Posts Tagged ‘Jean-Jacques Ruest’

Investor Seeks to Name 4 to CN Board

September 14, 2021

An activist hedge fund had requested a special meeting of the shareholders of Canadian National in an effort to shake up the board of director’s composition.

TCI Fund Management has named four individuals it will nominate for the railroad’s board of directors.

“We did not seek a proxy fight but without urgent action CN’s operational and financial performance will continue to lag its peers under a board that lacks the right railroad experience and operational expertise,” said Chris Hohn, TCI founder and managing partner in a statement.

CN said in its own statement that it knows about the TCI request but has yet to receive the formal requisition. The railroad said that once it does, it will review it and comment further.

Hohn has called for replacing CN Chairman Robert Pace and ousting CEO J.J. Ruest. He also wants CN to drop its bid to acquire Kansas City Southern.

CN is CN’s second-largest investor. It has proposed naming to the CN board Allison Landry, a former transportation analyst at Credit Suisse who is currently a board member of XPO Logistics;  Rob Knight, who was chief financial officer at Union Pacific for 15 years before retiring in 2019; Paul Miller, a Canadian Nation executive from 1978 to 2011, retiring as vice president of safety, sustainability, and network transportation;  and Gilbert Lamphere, a former CN and Illinois Central board member.

They would replace current board members Pace, Kevin Lynch, James O’Connor, and Laura Stein.

Hedge Fund Pressing Effort to Oust Top CN Management

September 4, 2021

An activist hedge fund that controls more than 5 percent of stock in Canadian National said it will press other investors to support a call to replace the railroad’s top management.

A partner in TCI Fund Management told a Toronto newspaper that his firm has been speaking with other large investors who are likewise disenchanted with CN management.

TCI began demanding the resignation of CN CEO J.J. Ruest and Chairman Robert Pace after the U.S. Surface Transportation Board rejected a plan by CN to place Kansas City Southern into a voting trust as a first step toward acquiring KCS.

Walker told the Globe and Mail that the next steps toward replacing Ruest and Pace will hinge on what other shareholders do.

TCI is the second-largest CN stockholder and also holds a large share of stock in Canadian Pacific.

CN Says It Has Recovered from Pandemic Downtown

July 21, 2021

Canadian National said this week that its posted gains in second-quarter earnings and traffic, with nearly every traffic category growing in volume.

CN managers during an earning call said the results reflected a recovery from the COVID-19 pandemic-induced downtown.

Operating income skyrocketed by 76 percent, to $1.38 billion, as revenue grew 12 percent, to $3.6 billion.

Adjusted for the impact of one-time items, earnings per share increased 16 percent, to $1.46. The operating ratio was 61.6 percent, down from 75.5 percent a year ago but up 1.2 points when last year’s second quarter is adjusted for the impact of one-time items.

On a carload basis, overall volume was up 14 percent. It was up by 13 percent when measured by revenue ton-miles, the preferred metric of Canadian railroads.

The strongest traffic growth occurred in industrial products, intermodal, and propane traffic.

“Our results reflect broad-based trends and forward momentum across all of our business, and also the enduring power of our vast and diversified CN network,” CEO J.J. Ruest said.

CN said its terminal dwell and car miles per day improved, while average train speed was down 2 percent, to 19.5 mph.

The Montreal-based carrier set a quarterly record for fuel efficiency and posted a record low employee personal injury rate. The train accident rate also declined.

CN continues to say that its outlook for the remainder of the year will be high single-digit volume growth and double-digit growth in earnings per share.

CN Net Income Fell in 1st Quarter

April 28, 2021

Canadian National executives said this week that they expect freight volume growth in the high single digit percentage range this year.

They made the assessment when announcing first quarter financial results that showed a drop in net income.

At the same time CN said it experienced during the quarter record intermodal and grain traffic.

Management expects an improving economy to boost merchandise traffic.

For the first quarter, CN said  net income fell 3.7 percent to CA$974 million, or $1.37 per diluted share, from CA$1.01 billion, or $1.42 per diluted share, in the same period a year ago.

The total revenue of CA$3.5 billion for the quarter was “in line” with the same quarter in 2020, CN said in a news release.

Operating income rose 9 percent to CA$1.3 billion, but adjusted operating income of CA$1.2 billion was down 2 percent.

The statement described the first quarter results as “solid,” and included a year-over-year increase in traffic volume of 5 percent.

During a conference call to discuss the first quarter results, CN executives said they expect double-digit growth in earnings per share, up from between 7 percent and 9 percent.

CN’s first quarter volume was up 7 percent based on carloads or 5 percent based on revenue ton-miles, the preferred metric of the Canadian railways.

