CN Earnings Call: Strong Q1 Performance Amid Challenges

Canadian National Railway Company ((TSE:CNR)) has held its Q1 earnings call. Read on for the main highlights of the call.

The recent earnings call of Canadian National Railway Company (CN) painted a picture of robust financial health and operational resilience. Despite facing challenges such as adverse weather conditions and tariff uncertainties, the company demonstrated strong performance in several key areas. While there were notable growths in segments like grain, fertilizers, and coal, these were somewhat counterbalanced by declines in intermodal and iron ore shipments. Nevertheless, CN remains optimistic about its growth prospects, albeit with a cautious acknowledgment of macroeconomic risks.

Earnings Growth and Operating Ratio Improvement

CN reported an impressive 8% growth in earnings alongside a 20 basis-point improvement in the operating ratio for the first quarter of Fiscal Year 2025. This performance underscores the company’s operational efficiency and its ability to drive financial growth even amidst external challenges.

Labor Agreement Success

A significant highlight from the call was the successful conclusion of the arbitration process involving Canadian conductors and locomotive engineers. This resulted in a three-year agreement that includes annual wage increases of 3%, reflecting CN’s commitment to maintaining strong labor relations.

Record March Performance

March was a standout month for CN, with the company moving nearly 1.4 billion daily gross ton miles (GTMs), marking one of its top performances. Additionally, car velocity improved significantly to nearly 200 miles per day, showcasing enhanced operational efficiency.

Strong Grain and Fertilizer Revenue

The company saw a 7% increase in revenue from grain and fertilizers, driven by higher export volumes from both Canada and the US. This growth highlights CN’s strategic positioning in key agricultural markets.

Increased Coal Revenue

Coal exports contributed to a 9% rise in revenue, with the average length of haul increasing by 11%. This reflects CN’s ability to capitalize on global demand for coal and optimize its logistics network.

Weather Challenges

Severe winter conditions in February posed significant challenges, leading to 19 consecutive days of tier restrictions. Despite these hurdles, CN’s operational resilience allowed it to maintain service levels.

Iron Ore Shipment Decline

The company experienced a 6% decline in metals and minerals revenues, primarily due to a significant drop in iron ore shipments. This decline underscores the volatility in the global commodities market.

Intermodal Revenue Decline

Intermodal revenue experienced a 3% decline, attributed to a sluggish recovery in US volumes. This highlights the ongoing challenges in the intermodal sector, despite flat revenue ton miles (RTMs).

Increased Tariff Uncertainty

CN acknowledged the increased uncertainty surrounding global trade flows, particularly in light of US-China trade disputes. This uncertainty poses potential risks to future revenue streams.

Forward-Looking Guidance

Looking ahead, CN provided guidance that reflects a strong start to fiscal year 2025, with expectations of 10% to 15% EPS growth for the full year. The company anticipates volume growth in the low- to mid-single-digit range, driven by CN-specific initiatives and a recovery from last year’s disruptions. Despite the heightened risk of recession in Canada and the US, CN is confident in its strategic positioning across three North American coasts, particularly emphasizing growth potential at Prince Rupert.

In conclusion, Canadian National Railway Company’s earnings call highlighted a strong financial performance and operational resilience. While facing challenges such as weather impacts and tariff uncertainties, CN demonstrated growth in key segments and provided optimistic guidance for the future. The company’s strategic initiatives and adaptability position it well to navigate potential macroeconomic risks and capitalize on growth opportunities.