CN Rail chief Claude Mongeau returns from sick leave to announce strong earnings, outlook

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 the company’s focus on efficiency is paying off inside 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 an uncommon kind of non-cancerous tumour in the larynx. Mongeau had his voice box removed and replaced with a prosthesis.

“It sure feels good to become back at work,” Mongeau said on the business call with analysts. “I have a new voice, it’s kind of squeaky, but I’m full of energy and i am getting excited about leading CN to new heights in the future.”

CN reported earnings per share of $1.18 for that fourth quarter, in front of analyst expectations and up 15 percent from the year earlier. Revenues fell slightly to $3.17 billion as weak commodity prices weighed on volumes, offsetting strength in consumer goods along with a tailwind in the weak loonie.

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Volumes, measured in revenue ton-miles, fell five per cent within the quarter, but CN still managed to improve its operating ratio – a vital way of measuring railroad efficiency, in which 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 may be facing an uphill battle in 2016,” but said CN is particularly well positioned to battle through it.

“We like CN because of the company’s strong operating margins, lower exposure to 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 hello expects mid-single-digit EPS development in 2016.



“We’re positive in terms of CN’s prospects for that year, notwithstanding the truth that we’re experiencing high volatility and weaker conditions in a number of commodity sectors,” said CN chief financial officer Luc Jobin, who filled in for Mongeau as they was away.

“As we look to the future, North American economic conditions are still favourable, consumer confidence remains solid and should support continued progress in housing, automotive and intermodal sectors.”

The company also said hello intends to spend $2.9 billion on capital investments in 2016, a little more than in 2015.

When questioned about why the railway would save money in a weak economy, Jobin agreed that it “may strike many people like a little bit counterintuitive” but defended the decision using a dessert analogy.

“The best time to spread out an ice-cream shop is in the winter months, because if you do it in the summer, it’s chaos,” he said.

kowram@nationalpost.com

Twitter.com/kristineowram