Morningstar | Canadian National Appoints JJ Ruest as CEO, 2Q Earnings Show the Rail Getting Back on Track
Canadian National righted its ship quickly, and after a couple quarters of congestion and a separation from its prior CEO, grew second-quarter volume 7% and price 5%--both greater than we and management expected. Despite a 200 basis point pension accounting headwind, CN generated an outstanding 58.2% operating ratio and improved adjusted EPS 13%. Based on strong volume and the current exchange rate, management increased 2018 guidance about 3% to an adjusted EPS of CAD 5.30-5.40 (was CAD 4.99 in 2017) and upped 2018 RTM growth expectation 300 basis points to 5%-7%. As we update our model, we expect any fair value estimate change to be upward and relatively modest.While need remains to restore velocity and dwell time to typical CN ranges, we're impressed by progress during the quarter. Gross ton miles grew 9% sequentially even as CN drove down terminal dwell 20% and improved car velocity 23%. This rail has demand (GTM up 5% to a record high), but needs capacity. We're also impressed by 4% realized same-store price gains and 4.4% core pricing on recent renewals (past 90 days, thus forward looking).
First-half 2018 was an intense scramble to add new locomotives, train personnel, and build sidings to ease Western corridor congestion. CN added 10 locomotives in June and expects 50 more in July. During the quarter, CN qualified 350 conductors and hired 900 trainees. In coming quarters it will work to improve resilience in Western Canada, then Wisconsin and Minnesota.
Today CN also announced it appointed JJ Ruest as President, CEO, and Director of the firm, following his service as interim CEO since early March and as Chief Marketing Officer since January 2010. In 22 years with the rail he has worked in various sales leadership roles. We like Ruest’s long tenure, deep customer relationships, positive attitude every time we’ve seen him, and intensity directed toward growing CN’s sales via capacity. We expect CN to maintain its prominence with Ruest at the helm.
Canadian National Railway, together with its wholly-owned subsidiaries, is engaged in the rail and related transportation business. Co.'s network of approximately 20,000 route miles of track spans Canada and mid-America, from the Atlantic and Pacific oceans to the Gulf of Mexico. Co.'s network and connections to all Class I railroads provide access to all three North American Free Trade Agreement nations. Co. handles and carries cargo, serving exporters, importers, retailers, farmers and manufacturers. Co. is engaged in the movement of a portfolio of goods, including petroleum and chemicals, grain and fertilizers, coal, metals and minerals, forest products, intermodal and automotive.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.