MONTREAL — Canadian National’s revenue and profits grew in the third quarter but the railway on Tuesday lowered its outlook for the year as volumes sag under the weight of a slowing industrial economy.
CN now expects the year’s earnings growth in the high single-digit range with volume to be down slightly when measured by revenue ton-miles. It previously expected revenue ton-miles to grow around 5% and earnings-per-share growth in the low double-digit range.
The company said it’s seeing signs of two economies: a strong consumer sector that’s boosting intermodal and automotive traffic, but a struggling industrial economy that’s clobbering demand for carload freight.
Volume for the third quarter was down 1% on a revenue ton-mile basis and by 0.4% on a carload basis. But for the fourth quarter to date, CN’s volumes are down 10% amid a delayed grain harvest, slumping lumber traffic, and lower energy traffic, including shipments of crude oil.
Operating income grew 8% in the third quarter, to $1.61 billion, as revenue rose 4%, to $3.83 billion for the quarter. Earnings per share, adjusted for the impact of one-time items, increased 11%, to $1.66, which topped analyst estimates by 3 cents, according to I/B/E/S.
CN’s operating ratio was 57.9%, an improvement of 1.6 points compared to a year ago.
“I’m very proud of the CN team. They delivered very good results with solid cost management in a softer and uncertain economic environment for the North American rail industry,” CEO Jean-Jacques Ruest told investors and analysts on the company’s earnings call Tuesday afternoon.
CN’s revenue ton-miles dropped by double digits for metals and minerals and forest products traffic, while grain was off 6% in the quarter. Coal was up 2%, all due to growth in Canada, while intermodal was up 2% and automotive grew 6%.
The railway remains optimistic about intermodal traffic, particularly international containers moving through the Port of Prince Rupert, British Columbia. Container volume at Rupert was up 30% in the quarter, while container volume at U.S. West Coast ports was down between 3% and 8%, says Keith Reardon, senior vice president of consumer product supply chain.
CN took steps to reduce the size of its locomotive and freight car fleets as demand softened.
“We’re in process of returning nearly 3,000 railcars that were on lease, scrapping another 2,000 railcars, and have parked over 6,000 cars to saving car hire expense,” Chief Operating Officer Rob Reilly says. “All of these actions help to right size our fleet to the rail volumes we are experiencing and decrease our expenditures associated with them. As a result of these efforts, our active online inventory has dropped 6% year-over-year, leading to a more fluid railroad.”
The railway has 150 locomotives in storage and will return remaining leased units this quarter.
CN also has furloughed train and engine crews, as well as mechanical employees, as traffic demand declined.
The railway’s key operating metrics improved for the quarter, including car-miles per day, dwell, and average train speed. Fuel efficiency hit record levels as CN better matched horsepower to tonnage and took other steps to conserve fuel.
CN will add an additional 40 air-repeater cars in time for winter, bringing its fleet to 100 cars that help spread air in cold temperatures and allow the railway to maintain train length.
