The chief executive of Canadian National Railway Co. returned to work after a five-month absence Tuesday to announce strong fourth-quarter and full-year earnings, indicating that the company’s focus on efficiency is paying down in a weak economy.
Claude Mongeau temporarily stepped down from CN’s day-to-day operations in mid August after disclosing he would need surgery and radiation to deal with a rare kind of non-cancerous tumour in the larynx. Mongeau had his voice box removed and substituted for a prosthesis.
“It sure feels good to be back on the job,” Mongeau said on the conference call with analysts. “I have a new voice, it is a bit squeaky, but I’m active and I’m getting excited about leading CN to new heights later on.”
CN reported earnings per share of $1.18 for that fourth quarter, ahead of analyst expectations and up 15 per cent from a year earlier. Revenues fell slightly to $3.17 billion as weak commodity prices weighed on volumes, offsetting strength in consumer goods and a tailwind from the weak loonie.
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Volumes, measured in revenue ton-miles, fell five percent within the quarter, but CN still were able to improve its operating ratio – a key measure of railroad efficiency, where a lower number is much better – to 57.2 per cent, down 350 basis points.
Jason Seidl, an analyst at Cowen & Co., wrote recently that “the rails might be facing an uphill battle in 2016,” but said CN is especially well positioned to fight through it.
“We like CN because of the company’s strong operating margins, lower contact with coal than U.S. carriers, and a favourable currency environment,” he explained.
The railroad also hiked its quarterly dividend by 20 percent Tuesday and said it expects mid-single-digit EPS development in 2016.
“We’re positive in terms of CN’s prospects for the year, notwithstanding the fact that we’re experiencing high volatility and weaker conditions in many commodity sectors,” said CN chief financial officer Luc Jobin, who completed for Mongeau while he was away.
“As we glance towards the future, North American economic the weather is still favourable, consumer confidence remains solid and should support continued progress in housing, automotive and intermodal sectors.”
The company also said hello plans to spend $2.9 billion on capital investments in 2016, a little more compared to 2015.
When questioned about why the railway would save money inside a weak economy, Jobin agreed it “may strike many people as a little bit counterintuitive” but defended the choice utilizing a dessert analogy.
“The best time to open an ice-cream shop is in the winter months, if you’re doing so in the summer, it’s chaos,” he said.
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