“Here at CN, we’re off to a good strong running start,” CN CEO JJ Ruest said during the earnings call.

Intermodal revenue ton-miles was up 19 percent while grain and fertilizers shipments rose 26 percent.

First quarter volume, based on gross ton miles, was a record.

At the same time, average train speed dipped 1 percent. Terminal dwell times held steady and car miles per day were up 5 percent.

During the period train length rose 5 percent, leading to a fuel efficiency improvement of 4 percent.

The operating ratio of was 62.5 percent with an adjusted OR of 66.3 percent for the quarter. A year ago, CN had an operating ratio or adjusted operating ratio of 65.7 percent.

CN Expects to Reach Deal with KCS Soon

April 27, 2021

Canadian National is confident it will be able to reach an agreement to purchase Kansas City Southern in the next 30 to 40 days.

The KCS board of directors agreed over the weekend that it would consider CN’s $33.7 billion offer.

Earlier KCS had agreed to a $29 billion merger offer from Canadian Pacific.

CN management will review this week confidential KCS data and talk about a final merger agreement with their KCS counterparts.

CP has sought to discourage the CN bid by saying it would be anti-competitive and unable to receive regulatory approval due to broad overlap between the CN and KCS systems in the middle of the country, particularly along the former Illinois Central system that CN owns.

However, CN CEO JJ Ruest has countered that his company’s bid would offer KCS shareholders 21 percent more than the CP deal.

Although CN has acknowledged that its acquisition of KCS would reduce competition between Baton Route and New Orleans, CN Chief Operating Officer Rob Reily said his company will remedy that, indicating one step might be selling some lines in the region to another railroad.

Since CN announced its bid for KCS some 500 letters of support for the CN bid have poured into the U.S. Surface Transportation Board.

CN, CP Jockey to Gain Advantage in Buying KCS

April 21, 2021

Canadian National and Canadian Pacific submitted dueling filings to the U.S. Surface Transportation Board on Wednesday as they jockey for advantage in their respective efforts to by Kansas City Southern.

The KCS board of directors has already agreed to a $29 billion bid from CP, but CN this week countered with a $33.7 billion offer in a cash and stock transaction.

CN notified the STB of its bid for KCS while CP asked regulators to expedite their review and approval of its purchase of the smallest Class 1 rail system in North America.

In its filing, CN said it plans to file an application seeking authority to combine with KCS.

The filing indicate that CN would seek to have the merger reviewed under the STB’s current merger rules whereas CP is seeking to have its acquisition of KCS reviewed under an exemption regulators granted KCS more than 20 years ago were it to seek a merger with another Class 1 system.

The CN filing cited “seamless service and enhanced competition” from its acquisition of KCS.

It further asserted that its proposed acquisition of KCS would be in the public interest and CN would welcome the opportunity to provide a full forum for stakeholders to comment on the proposed transaction.

CN said it is confident it will be able to effectively address any reasonable remediation concerns and ensure rail customers and other stakeholders benefit from the proposed combination with KCS.

If CN and KCS were to merger, it would create the fifth largest Class 1 North American system. Currently there are seven such systems.

“Our proposal to KCS is simple,” said CN President and CEO Jean-Jacques Ruest. “We are providing greater and more certain value, and a clear path to closing. We have a better bid. We are a better railroad. We will be a better partner for KCS and the communities it serves. And we believe the STB and our customers will recognize that CN presents the best solution for the continued growth, development and prosperity of the North American economy.”

For its part, CP claimed that CN’s acquisition of KCS would reduce competition.

It called CN’s stated benefit to acquiring KCS “illusory and inferior to the proposed CP/KCS transaction.”

CP said the STB should promptly confirm uniquely what it termed straightforward and beneficial transaction proceeding under the pre-2001 rules with no further voting trust approval required.

In a letter to regulators, CP said it “respectfully suggests that the Board should see things the same way: the only combination involving KCS that is in the public interest is the one that Canadian Pacific has proposed, and which has already garnered support from more than 400 shippers and other stakeholders.”

A CN-KCS merger, CP asserted, would “destabilize” the North American rail network balance “that has prevented further consolidation of the six largest railroads for two decades.”

If CP were to lose its friendly connection at Kansas City with KCS, it would weaken if not destroy the viability of CP’s lines through southeastern Iowa and northern Missouri and leave CP an asymmetrically disadvantaged “odd-man-out” in a six-railroad North America.

That would put pressure on CP to find a way to expand its market reach through further consolidation.

CN has argued that its combination with KCS would offer shorter, faster, and more efficient routes than tying together the CP and KCS networks.

The war of words in the dueling filing with the STB is likely to result in CP having to pony up more money for KCS, some industry analysts believe.

