War in Ukraine and the spectre of more COVID shutdowns in China drive fears about further disruption to the global supply chain
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Canadian National Railway Co. is pulling back its profit expectations for the coming year as the war in Ukraine and the spectre of more pandemic-related shutdowns in China drive fears about further disruption to the global supply chain, the company said April 26.
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CN said for the first quarter ended March 31 its operating income dropped eight per cent year-over-year to $1.2 billion, with the railway blaming harsh winter conditions across Western Canada and less grain moving on the network due to last summer’s extreme drought across the Prairies.
CN announced it is revising its target for earnings per share (EPS) growth due to challenges in the first quarter “as well as worldwide economic uncertainty.” The railway now expects to grow EPS between 15 and 20 per cent, down from its previous goal of 20 per cent.
Analysts were expecting the cut to CN’s growth outlook, according to RBC’s Walter Spracklin. “Despite the weaker results, the difficult operating conditions were well-known going into the quarter,” he wrote in a note to investors.
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CN stock was trading at $153.93 around 11 a.m. on April 27, down about $2.94 or 1.87 per cent.
The earnings update comes amid concerns that Chinese authorities could soon push Beijing into similar lockdown measures that shut down Shanghai for weeks and caused further congestion in the already dysfunctional global supply chain.
Tracy Robinson, the railway’s new CEO, acknowledged it’s been a “tough start to the year.”
“Harsh weather, mostly in Western Canada, and supply chain disruptions impacted our ability to fully capitalize on the strong demand environment in Q1,” she told analysts on an afternoon conference call. “The uncertainty from the war in Ukraine and the continuing pandemic disruptions in China and elsewhere all suggest just a little bit of caution on the year.”
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Chief operating officer Rob Reilly said operating conditions were in “Tier Two” — meaning -31C or colder — for 85 per cent of January and February, which forced CN to reduce train size, run more locomotives, and ultimately “move less freight through the very cold sections of our network.”
Car miles per day decreased 12 per cent, the company said. But revenues increased five per cent year over year to $3.7 billion, mainly due to “higher fuel surcharge rates, freight rate increases and higher Canadian export volumes of coal via West Coast ports and higher export volumes of U.S. grain,” CN said.
The rise in fuel costs also drove a 12-per-cent increase in CN’s operating expenses, which grew to to $2.5 billion in the quarter, ended March 31, compared to the previous year. Adjusted diluted EPS increased seven per cent to $1.32, below forecasts of $1.39, according to RBC.
Robinson, who took over as CEO in late February, assured analysts that 2022 will be “a good year for CN” despite global economic uncertainty.
“You have my full commitment that, as a team, we will bring this company back to being best in class,” she said.
• Email: jedmiston@nationalpost.com | Twitter: jakeedmiston
