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American ShipperIntermodalShipping

CN continues to grow profits in tough rail environment

Canadian National Railway increased net income 13 percent year-over-year to C$792 million (U.S. $627.53 million) in the first quarter of 2016 earnings on revenues that fell 4 percent to C$2.96 billion compared to the same 2015 period.

   Canadian National Railway Co. again increased profits in the first quarter of 2016 despite weak demand across the North American rail freight industry.
   The Montreal-based railroad reported first quarter earnings grew 13 percent to C$792 million (U.S. $627.53 million) compared with the first quarter last year following a 12 percent year-over-year increase to C$3.54 billion for the full year in 2015. First quarter diluted earnings per share (EPS) increased 16 percent to C$1.00 per share compared with the same 2015 period.
   The company was able to grow profits even as revenues fell 4 percent to C$2.96 billion compared with Q1 2015. Quarterly revenues increased for CN’s automotive (18 percent), forest products (11 percent), and intermodal (1 percent) segments, but declined for grain and fertilizers (2 percent), petroleum and chemicals (10 percent), metals and minerals (18 percent), and coal (42 percent).
   CN attributed the decrease in revenues primarily to a continued decline in shipments of energy-related commodities including crude oil, frac sand, drilling pipe and semi-finished steel products as a result of declining energy markets; reduced shipments of coal due to weaker North American and global demand; reduced U.S. grain exports via the Gulf of Mexico; and lower applicable fuel surcharge rates.
   Total carload volumes for the quarter dropped 7 percent to 1.25 million, while revenue ton-miles were down 9 percent from the first quarter last year.
   “CN delivered a very solid quarterly performance in a challenging economic environment,” Claude Mongeau, president and chief executive officer, said in a statement. “We successfully aligned our resources with the reduced volume level to achieve strong efficiency gains, while continuing to offer superior customer service and significantly improving our safety performance. These achievements allowed the CN team to deliver record first-quarter financial results.”
   Looking ahead to 2016, Canada’s largest railroad lowered its annual profit target for the first time in eight years. Adjusted EPS this year is now projected to be in line with C$4.44 per share achieved in 2015. CN previously forecast a “mid-single digit” increase for the full year.
   Shares of CN in Toronto fell the most in 16 months following the revision in earnings expectations, according to a report from Bloomberg news service.
   Canadian National slid 5.1 percent to C$78.57 by 4 p.m., the stock’s biggest single-day decline since December 2014. Tuesday’s drop was also the second-largest among members of Canada’s benchmark Standard & Poor’s/TSX Composite Index, Bloomberg noted.
   “Near-term concerns over mounting volume and foreign exchange headwinds” will probably “weigh on CN’s premium sector valuation,” Steve Hansen, a Raymond James analyst in Vancouver, said in a note to clients Tuesday.
   Freight railroads across North America have suffered from a severe drop off in volumes of key commodities like coal and crude oil in the past year. Carloadings this year are expected to decline 4 percent to 5 percent, with pricing staying above inflation, the company said. Coal, crude oil and sand shipments in particular will continue to be weak this year, Chief Marketing Officer Jean-Jacques Ruest said on a conference call with analysts.
   “We’ve got our work cut out,” Mongeau said on the earnings call. “We had a good start to the year, and we remain constructive about our prospects for the full year even though there are some challenges out there. We are managing the business for the very long term, but we are also nimble and we are responding swiftly to make sure that we protect profitability.”

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