“We can’t rule out a full-scale bidding war,” Wolfe Research analyst Scott Group wrote in a note to clients.

Another analyst, Anthony Hatch, told Trains magazine, CP has room to increase its bid although CN is seen as the wealthier Canadian Class 1 system.

The last time Class 1 railroads got into a bidding war was in 1996 when CSX and Norfolk Southern fought over Conrail.

That battle ended with NS and CSX dividing Conrail and the railroads paying 27 percent more to buy their respective shares.

Although industry observers predict the STB would likely approve acquisition of KCS by either CN or CP, some believe a CN-KCS combination would create more regulatory challenges  because the two systems have more overlap than CP and KCS.

 “While financially superior and strategically compelling, CN’s proposal may entail a more complicated regulatory review given the larger pro forma rail network,” Baird Equity Research analyst Garrett Holland wrote in a note to clients.

Holland believes CP will submit a higher bid for CP and rely heavily on the argument that it provides better strategic value and a potentially more feasible regulatory review process.

Credit Suisse analyst Allison Landry said, though, that the ovetlap between CN and KCS is relatively small and largely confined to a handful of shippers in Louisiana.

At the same time Landry said in a note to clients that a CN-KCS deal that create a railroad larger than CSX or NS would make those carriers merger targets.

CN Ups the Ante, Seeks to buy KCS

April 21, 2021

Canadian National on Tuesday offered to buy Kansas City Southern for $33.7 billion in a move designed to muscle aside KCS suitor Canadian Pacific.

CP has offered $29 billion for KCS but the CN offer is a 21 percent premium over what KCS agreed to with CP last month.

The CN offer amounts to paying KCS shareholders $325 per share, including $200 per share in cash and 1.059 CN shares.

By contrast, the CP offer is $275 per share, including $90 in cash.

Financial regulators require the KCS board of directors, which has already approved the CP offer, to consider the CN offer.

Industry observers expect CP to increase its bid in an effort to counter CN, its top rival in Canada.

CN CEO JJ Reust argued that CN would make a better merger partner and offer “the best solution for KCS and for the North American economy.

The merger, CN management said, would have synergies of $1 billion, besting CP’s estimates of $780 million, as well as create shorter, faster routes than the CP-KCS combination.

“The combination of CN and KCS would create a premium railway for the 21st century, connecting ports of the United States, Mexico, and Canada to facilitate trade and to power economic prosperity across North America,” Ruest said. “Our combination with KCS would create a company with broader reach, greater scale, and with the ability to connect more customers to more rail destinations and ports with robust single operator service.”

If the merger is approved, KCS would continue to operate under its existing name in the United States and Mexico and have its headquarters in Kansas City.

A CN-KCS combination would also create a class 1 system serving Canada, Mexico and the United States.

The CN system has more overlap with the existing KCS network than is the case with CP and KCS.

CP and KCS have one interchange point, Kansas City, while CN connects with KCS at St. Louis; Jackson, Mississippi’ and Springfield, Illinois.

KCS and CN have 65 miles of parallel route between Baton Rouge and New Orleans where they both serve five customers operating nine plants.

Otherwise, CN Chief Operating Officer Rob Reilly said, the combined network would be end to end.

He said there are a number of ways that competitive concerns in Louisiana could be addressed.

As the U.S. Surface Transportation Board reviews the proposed CN-KCS combination, KCS would be placed in a voting trust.

Ruest said the recently enacted USMCA free trade deal and economic recovery from the COVID-19 pandemic makes now a good time for the merger.

 “What’s really missing in North America at this point is really a true north-south transcontinental railroad,” he said.

That would enable railroads to better compete against trucks, Reuest said. He added that diverting traffic trucks to rail would provide much of the $800 million in revenue growth from the proposed merger.

Technology Gaps May Drive Mergers, CN Head Says

February 21, 2021

Canadian National CEO Jean-Jacques Ruest predicted last week that technology and carbon footprint gaps between Class I railroads could be a force leading to the merger of two of North America’s big rail networks.

J..J. Ruest

Speaking to the Citi 2021 Global Industrial Virtual Conference, Ruest acknowledged that any such merger would have to resolve issues of competition through reciprocal switching or some other mechanism to provide shippers with access to two railroads.

Although reciprocal switching arrangement exist in some instances in Canada, U.S. Class 1 railroads have opposed efforts by shippers to get reciprocal switching agreements.

Ruest called for a new competitive model that would allow a merger to receive regulatory approval even as it affects a railroad’s pricing power.
He called that the cost of gaining efficiencies and a better service network of a merger.

Falling behind on fuel efficiency and emission reductions could be the factors that force some railroads to seek a merger partner, Ruest said.

