Posts Tagged ‘Canadian National’

Mantle Ridge Pushes CSX Stockholders to Vote ‘Yes’ On Additional Harrison Compensation

April 26, 2017

The campaigning has begun to win the votes of CSX shareholders as to whether new CEO E. Hunter Harrison should be reimbursed for the money he gave up when he retired early from Canadian Pacific.

Not surprisingly, the hedge fund Mantle Ridge is supporting giving Harrison the money. Mantle Ridge lured Harrison away from CP by promising to pay him what he would give up by leaving early. Now Mantle Ridge wants to be reimbursed for what it paid Harrison.

Mantle Ridge has launched a website, www.csxadvisoryvote2017.com to make its case.

“We believe that Mr. Harrison is the most effective and successful railroad leader of our times, having led the dramatic turnaround of three major railroads over the last 25 years,” Mantle Ridge founder and CEO Paul Hilal wrote in a letter to shareholders. “In those undertakings, he drove operating ratios to industry-leading levels while delivering total shareholder returns of 450 percent, 353 percent, and 319 percent, respectively.”

CSX stockholders will vote at the annual meeting on June 5 in a non-binding referendum on the reimbursement. Harrison has said he will resign if he doesn’t get the additional compensation.

The referendum seeks approval for CSX to pay Mantle Ridge $55 million and Harrison $29 million, which would pay his tax bill.

Hilal said the cost of the reimbursement amounts to less than 12 cents per share.

Papers filed with regulatory authorities last week indicate that Harrison gave up $89 million in salary and benefits to win release from his CP contract.

Many analysts expect the referendum to win approval because of the value that hiring Harrison has added to CSX stock.

The shares jumped in value by $12.91, an increase of 35 percent, after CP said it would allow Harrison to retire early.

The value of CSX stock rose against last week after the company announced its first quarter 2017 financial performance.

The CSX board of directors has not taken a position on the Harrison compensation referendum, but before hiring him the board had expressed concern about the size of the compensation package that he wanted.

The board did approve a statement to stockholders outlining the pros and cons of voting in favor of the compensation.

After acknowledging Harrison’s track record at Illinois Central, Canadian National and CP, the advisory noted that other side of the argument is that there is a risk that Harrison won’t be able to serve the full four years of his contract due to the potential for death, disability or other reasons.

It also said that Harrison may not be able to achieve results similar to those at IC, CN, and CP.

The board said it would take the referendum into account and “ . . . act promptly in the exercise of its fiduciary duties with respect to whether to commit to the reimbursement after the shareholders have voted.”

CN Net Income up 12% in 1st Quarter

April 26, 2017

Canadian National’s first quarter 2017 net income increased by 12 percent to C$884 million, while diluted earnings per share increased 16 percent to C$1.16, compared with the first quarter of 2016.

Adjusted net income increased 11 percent to C$879 million, with adjusted diluted EPS increasing 15 percent to C$1.15.

Operating income increased 7 percent to C$1.3 billion. Revenues increased by 8 percent to C$3.2 billion. Carloadings increased 9 percent and revenue ton-miles increased 14 percent. Operating expenses increased 9 percent to C$1.9 billion, mainly due to higher fuel prices and higher costs due to increased volumes of traffic. The operating ratio of 59.4 percent, was an increase of 0.5 of a point from the prior-year quarter. Free cash flow was C$848 million, up from C$584 million in the year-earlier quarter.

Revenues increased for coal (39 percent), grain and fertilizers (16 percent), metals and minerals (16 percent), automotive (10 percent), intermodal (7 percent), and petroleum and chemicals (1 percent). Revenues declined for forest products (3 percent).

CN said the increase in revenues was mainly attributable to higher volumes of Canadian and U.S. grain, frac sand, coal exports, overseas intermodal traffic, and finished vehicles; freight rate increases; and higher applicable fuel surcharge rates. These factors were partly offset by the negative translation impact of a stronger Canadian dollar on U.S.-dollar-denominated revenues. Rail freight revenue per carload decreased by 1 percent.

Fundraiser Set for Algoma Central Passenger Service

March 31, 2017

A fundraising campaign to help kick start the return of rail passenger service to the Algoma Central Railway will be held on April 6.

Sponsored by the Coalition for Algoma Passenger Trains, the event will have folk music and a silent auction at the Algoma Water Town Inn & Suites in Sault Ste. Marie, Ontario.

