CN Rail Boosts Profit Goal as Trains Speed Up Under New CEO

(Bloomberg) -- Less than five months into the job, Canadian National Railway Co.’s new boss is making good on a pledge to speed up service and improve the carrier’s performance.

Trains moved more swiftly in the second quarter than in the first, and spent less time idling in rail yards, Canadian National said as it reported earnings after the close of trading Tuesday. The company raised its 2018 profit forecast, citing a “swift network recovery” after stumbles that began in the second half of last year.

The results are a testament to the railroad’s progress under Chief Executive Officer Jean-Jacques Ruest, who was named to the post Tuesday after being promoted in March on an interim basis. Ruest replaced Luc Jobin, who was ousted after the railroad failed to accommodate a surge in freight traffic that started in the second half of 2017. Ruest will serve on the board of the Montreal-based company.

“It’s impressive they were able to get their costs in line quickly and get things moving forward as well as they have,” Dan Sherman, an analyst at Edward Jones & Co., said in a telephone interview. “Now they have to finish the projects and unclog the network. They have to do better in the third quarter and again in the fourth.”

Canadian National also boosted its 2018 capital investing program for the second time this year to a record C$3.5 billion ($2.7 billion) to fix bottlenecks by adding staff, tracks, sidings and locomotives. The C$100 million in additional investment will go mainly toward the purchase of new rail cars, the company said.

Canadian National now aims to deliver 2018 adjusted per-share profit of C$5.30 to C$5.45, compared with last year’s C$4.99. The company had lowered the range in April.

Shares fell 0.5 percent to C$112 at the close of trading in Toronto. Through Tuesday, the stock had gained 8.1 percent this year, topping the 1.1 percent return of the S&P/TSX Composite Index.

Adjusted profit climbed to C$1.51 a share in the second quarter, compared with the C$1.38 average of analysts’ estimates compiled by Bloomberg. Sales increased to C$3.63 billion, topping the C$3.57 billion expected by analysts.

Historic Workload

Canadian National handled the biggest workload in its history during the quarter, Chief Operating Officer Mike Cory said on a conference call with analysts. Gains in commodities such as petroleum, chemicals, grain and fertilizers fueled the revenue increase.

“Our railroaders are energized,” Ruest said on the call. “We are ahead of our turnaround plan, and we expect progressive improvements during the second half. We have a strong pipeline of growth opportunities.”

Pricing climbed by an average of 4 percent in the second quarter, while pricing on expiring contracts that were renewed in the last 90 days increased 4.4 percent, Ruest added.

Operating ratio, a key industry gauge of efficiency in which a smaller number is better, deteriorated 0.7 percentage point to 58.2 percent in the quarter compared to a year earlier. Smaller rival Canadian Pacific Railway Ltd. reported a ratio of 64.2 percent for the period last week.

©2018 Bloomberg L.P.