Canada’s two big railways underscored the economic impact of the pandemic on Tuesday, posting large drops in sales amid wavering consumer and industrial demand.
Canadian National Railway Co. posted financial results that showed revenue fell by 11 per cent profit while profit slumped by 17 per cent in the three months ending Sept. 30, from the year-ago quarter. CN’s smaller rival, Canadian Pacific Railway Ltd., posted a 6-per-cent drop in sales in the third quarter as profit fell by 3 per cent.
Both companies' results missed analyst expectations, dragged down by industrial products and resources, while grains and fertilizer shipments were among the few freight categories to post gains. CN hauled 12 per cent more carloads of crops and crop nutrients, while CP’s potash shipments rose by 20 per cent and grain by 17 per cent, amid large crops and robust global demand for fertilizer and food.
CN said after markets closed on Tuesday profit fell to $985-million or $1.38 a share from $1.2-billion or $1.66 in the third quarter of 2019.
Jean-Jacques Ruest, CN’s chief executive officer, sounded a positive note on a conference call with analysts on Tuesday afternoon, pointing to an increase in train operations, monthly improvements of sales, and the rehiring of employees. “The economic recovery is under way,” Mr. Ruest said.
For the three months ending Sept. 30., Calgary-based CP said profit fell to $598-million or $4.42 a share from $618-million or $4.47 in the same period a year ago.
Revenue fell to $1.86-billion from $1.98-billion. CP’s operating ratio, a measure of expenses versus sales, deteriorated to 58.2 per cent from 56.1 per cent. (Lower is better.)
CP boosted its full-year guidance, forecasting profit would rise by about 5 per cent, while freight volumes would decline by low-single digits.
Energy, chemicals and plastics led CP’s freight decline in carloads, falling by 30 per cent, from a year ago. Coal shipments fell by 22 per cent. Metals, minerals, and consumer product carloads slumped by 19 per cent.
Keith Creel, CP’s chief executive officer, said the railway focused on controlling costs, running longer, heavier trains to boost productivity while balancing customer service.
“I’m super proud of what we’ve accomplished in this pandemic,” Mr. Creel said on a conference call with analysts on Tuesday morning. “We can’t control the pandemic. We are going to focus on what we can control,” Mr. Creel said.
Walter Spracklin, a Royal Bank of Canada stock analyst, said the quarterly results were below expectations, but the increased financial guidance signals a stronger finish to the year.
Recent moves by CP are fueling this optimism. CP on Monday unveiled a multiyear deal with ship company AP Moller-Maersk to move cargo boxes through the ports of Vancouver and Montreal in a project expected to add about $100-million in revenue a year. CP trains will replace trucks at the port in Vancouver using a facility under construction, and move containers from ships to inland destinations in Canada and the United States. Fadi Chamoun, a Bank of Montreal analyst, said: “While this arrangement enhances the competitiveness of the supply chain and improves Canadian ports' share versus that of U.S. ports, we sense that some of the international traffic coming on CP will be at the expense of CNR.”
John Brooks, CP’s chief marketing officer, said the agreement will boost sales and represents a “transformational revenue opportunity” in the coming years.
Last week, CP said it was buying full ownership of the Detroit River Tunnel, which connects Windsor, Ont., with Detroit. The deal will allow CP, which has been sharing control of the 2.6-kilometre tunnel with a pension fund, to improve the route’s operations and boost revenue while gain full control over a key part of its network, analysts and the company said.
Mr. Creel highlighted the railway’s new operations at the Port of Saint John, made possible with the purchase of the Central Maine and Quebec Railway – the former Montreal, Maine and Atlantic Railway – in June. The port is undergoing an expansion that will increase its capacity several times over by 2022, said Mr. Creel, calling it the “Vancouver of the East. It’s going to be a major gateway.”
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