CN Rail holds firm on financial outlook amid tariff uncertainty
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Canada's largest railway says there is a higher risk of recession in both Canada and the United States due to the trade war initiated by U.S. President Donald Trump, but it hasn't impacted its outlook yet.
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'There's no question that uncertainty has increased over the last few months and we're seeing a heightened risk of recession in both Canada and the U.S.,' Canadian National Railway Co. chief executive Tracy Robinson said during a first-quarter earnings call with analysts. 'The resiliency we saw is again proof that our operating model is the right one for this railroad.'
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The Montreal-based railway reported revenues of $4.4 billion in the first quarter, which is up four per cent from the $4.25 billion recorded a year ago, and net income of $1.16 billion, an increase from $1.1 billion in the same timeframe.
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Strong grain and fertilizer shipping, along with coal and petrochemicals, primarily drove revenue growth for CN Rail. Currently, its volumes are not being impacted by the uncertainty created by tariffs and other trade-related issues, but Robinson said this may not be the case in the near future.
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Nevertheless, the railway is still expecting to deliver earnings per share growth of 10 per cent to 15 per cent, while rival Canadian Pacific Kansas City Ltd. lowered its outlook on Wednesday.
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Robinson said CN Rail is optimistic that the U.S. will be able to reach new trade agreements with Canada, China other countries and is projecting year-over-year volume growth.
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'CN is well positioned to enable global trade regardless of potential changes in trade patterns,' she said.
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Remi Lalonde, CN Rail's chief commercial officer, said many customers are taking a wait-and-see approach with regards to tariffs, and there are some sectors of the railway's business being impacted since some companies are pausing shipments to avoid tariffs, reducing production or building inventory.
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'The tariffs are starting to bite and we're seeing that in the intermodal business,' he said. 'We're taking a bit more of a cautious approach to some of the other segments, the metals and mining, the autos in particular.'
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CN Rail also reached an agreement with its Canadian train operators and conductors through arbitration during the first quarter.
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Robinson said the agreement is for three years with annual wage increases of three per cent, which she said was in line with the company's expectations. She said progress has also been made in reaching agreements with workers within the company's U.S. operations.
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