Proceeds of the event will be used to support the efforts of the Missanabie Cree First Nation to create a non-profit passenger train between Sault Ste. Marie and Hearst that would be named the “Mask-wa Oa-ta-ban” or “Bear Train.”

Service on the route ended in 2015 when funding from the Canadian government dried up. The Algoma Central is today part of Canadian National.

CN to Buy Back up to 1.8M Shares of its Stock

March 28, 2017

Canadian National plans to buy back as many as 1.8 million shares of its common stock as part of its Normal Course Issuer Bid.

The program began in October 2016 and may acquire as many as 33 million shares.

CN, which is based in Montreal, said it will work with a third party to buy the common shares through daily purchases.

The shares will be bought on the open market and CN will negotiate with the third party buyer on the price it will pay it for the shares.

The negotiated price will be discounted to the market price on the Toronto Stock Exchange at the time. CN plans to cancel the shares after it purchases them.

CN to Close Escanaba Iron Ore Docks

March 22, 2017

The Escanaba, Michigan, iron ore docks will close at the end of April, Canadian National has announced.

It will mark the end of 165 years of ore shipping from the Michigan Upper Peninsula port on Lake Michigan.

Shipments from Escanaba had been slowing since Cleveland-based Cliffs Natural Resources closed its Empire Mine 65 miles north of Escanaba in August 2016.

The Lake Carriers Association said that about 3.5 million tons of ore was shipped from Escanaba in 2015, but CN said no iron ore has moved to the docks since October 2016.

CN said it will keep open its Escanaba yard to serve local rail customers.

Escanaba had been the only iron ore port on Lake Michigan that in recent years has moved raw materials to industries in Chicago, Indiana and other points in the Midwest.

Harrison’s Compensation at CSX Outlined

March 9, 2017

Hunter Harrison and CSX agreed to a base salary of $2.2 million, the railroad said this week in a regulatory filing.

The compensation package also includes an annual target bonus opportunity of up to $2.8 million, with that amount as a guaranteed bonus this year.

Harrison will receive options on 9 million shares of CSX stock, which is valued at $448 million at its current price of $49.79 per share.

Half of those options will hinge on his continued employment and the other half are tied to his meeting a series of performance targets.

The agreement to hire Harrison as its CEO also came with a number of changes in the CSX board of directors.

Clarence Gooden is no longer vice chairman and board member Timothy O’Toole has resigned immediately.

CSX’ has amended its corporate bylaws to separate the roles of CEO and chairman of the board as well as to change the mandatory retirement age of 75. Harrison is 72.

Although it remains to be seen how Harrison’s management philosophy will play out at CSX, analysts expect that he will further thin the number of managers and employees at the company, close yards and shops, and sell off some rail routes.

These measures will be aimed at improving operations, reducing expenses and boosting profitability.

Some have noted that CSX is far different than were Canadian National and Canadian Pacific when he took over as CEO at those railroads.

The Canadian roads were linear systems whereas CSX has a more complex route network.

That will challenge Harrison to impose his precision scheduled railroading philosophy, which he developed as CEO of the Illinois Central Railroad in the 1990s.

One decision Harrison will need to make will be whether to continue the CSX of Tomorrow strategy, which emphasized intermodal and merchandise traffic while focusing on its major routes operating in a triangle operating from Chicago to New Jersey to Florida and then back to Chicago.

Pair of Canadians in Berea

March 3, 2017

berea-1

berea-2

Motive power from Canadian National and Canadian Pacific is not rare in Berea, but it is not a given, either.

CP has a pair of run-through trains that use CSX between Chicago and Buffalo, New York, and it is not unusual to see them in Berea during daylight hours.

Given how the North American Class I railroads share motive power, seeing a CN unit is not an unusual thing on either CSX or Norfolk Southern.

But what was a out of the ordinary during a recent railfanning outing in Berea was seeing two westbound NS trains with Canadian motive power on the lead as shown above.

Photographs by Craig Sanders

CN Reports 4th Quarter Rise in Net Income

January 26, 2017

Canadian National said its 2016 fourth quarter net income increased 8 percent, but it continues to grapple with a mixed economic environment.

