Full Speed Ahead plan, TCI issued a statement saying it was not impressed with the plan.

“Why wasn’t this done before? The current management lacks the credibility to execute the plan.”

TCI Managing Director Chris Hohn and partner Ben Walker said CN has underperformed on nearly every measure of productivity and efficiency.

“Revenues per [revenue ton-mile], expenses per RTM, return on capital, operating ratio and profits have all gone backwards compared to the rest of the industry. CN has lost its way and the business needs to be fixed as a matter of urgency.”

TCI is seeking to rally CN stockholders behind its plan to install new top management at CN.

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