CN Rail’s profit exceeded expectations


Despite ongoing recessionary hurdles, National Railways of Canada says the tracks will be clear in a smooth year after reporting record second-quarter revenue coupled with a profit spike that beat expectations. Previously, it was largely due to a spike in container and crude oil sales.

Net income rose 28%, or $289 million, to $1.33 billion in the quarter ended June 30 from the same period last year, the Montreal-based company said Tuesday. Revenue grew 21%, or $746 million, to $4.34 billion last quarter from a year earlier.

The country’s largest rail operator said the heavy downpour was driven by higher fuel surcharges and freight rates as well as larger US volumes of coal and grain.

But the spike that followed did not fully offset the 40% drop in shipments of Canadian grain – usually CN’s best seller, but outstripped last quarter by oil and chemicals – leading to a decrease in grain and fertilizer availability.

CN’s chief marketing officer Doug MacDonald told analysts during a conference call: “US grains and coal continue to remain strong due to the unfortunate war in Ukraine and sanctions on Russia. Chief Executive Officer Rob Reilly added that next year’s crop looks “normal”.

Meanwhile, revenue from petroleum and chemicals increased 21% to $829 million year-on-year due to higher oil prices, while container shipping sales increased 28% to $1.32 billion, a source of revenue. CN’s largest to date. However, oil and coal were the only commodities that saw volume increases, even as revenue increases were near-comprehensive.

“We have seen a lot of growth over the years in the West Corridor,” said CEO Tracy Robinson, who took the top spot on February 28.

“But we will also focus on making fuller use of other parts of the network, with a focus on the eastern region and the southern regions. This will strengthen our business, our capacity our resilience. It should drive stronger profits.”

CN pointed to Halifax as a port that could “replicate the success of the Prince Rupert model.” The company’s main rival, Canadian Pacific Railway Ltd., does not serve the East Coast transit hub.

MacDonald cites “significant opportunity” to consolidate business there in the coming years, noting that the port is operating at only half capacity for containers. That makes it well-positioned to take in more products from Southeast Asia, he said, amid rising production there and severe congestion at ports on the West Coast of the United States. Ky.

Some analysts remain skeptical of CN’s dominant stance.

CFRA Research analyst Colin Scarola told investors: “We think little to no volume growth here as rampant inflation and rising interest rates seem likely to dampen commodity demand. globalization in the coming year”.

Supply chain difficulties remain a thorn in the side for CN, as warehouse congestion due to lack of storage facilities and trucks slows the flow of imported containers to Montreal and Toronto.

“The boxes would go to Montreal and Toronto and no one would come pick them up because there’s nowhere to get them,” MacDonald said.

“That was backing up the terminal, then backing up the ports, backing up the ships in the harbor.”

However, he said traffic has “improved significantly” after CN set up new storage locations in Canada’s two largest cities and worked to speed up processing times from companies. shipping and short distance delivery.

Robinson also rejected any suggestion that the federal government’s climate plan, which aims to reduce nitrous oxide emissions from fertilizers, would hurt CN’s income.

“We’ve had some pretty strong forecasts for fertilizers and grains as we expected. That’s one of the unique benefits of the Canadian economy,” she said.

CN confirmed its earnings forecast to grow 15% to 20% in adjusted diluted earnings per share for 2022, after lowering its outlook from its 20% target three months ago.

The company continues to aim for an operating ratio – a measure of railway efficiency that divides operating costs by net revenue – of just under 60%, compared with a more ambitious January target of 57%.

“We don’t expect any major service disruptions in the second half of the year and our outlook is free of a recession,” said Ghislaine Houle, chief financial officer.

“That being said, we have strong bulk trading rights including grains, potash and coal that are less affected by economic volatility and the current lumber traffic backlog.”

On an adjusted basis, diluted earnings rose 30% to $1.93 per share from $1.49 per share in the second quarter of 2021. The figure topped analyst expectations of 1. $75 per share, according to financial data firm Refinitiv.

This Canadian Press report was first published on July 26, 2022.

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