Canadian National “We saw weaker volumes during the year, but quickly adjusted as our dedicated team of railroaders maintained its focus on operational efficiency, while continuing to provide quality service to our customers and improve our safety performance,” said CN CEO Luc Jobin in a statement.

During the fourth quarter, CN earned net income of C$1.02 billion. The diluted earnings per share increased 12 percent to C$1.32, compared with the fourth quarter of 2015. Adjusted net income increased 1 percent to C$952 million, with adjusted diluted EPS increasing 4 percent to C$1.23.

Operating income increased 3 percent to C$1.39 billion. Revenues increased by 2 percent to C$3.22 billion. Carloadings increased 3 percent to 1,37 million and revenue ton miles increased 4 percent. The operating ratio improved by 0.6 points to 56.6 percent.

CN posted fourth quarter revenue increases for grain and fertilizers (14 percent), automotive (4  percent) and intermodal (1 percent).

Seeing declines were metals and minerals (6 percent), coal (6 percent), petroleum and chemicals (5 percent). Forest products revenue remained flat.

Operating expenses rose by 1 percent to C$1.82 billion. CN attributed that to higher casualty and other expenses, and higher depreciation and amortization expense, partly offset by lower pension expenses and lower costs resulting from operating productivity gains.

For all of 2016, net income increased 3 percent to C$3.64 billion, with diluted EPS rising 6 percent to C$4.67. Adjusted net income remained flat at C$3.58 billion, while adjusted diluted EPS increased 3 percent to C$4.59.

Operating income rose 1 percent to C$5.31 billion. Revenues decreased by 5 percent to C$12.04 billion. Carloadings and revenue ton-miles both declined by 5 percent in 2016.

The operating ratio for 2016 improved by 2.3 points to 55.9 percent. Free cash flow was a record C$2.52 billion, compared with C$2.37 billion in 2015.

The operating ratio was 55.9 percent in 2016, an improvement of 2.3 points over the 2015 operating ratio of 58.2 percent.

Annual revenues increased for automotive (6 percent), forest products (4 percent) and grain and fertilizers (1 percent), but was offset by declines for coal (29 percent), metals and minerals (15 percent), petroleum and chemicals (11 percent), and intermodal (2 percent).

In a statement CN said the decline in total revenues was mainly attributable to lower volumes of crude oil, coal and frac sand, as well as lower fuel surcharge rates. These factors were partly offset by the positive translation impact of the weaker Canadian dollar and freight rate increases.

Rail freight revenue per RTM remained flat compared with 2015, driven by lower fuel surcharge rates and an increase in the average length of haul. Other contributing facts included a positive translation impact of a weaker Canadian dollar and freight rate increases.

Operating expenses for 2016 decreased by 8 percent to C$6.73 billion. The decrease was mainly due to lower costs resulting from operating productivity gains, including cost-management initiatives and decreased volumes of traffic; lower pension expense; and lower fuel prices, partly offset by the negative translation impact of a weaker Canadian dollar on U.S.-dollar-denominated expenses.

“Overall, the economy remains challenging, but we remain optimistic and expect to see moderate volume growth in 2017,” Jobin said.

CN expects to deliver EPS growth in the mid-single-digit range in 2017 over adjusted diluted EPS of C$4.59 in 2016. In its news release, CN said it will continue to invest in the safety and efficiency of its network with a 2017 capital investment program of C$2.5 billion, which includes increased spending for Positive Train Control technology in the U.S.

CN has declared a 10 percent increase to it 2017 quarterly cash dividend.

For 2017, CN said it is assuming that North American industrial production will increase in the range of 1 percent to 2 percent, assumes U.S. housing starts in the range of 1.25 million units and U.S. motor vehicle sales of approximately 17.5 million units.

For the 2016-2017 crop year, the grain crops in the U.S. and Canada were above their respective five-year averages. The company assumes that the 2017-2018 grain crops in both Canada and the U.S. will be in line with their respective five-year averages.

With these assumptions, CN assumes total revenue ton miles for all freight categories in 2017 will increase in the range of 3 percent to 4 percent vs. 2016.

CN expects continued pricing improvement above inflation, believing that the value of the Canadian dollar in U.S. currency will be in the range of $0.75, and that the average price of crude oil (West Texas Intermediate) will be in the range of US$50 to US$60 per barrel.

