Canadian National Railway Co. has cut its 2019 profit outlook as rail volumes slump in a weakening economy. Montreal-based CN said growth in cargo volumes will decline this year as demand for rail freight slows amid trade tensions and economic uncertainty.
CN’s adjusted per-share profit growth for 2019 will be less than 10 per cent, down from the low double-digit forecast issued in July, the railway said as it released third-quarter financial results on Tuesday after markets closed.
“The rail business is facing a challenging North American market,” said James Cairns, CN’s senior vice-president of supply chain.
But Canada’s largest rail carrier said profit rose by 8 per cent to $1.2-billion or $1.66 a share while revenue rose by 4 per cent to $3.86-billion, for the three months ending Sept. 30. Analysts expected per-share net profit of $1.62 and revenue of $3.86-billion. CN said the rise in revenue was mainly due to freight price increases and a jump in shipping container sales.
"CN delivered strong results, despite a softening economy,” said JJ Ruest, CN’s chief executive officer.
U.S. manufacturing activity sank to a 10-year low in September amid trade tensions that have slowed exports and raised fears of a sharp economic slowdown. Heightening the concerns is weaker consumer spending in Canada and the United States.
CN’s results were dragged down by weakness in “multiple” freight categories, said Benoît Poirier, a stock analyst with Desjardins, including grain, lumber, potash and oil.
Calgary-based Pacific Railway Ltd., scheduled to report third-quarter profit after markets close on Wednesday, faces similar conditions.
Mr. Poirier predicted economic uncertainty would send railways’ international container shipping volumes lower, and spur both railways to cut costs by running fewer cars and reducing staff levels. “We expect both railroads will be able to return unnecessary leased cars while also adjusting their workforce,” he said in a note to clients.
CN’s revenue ton miles, an industry measure of freight volume, and carloads are little changed this year, compared with last year. However, CN has posted a 9.7-per-cent drop in revenue ton miles in the fourth quarter to date, from the same period a year ago, and a 5-per-cent decline in carloads.
Still, CN and CP have seen a combined increase in rail traffic of 1.1 per cent, outpacing the 4.1-per-cent drop posted by U.S. railways in the first 41 weeks of the year, according to the American Association of Railroads. CN’s share price has risen by about 18 per cent this year. CN is the bigger of Canada’s two major railways, with more than 19,000 employees and a 32,000-kilometre network that reaches both coasts and the U.S. Gulf Coast.
On a conference call with analysts, Mr. Ruest said CN will adjust to the slower market by parking or scrapping 5,000 railcars, or 8 per cent of its fleet, returning leased locomotives and vacating 75,000 square feet of leased office space in Montreal.
Mr. Ruest said the effect of weakening freight demand will be blunted by CN’s focus on the consumer economy, via the container shipping business, and the automotive market.
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