Release Date: October 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Canadian National Railway Co (CNI, Financial) implemented a scheduled operating plan 30 months ago, which has proven effective in improving network velocity, customer service, and resilience.
- The company successfully rebounded from disruptions caused by fires in Northern Alberta and a labor-related shutdown, demonstrating operational resilience.
- CNI reported a 2% increase in EPS for the third quarter, despite challenges, indicating financial stability.
- The company has a strong pipeline of growth opportunities with customers, expected to drive more than half of future volume growth.
- CNI is making strategic adjustments to align resources with demand, particularly in eastern and southern regions, to improve margins.
Negative Points
- The macroeconomic environment is softer than expected, impacting merchandise business, especially in construction-related commodities and automotive sectors.
- Labor disruptions and Alberta wildfires led to additional expenses, affecting margin performance in the quarter.
- Domestic intermodal volumes decreased by 14% due to labor uncertainty, market softness, and oversupply of truck capacity.
- Carload volumes slipped by 2%, primarily due to lower domestic intermodal, automotive, and short-haul iron ore shipments.
- The company faces challenges in recovering international intermodal volumes, particularly in regaining US destination mix through Western gateways.
Q & A Highlights
Q: Can you discuss the expected operating ratio improvement in the fourth quarter and the factors influencing it?
A: Tracy Robinson, President and CEO, stated that the margin is expected to improve in Q4, with Q3 typically being the best margin quarter. The improvement will depend on international volumes, which Remi Lalonde, Chief Commercial Officer, is closely monitoring. Ghislain Houle, CFO, added that while they won't provide a specific number, they are confident in achieving better margins in Q4 compared to Q3.
Q: How confident are you in achieving the low end of the 3% to 5% volume growth guidance, given the current trends?
A: Remi Lalonde explained that while sequential growth is expected, year-over-year growth will be flatter. Strong grain performance and recovering domestic intermodal volumes are tailwinds, but macroeconomic headwinds and potash comparisons present challenges. They are comfortable with the low end of the guidance range.
Q: What steps are being taken to align resources with demand, and how does this affect your outlook for 2025?
A: Tracy Robinson noted that adjustments began in Q2 due to a softer macroeconomic environment. Patrick Whitehead, SVP of Network Operations, detailed resource adjustments, including reducing headcount and parking locomotives. The focus is on maintaining service quality while aligning resources with expected volumes.
Q: How are geopolitical and environmental factors being considered in your planning, and will this affect future guidance?
A: Tracy Robinson emphasized the importance of understanding geopolitical impacts on volumes and consulting with customers. While future guidance may evolve, the focus remains on setting a plan and being responsive to changes. The resilience of the operating plan is crucial in managing disruptions.
Q: Can you provide an update on pricing trends and expectations for 2025?
A: Tracy Robinson stated that pricing has been strong and is expected to remain ahead of rail inflation in 2025. The international portfolio is competitive, and service levels support strong pricing. Remi Lalonde added that the focus is on maintaining pricing strength as they enter the new year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
