Earnings Call: CN Reports Steady Growth Amid Macroeconomic Challenges

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Earnings Call: CN Reports Steady Growth Amid Macroeconomic Challenges

In the third quarter of 2024, Canadian National Railway Company (CNR) reported modest financial growth and operational improvements amidst macroeconomic and labor challenges. President and CEO Tracy Robinson highlighted a year-over-year increase in earnings per share (EPS) by 2% to $1.72, with an operating ratio (OR) of 63.1%. Despite softer macroeconomic conditions, CN anticipates volume growth supported by a strong portfolio of customer opportunities and has implemented operational adjustments to align resources with demand.

Key Points:

  • CN's EPS rose 2% year-over-year to $1.72, and OR was 63.1%.
  • Car velocity increased to 223 miles per day, and train velocity to 20 miles per hour.
  • Softer macroeconomic conditions affected commercial business.
  • Hiring freezes and resource adjustments, particularly in the Eastern and Southern regions.
  • Safety improvements and efficiency gains resulted in a 30% reduction in accident frequency.
  • Revenue increased by 3%, and RTMs grew by 2%, driven by long-haul intermodal and refined petroleum products.
  • CN expects low single-digit adjusted diluted EPS growth for 2024 and volume growth at the lower end of the 3% to 5% range.
  • The operating ratio is expected to improve in Q4 compared to Q3.
  • The company is investing in infrastructure to support growth in energy and intermodal markets.
  • CN's competitive positioning and pricing strategies are poised to outpace rail inflation as it heads into 2025.

Company Outlook:

  • Continued growth in intermodal volumes, particularly in international business, is expected.
  • Low single-digit adjusted diluted EPS growth projected for 2024.
  • Volume growth anticipated at the lower end of the 3% to 5% range.
  • The operating ratio is expected to improve in Q4.
  • Key initiatives include expanding frac sand terminal capacity and operations at the Greater Toronto Area fuel terminal.

Negative Points:

  • Macroeconomic challenges may affect overall volume recovery.
  • Labor negotiations at West Coast ports and Port of Montreal pose potential impacts on customer confidence.
  • Oversupply issues in domestic trucking operations.

Positive Points:

  • Strong tailwinds from the grain and petroleum sectors.
  • Ongoing infrastructure investments by customers.
  • Optimism regarding the Falcon premium service in Mexico.

Shortcomings:

  • Labor uncertainties and market conditions led to declines in domestic intermodal and automotive volumes.

Q&A Highlights:

  • Management is confident in an improved OR in Q4, despite Q3 typically having higher margins.
  • Concerns about achieving 3% to 5% volume growth were addressed; nearly a 12% sequential increase is needed.
  • CN expects pricing to stay ahead of rail inflation heading into 2025.
  • Adjusted three-year EPS outlook set to high single-digit CAGR, with more details expected in January.

CN's leadership continues to focus on maintaining operational fluidity and preparing for growth across various sectors. Through strategic adjustments in operational capacity, resource management, and capital expenditure planning, CN is poised to create shareholder value and ensure service reliability for its customers amid current market conditions.