CN Rail Cuts Full-Year Forecast Because of Falling Carloads

  • Railroad trims annual outlook for first time in eight years
  • Strengthening Canadian dollar also is weighing on results

Canadian National Railway Co., the country’s largest railroad, lowered its annual profit target for the first time in eight years amid weaker-than-expected demand for commodities from coal to crude oil.

Adjusted earnings this year will be in line with 2015’s C$4.44 a share, the Montreal-based company said in a statement Monday. The railroad had earlier forecast a “mid-single digit” increase for the full year. The shares fell 4.9 percent to C$79.35 at 4:22 p.m. in Toronto.

Like its major peers across North America, Canadian National has seen volumes for several commodities dwindle. Carloads this year will decline 4 percent to 5 percent, with pricing staying above inflation, the company said. Coal, crude oil and sand shipments will continue to be weak this year, Chief Marketing Officer Jean-Jacques Ruest said on a conference call.

Shipping crude by rail has become “broadly unattractive” because of low oil prices and excess pipeline capacity, Ruest said. “The volume is weak, will get weaker, and the pricing is not the greatest.”

Canadian National said a strengthening of the Canadian dollar versus its U.S. counterpart also contributed to the forecast revision. About 55 percent of the railroad’s sales occur in the U.S., according to Bloomberg Intelligence data.

Canadian National last cut its full-year profit target in April 2008, according to Bloomberg data.

Profit Beats

First-quarter profit of C$1 a share beat the 93-cent average of estimates compiled by Bloomberg. Revenue fell 4.3 percent to C$2.96 billion ($2.34 billion), trailing the C$3.01 billion average estimate.

Operating expenses declined 14 percent, helped by lower fuel prices and reduced labor costs. The railroad had about 2,400 fewer workers in the first quarter compared with a year earlier, and is “working hard” to reduce overtime, company executives said on the call.

“We’ve got our work cut out,” Chief Executive Officer Claude Mongeau said on the 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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