CN BOSS SEES A ‘SILVER LINING’ AS ECONOMIES AWAKEN
‘MAY MIGHT BE AS BAD AS IT GETS’, RUEST SAYS
MONTREAL• Could a summer revival a wait Canada’ s biggest railroad?
Rail traffic across North America may start rebounding in June from the slump induced by COVID-19 that’s depressed economic output, Canadian National Railway Co. said.
“It definitely feels like we’re close to the bottom, that the month of May might be as bad as it gets,” CN chief executive Jean- Jacques Ruest said Monday.
Ruest spoke after CN scrapped its 2020 profit targets, citing uncertainty created by the pandemic, as it reported better- than- expected first- quarter earnings. Adjusted profit in the three months to March 31 rose four per cent to $ 1.22 a share even as sales were little changed at $3.55 billion, CN said.
With provinces such as Saskatchewan and New Brunswick unveiling plans in recent days to reopen their economy, “what you’ve seen lately is the beginning of a silver lining,” Ruest said.
States and provinces such as Michigan, Illinois, Ontario and Quebec, which have larger populations, “will take more time,” the CEO said. “That’s why we don’t feel comfortable to provide guidance. We need to know more.”
Freight volumes are down about 15 per cent so far in April, chief financial officer
Ghislain Houle said on the call. Volumes for the entire quarter “will be weak,” added senior vice president Keith Reardon.
Montreal- based CN has taken aggressive steps to make up for the revenue shortfall.
CN is now operating with about 3,800 fewer people than at the same time last year — a 14 per cent workforce reduction, Ruest said. The figure includes 2,500 furloughed employees, who will be called back “in time,” he said.
T he company has removed almost 700 weekly train starts, slashing fuel and maintenance costs.
“We haven’t quite seen the bottom yet,” chief operating officer Rob Reilly said. “We will continue to right- size our operations in terms of train starts.”
CN now has about 500 locomotives and 14,000 railcars in storage, and “we see a few more going into storage over the next few weeks,” Reilly said.
The company is also reducing its 2020 capital- expenditure budget by three per cent to about $ 2.9 billion.
Share repurchases remain on hold, a decision that CN vowed to reassess “on an ongoing basis.”
Even so, CN said it’s committed to maintaining a seven per cent dividend increase this year while generating at least $ 2.5 billion in free cash flow.
At least two CN executives who spoke on the call expressed doubt that the pandemic will lead North American companies to massively start repatriating production from China — the source of the coronavirus outbreak.
“There will be some near- shoring, but I think for the most part we’re still going to see quite a bit of production in Asia,” Reardon said. “Maybe we’ll see some moving to Mexico, but I don’t think there’ll be any drastic change.”
In the meantime, CN is “very well prepared to go through the pandemic,” Ruest said.
“We’re confident about the future. I don’ t know if this will be a V- shaped, U- shaped or what kind of shape of recovery, but when that comes we will be ready.”