Individual railroads that fail to make much technology progress within the next five years would be prime candidates for a merger.

CN has sought to lead the industry in fuel efficiency by exploring alternatives to the diesel-electric locomotive.

The Montreal-based carrier is looking at or testing hydrogen fuel cells and electrification as ways to reduce greenhouse gas emissions.

“People should not dismiss the importance of moving ahead with technology before it’s too late,” Ruest said.

He said environmental, social, and governance, also known as ESG criteria, will become increasingly important to investors and some railroad shippers as ways to combat climate change.

“And people should not dismiss that eventually the pressure on ESG will really catch the rail industry and the fact that we consume so much diesel. It will happen.”

Railroads May Benefit From Biden Pipeline Opposition

February 3, 2021

North American railroads might benefit from plans by the Biden administration to halt or curtail construction of crude oil pipelines.

Canadian National CEO Jean-Jacques Ruest said Biden’s actions, included cancelling a permit for the Keystone XL pipeline that was being built from Canada into the United States will have a positive effect on railroads.

The Keystone pipeline is designed to carry oil sands crude from Canada to refineries in the United States. 

Ruest said it would have been a few years before the Keystone pipe had been completed.

“So I think the positive impact on us might be a few years down the line,” Ruest said.

Canadian Pacific CEO Keith Creel said the actions being taken by the Biden administration in reviewing pipelines bodes well for railroads.

However both CEOs said that conventional crude oil by rail shipments will eventually shift to pipelines once capacity matches demand. 

Some crude oil cannot flow though pipelines and thus moves by rail.

In recent years the volume of crude moving by rail has diminished due to a collapse in energy prices.

Canadian authorities reported that between April and November last year Canadian crude-by-rail exports to the U.S. fell 70 percent.

Some existing pipelines and some in the building or planning stages carry Bakken crude oil from North Dakota.

If some of those projects are shut down that could net railroad more crude by rail business.

Class 1 CEOs Optimistic About Traffic Growth

January 28, 2021

Optimism was the underlying theme this week in investor calls hosted by top executives of Norfolk Southern and Canadian National.

CEOs of both Class 1 railroad systems expect intermodal traffic to drive growth this year as the economy recovers from the COVID-19 pandemic induced economic downturn of 2020 that at times threw the nation into a recession.

Both railroads expect to see growth in carload traffic although it is likely to lag behind intermodal volume in terms of percentage growth.

“As we take stock of what we achieved in 2020 while managing both the pandemic and energy market challenges, including the successful idling of four additional hump operations while driving productivity to record levels, we see much more opportunity ahead,” CEO James Squires said.

CN CEO J.J. Ruest made similar comments, noting that the economic recovery remains uneven but traffic continues to grow.

“We are increasingly optimistic about 2021 and we are reinstating our full-year financial outlook,” he said.

NS expects revenue growth this year of intermodal and merchandise volume in the high single-digit range.

But energy-related traffic is another story. NS management expects coal volume to continue to decline due to low natural gas prices, increased use of renewable energy, and unusually high utility stockpiles.

NS Chief Marketing Officer Alan Shaw said demand for intermodal traffic is expected to remain strong due to consumer spending and retailers restocking depleted inventories.

The decline in merchandise traffic was due to falloffs in crude oil, natural gas liquids, and frac sand shipments.

All of those declined due to the effects of the pandemic, lower refinery production, additional pipeline capacity, and reduced oil and gas drilling.

However, Shaw said there are signs that steel, automotive, plastics, forest products and agricultural shipments are picking up.

Further boosting carload traffic will be a rebounding manufacturing and housing market.

NS said 2020 operating income and revenue fell 13 percent as traffic skidded by 12 percent.

NS managers said 70 percent of the revenue decline came from energy-related traffic. Earnings per share fell 10 percent, to $9.25. 

The 2020 operating ratio set a record by falling 0.3 points to 64.4 percent, the fifth straight year of improvement.

“We see ample opportunity to affect more positive change and remain focused on closing the operating ratio gap with the industry,” Squires said. 

NS is aiming to shave 3 points off its operating ratio this year, hoping it will fall to 60 percent by the fourth quarter. 

The operating ratio reflects the percentage of revenues that are devoted to expenses.

At CN, management expects traffic growth of 5 percent this year.

Driving that is a record Canadian grain tonnage, demand for lumber and propane, and international and domestic intermodal gains driven by e-commerce and refrigerated grocery shipments.

CN expects earnings to rise in the high single-digit range this year, with an operating ratio below 60 percent.

The capital budget of $3 billion remains unchanged from last year.

Ruest said CN will continue to focus on managing capacity, increasing profit margins, and deploying technology that makes the railroad safer and more efficient, as well as easier for customers to do business with.