Deep freeze causes CN’s costs to heat up
Spent more money on labour and fuel to clear tracks
Canadian National Railway Co. said the weather-related issues that hampered revenue growth in late 2013 are continuing this month and will probably add to firstquarter expenses at Canada’s largest railroad.
Additional costs linked to “extreme” weather will probably amount to $15 million in January, roughly equal to what the Montreal-based railroad spent in December, chief financial officer Luc Jobin said Thursday after the company reported fourth-quarter results.
“They are going to have to make up a little bit of ground,” Jeff Nelson, an analyst at Edward Jones & Co. in St. Louis, said.
“They have a good track record and I expect that they’ll get the j ob done.” Nelson rates the shares hold.
Lower-than-normal temperatures in December forced Canadian National to run shorter trains and spend more on labour and fuel to clear the tracks. Fourthquarter operating expenses climbed 10 per cent — outpacing an 8.3 per cent increase in revenue — as workforce costs soared 28 per cent, the company said Thursday.
“We are dealing with very difficult conditions, which have an impact on our railroad operations,” CEO Claude Mongeau said Thursday on a conference call. “We are mindful that we’re not meeting the demand of our customers, and impacting them in terms of their ability to reach markets. We are doing our best to come out of it.”
Canadian National rose 0.5 per cent to $59.61 at the close in Toronto. The stock has gained 25 per cent in the past 12 months, beating the eight per cent increase for the benchmark S&P/TSX Composite Index.
Excluding some costs and gains, Canadian National reported fourth-quarter profit of 76 cents a share, below the average 77-cent estimate of analysts. Even so, the company boosted its dividend by 16 per cent while affirming a December forecast that pershare profit in 2014 will increase by at least 10 per cent.
“Given that the company did not materially exceed guidance last year, and considering the light fourthquarter results and weather disruptions in the first quarter, this guidance may not be as conservative as we believe many had initially thought it was,” Jason Seidl, an analyst at Cowen & Co. in New York, said today in a note to clients. He rates the shares market perform.
Canadian National’s network spans Canada and the U.S., extending north to Fort McMurray, Alta., and south to refineries on the Louisiana Gulf Coast. Winnipeg, where the railroad operates facilities such as a training centre, recorded its second-coldest December since 1893, Global TV has reported.
“We are managing priorities the best we can so that we can avoid creating undue hardship,” Mongeau said. “We will be breaking loose as soon as weather gives us a break to rethink and get the network back in a mode where we can meet demand and deal with the rollover that we have from December into January.”
Walter Spracklin, an analyst at RBC Capital Markets in Toronto, said in a note to clients on Friday that “while volume demand and accounting trends are positive, the challenging operating environment presents a headwind to 2014 results.”
The effect on the financial results “will depend on the duration and severity of unseasonably cold temperatures across the network,” said Spracklin, who rates the stock outperform.