CN Railway’s profit falls in fourth quarter as strike, weak demand, trade tensions reduce cargo volumes

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Canadian National Railway Co.’s profit fell by 22 per cent in the fourth quarter, as an eight-day strike, weak freight demand and trade tensions reduced cargo volumes at Canada’s largest rail carrier.

CN said it made a profit of $873-million, or $1.22 a share, in the three months ending Dec. 31, compared with $1.1-billion ($1.56) in the same period a year earlier. Revenue fell by 6 per cent to $3.6-billion from $3.8-billion in the same quarter a year ago. For the full year of 2019, Montreal-based CN said revenue rose by 4 per cent to $14.9-billion from 2018.

Profit declined to $4.2-billion from $4.3-billion in 2018. Diluted earnings per share fell by 1 per cent to $5.83. CN’s operating ratio, a measure of costs versus sales, deteriorated by 4.1 percentage points to 66 per cent.

CN posted declines in revenue from all freight categories except shipping containers. In a statement accompanying the after-markets release of its financial results, CN said its “strong balance sheet provides us with the flexibility and resiliency required in the current turbulent economic environment.”

U.S. economic growth slowed sharply early in 2019 and posted gains of just 2 per cent and 2.1 per cent in the second and third quarters, respectively, according to the U.S. Bureau of Economic Analysis. (The third-quarter figure is an estimate.)

U.S. factory production slumped in the latter half of 2019, dampened by escalating tariff disputes and a six-week strike at General Motors Co.

In Canada, gross domestic product rose by 1.3 per cent in the third quarter, compared with the same period a year earlier.

A strike by 3,200 CN conductors and yard workers brought to a standstill most traffic on CN’s Canadian network, forcing shippers of potash, chemicals and other goods to halt production. Operations resumed on Nov. 26, after the company and Teamsters Canada Rail Conference negotiators reached a tentative agreement.

CN slashed its 2019 earnings guidance because of the shutdown, forecasting profit growth of low to mid-single digits, compared with 2018. “We have growth opportunities that we anticipate will translate into low single-digit volume growth in 2020 in terms of revenue ton miles (RTMs), despite continued weakness in the broad freight environment,” said JJ Ruest, CN’s chief executive officer.

The cut was disappointing but understandable, said Jeff Windau, an Edward Jones stock analyst. “We anticipate the near-term performance [of CN] will continue to be mixed as the company works to offset trade uncertainty and pressure on volumes with improving operating performance,” Mr. Windau said in a research note.

CN’s share price has risen by 11 per cent on the Toronto Stock Exchange in the past 12 months, compared with an increase of 14 per cent on the TSX composite index. Rival Canadian Pacific Railway Ltd., which reports financial results on Wednesday morning, has seen its share price climb by about 26 per cent on the Toronto market.

Benoît Poirier, an analyst at Desjardins Group Inc., said economic conditions continue to deteriorate for the big railways, but the stock market is demonstrating confidence the new China-U.S. trade agreement will buoy factories in the United States. Mr. Poirier said he expects cost-cutting at both Canadian railways will offset softer freight volumes.

In response to slipping demand for rail services, CN in the fall embarked on layoffs that are expected to reduce its work force by about 1,600.

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