CN posts 'solid' Q1 results, revises 2020 outlook

CN yesterday posted "solid" first-quarter 2020 financial and operating results, despite experiencing rail blockades and the start of a global pandemic and recession during the period.

The Class I reported revenue remained flat at CA$3.5 billion during the quarter compared with the year-ago period. Diluted earnings per share (EPS) rose 31 percent to CA$1.42, while adjusted diluted EPS increased 4 percent to CA$1.22, compared with Q1 2019.

CN logged an operating ratio of 65.7 percent, an improvement of 3.8 points or 1.5 points on an adjusted basis, during the quarter. Operating income jumped 13 percent, or 4 percent on an adjusted basis, to CA$1.2 billion versus the year-ago period.

Operating expenses for the quarter decreased 5 percent to CA$2.3 billion, driven mainly by lower labor costs, depreciation expense and fuel expense.

"I am very proud of how we recovered quickly in March from the service disruptions in February," said President and Chief Executive Officer JJ Ruest in a press release. "Our network is very fluid, and we are continuing the temporary right-sizing of our resources to match the weaker demand caused by the global recession. We are committed to providing long-term shareholder value by delivering on our strategic capacity investments for growth and by deploying technological innovations."

In early March, CN began calling back to work most of its employees temporarily laid off in eastern Canada because of protest blockades that occurred on its rail lines over several weeks in the first quarter. Protestors had set up the blockades across the country in a show of solidarity for the Wet'suwet'en Nation, whose hereditary chiefs opposed the construction of a natural gas pipeline through northern British Columbia. Canadian authorities announced March 1 they had reached a tentative agreement with the indigenous group.

No sooner had the railroad begun to recover from the blockades when the World Health Organization on March 11 declared the COVID-19 outbreak a global pandemic.

CN officials attributed its flat revenue during the quarter in part to the impact the blockades and pandemic had on volume.

"Inclusion of TransX within the domestic market of the intermodal commodity group, freight-rate increases, higher volumes of petroleum crude and increased shipments of Canadian grain were offset by lower volumes across all other commodity groups," CN officials said.

Meanwhile, the pandemic's "unprecedented and extraordinary impact" on the economy prompted CN to revise its 2020 financial outlook, company officials said.

"The economic outlook, and therefore overall demand for transportation services, are highly correlated with the duration of containment measures and the impacts on businesses and consumers, which at this point remain uncertain," they said. "As a result, CN is withdrawing its 2020 financial guidance and three-year targets provided at the 2019 Investor Day."

The Class I scaled back 2020 capital expenditures by CA$200 million to CA$2.9 billion, but remains committed to spending CA$1.6 billion on track maintenance this year despite the uncertain business conditions.