CN posts weak Q2 amid difficult economic environment

The Montreal, Canada-based Class I railway posted a net income of C$858 million on revenues of C$2.8 billion for the second quarter of 2016, a year-over-year drop of 3 percent and 9 percent, respectively.    Canadian National Railway Co. (CN) saw net income drop 3 percent year-over-year in the second quarter of 2016 to C$858 million (U.S. $649.8 million), according to the company’s financial statements.
   The Class I railway’s earnings per share (EPS) remained flat at C$1.10 per share.
   CN CEO Luc Jobin said in a conference call with analysts Monday how the company continued to see a difficult economic environment in the second quarter, which impacted several sectors and continued to put downward pressure on volumes and revenues.
   CN maintained strong discipline during the quarter in realigning resources to keep them in line with reduced freight demand, Jobin explained.
   “Service remained solid, key operating metrics advanced, and we continued to improve our safety record,” Jobin said.
   During the second quarter, Jobin was appointed CEO to replace Claude Mongeau, who stepped down at the end of June.
   Jobin joined CN in 2009 and was most recently the company’s executive vice president and chief financial officer.
   During the quarter, revenues tumbled 9 percent year-over-year to C$2.8 billion. CN said revenues were hindered by decreased shipments of energy-related commodities and coal, lower volumes of Canadian grain to North American and export markets due to less available supply, and lower applicable fuel surcharge rates.
   However, these factors were partially offset by the weaker Canadian dollar on U.S.-dollar denominated revenues, freight rate increases, higher amounts of lumber and panel shipments to the U.S. and increased domestic retail intermodal shipments.
   During the quarter, rail freight revenues comprised 93 percent of CN’s total revenues. Broken down into individual segments, compared to the second quarter of 2015, freight revenues for forest products rose 4 percent to C$439 million, while coal was down 36 percent to C$95 million, metals and minerals dropped 17 percent to C$292 million, petroleum and chemicals were down 16 percent to C$492 million, grain and fertilizers fell 12 percent to C$432 million, intermodal dipped 4 percent to C$697 million and automotive was down 1 percent to C$199 million.
   Although the net income and overall revenues declined, CN posted a record second quarter operating ratio of 54.5 percent.
   Looking ahead, the investment bank and analyst Stifel projects CN’s 2016 EPS will total C$4.50, while the 2017 EPS will reach C$4.90 and the 2018 EPS will be C$5.35.
   “We expect the second quarter to be the volume trough for the year,” Jobin said. “For the balance of 2016, we continue to expect some markets to remain strong, including lumber and panels, automotive and refined petroleum products, and we anticipate a bumper grain crop in Canada. At the same time, international intermodal volumes are expected to remain challenging while shipments of commodities related to oil and gas development, such as crude oil, frac sand and drilling pipe, are expected to decrease relative to last year.”
   CN is based out of Montreal, Canada and has approximately 19,600 route miles of track across North America.