In 2017, CN plans to invest approximately C$2.5 billion in its capital program, of which C$1.6 billion is targeted toward track infrastructure.

CP Won’t Bar Harrison from Working for CSX

January 25, 2017

A regulatory filing made by Canadian Pacific with the U.S. Securities and Exchange Commission shows where E. Hunter Harrison can and cannot work under the terms of his non-compete agreement with CP.

E. Hunter Harrison

E. Hunter Harrison

Harrison, who recently stepped down as CP’s CEO, cannot work for Canadian National, BNSF or Union Pacific. But he could work for CSX, Norfolk Southern or Kansas City Southern.

CP granted Harrison a limited waiver of the non-compete clause, which also included waiving a provision that Harrison is not permitted to solicit for employment at another company any CP employees above the level of manager.

Specifically, CP’s waiver makes an exception for the railroad’s chief of staff.

News reports have said that Harrison is teaming up with activist investor Paul Hilal of the firm Mantle Ridge to oust CSX CEO Michael Ward.

Some believe that Harrison would use being the head of CSX to lead a merger effort. Last year Harrison and CP unsuccessfully sought to merge with NS.

If Harrison does make a bid to become part the CSX CEO, he will have until Feb. 10 to do so under the terms of the CSX bylaws for nominating members of the board of directors and filing resolutions to be heard during the annual meeting, which is usually held in May.

Harrison Eyes Taking Over CSX as CEO

January 19, 2017

E. Hunter Harrison is back in the takeover game and setting his sights on wresting away control of CSX from current CEO Michael Ward.

E. Hunter Harrison

E. Hunter Harrison

The Wall Street Journal reported this week that Harrison, who fought an unsuccessful bid in early 2016 to acquire Norfolk Southern, has teamed up with Paul Hilal, a principal at hedge fund Mantle Ridge, to prod CSX to make a management change.

Hilal was formerly with Pershing Square Capital. The latter is run by William Ackman, who played a key role in getting Harrison named CEO at Canadian Pacific in 2012 after winning a proxy fight.

Harrison, 72, this week said he is severing his ties with CP before his official retirement from the company.

He will be succeeded at CP by Keith Creel, effective Jan. 31. In the interim, Harrison is reported to be on vacation and Creel will assume Harrison’s duties.

Harrison has agreed to sell all of his shares of CP stock by May 31 and the CP board of directors agreed to provide him with a limited waiver of a non-compete clause to which he would otherwise be subjected.

In return for waiving the non-compete clause, Harrison will forgo all roles he had with CP and give up substantially all benefits and perquisites to which he was entitled. The total value of those forfeited benefits is $89 million.

The CSX takeover attempt would be Harrison’s second. CSX rejected his overtures in 2014.

The WSJ reported that CP will not participate in any effort that Harrison makes to gain control of CSX.

Hilal left Pershing Square last year to start his own activist fund, which has raised more than $1 billion for a single investment, according to the WSJ. Those investors reportedly have committed to keeping money in the fund for five years.

Harrison became the CEO of CP after Ackman led a proxy fight that resulted in the ouster of CP CEO Fred Green.

If Harrison and Hilal follow that same script at CSX, they will seek to oust Ward, who has indicated he plans to retire in 2019.

Hilal was with Pershing Square at the time of the CP takeover and recruited Harrison, who had been CEO of Canadian National.

Railway Age magazine quoted Cowen and Company Managing Director Jason Seidl as observing, “Hunter left C$118 million in equity awards on the table, which indicates to us he still has a burning desire to run a railroad. His reputation of being the most sought after manager in the North American railroad industry could make it very difficult for CSX to refute Harrison’s desire to run its franchise.”

Seidl told Railway Age that a CSX takeover would differ from what Harrison attempted at NS because the latter involved a merger whereas the CSX gambit would be just a management switch.

Railway Age quoted an unnamed railroad industry analyst as predicting that if Harrison is able to become head of CSX a merger with CP will not likely be one of his first priorities.

The analyst said that Harrison could be expected to change the CSX engineering, train operations and capital investments plans that Ward’s management team has been implementing over the past year.

Given Harrison’s track record, the analyst expects that he would impose at CSX a more aggressive capital expenditure downsizing and reduce its labor force.

Harrison would not be likely to institute more aggressive marketing and selling promotions, but would oversee creating more discipline in CSX train operations.