Greetings;
I took time away from the STB Star Chamber to tune into the public/webcast debut of Tracy Robinson as the Canadian National Railway CEO; hopefully in the fullness of time that will be seen as the red-letter date for rails rather than the hearings (I have attached my Tweet drafts compiled, whilst thinking of another social media platform to utilize in the wake of the Musk news). I wish the STB had thought about this (or NSC and CP earnings)….
CN modestly missed earnings expectations as a recovering March didn’t make up for the first two months of the quarter and year, pummeled by the cold and the global issues we are discussing in DC. CN then readjusted the 2022 Guidance to reflect that fact, moving (A/D) EPS from +20% to “15%-20%” and OR from 57% to “below 60%”. That’s fine – Ms. Robinson has only been on the property for 60 days and everyone is starting the year slowly, to say the least. Positives: no change in Capex (17% of revenues) and ROIC targeted at 15% which would place CN well amongst its peers.
- It was also the debut, in the role of CMO, of Doug MacDonald, whom we have known in prior roles. JJ Ruest had noted that the dual-monarchy CMO system (essentially what others label “Premium” and “Manifest/Bulk”) was possibly a strategic misstep (one that could be worked aro9und given JJ’s own long tenure as CMO). So, Doug steps into a rough time, but actually seems to have the wind at his back a bit looking outward – Bloomberg notes that the Canadian economic outlook tops the G7 and that’s reflected in the CN outlook, with an almost across the board sunny demand outlook, with an emphasis on Petroleum Products, Chems/Plastics, and Domestic Intermodal.
- The only commodity category with a less than positive outlook but rather a neutral one was actually a surprise (to me): Fertilizers, which I would have thought would be better given global events
- Grain got a single up arrow – CN (and CP and Canada) is assuming a return to a “normal, average” crop after last year's 30%+ decline/disaster
- Otherwise, it is old friends on the call, Ghislain Houle as CFO and Rob Reilly as COO…
- Rob noted that train speed increased 18% from the low in January to April MTD; car velocity by fully 35%. Personal injury rate showed an 18% improvement but the accident rate almost doubled….
Notes on style – as we just said, Robinson has essentially just got here and has been meeting with key stakeholders and getting what seems to be good reviews. But as such the call was short on directly actionable information (one scary point is that there were only four slides to print!). There were surprisingly no questions on CPKC as there were for, say, the UNP – especially that CN is still quite active in the regulatory process. Some more thoughts:
- Robinson directed and deflected most probing questions, even silly ones (“Are you revisiting the PSR path?” Really?!?) by saying she was studying the issues and strategic direction (and halting divestitures until that phase is over).
- Robinson spoke a few times in French, a language she planned to learn (and clearly that process is going well!)
- But my limited French (7 years of high school French down the drain) suggests that she wasn’t simply translating but talking about different things (she appeared to thank JJ Ruest – a classy and necessary thing to do – only in French for example
- The whole language thing seems silly here, south of the border, but it isn’t in Montreal – note that the Caisse slammed CN for having no Francophone directors after their prize “get”, Jean Charest, resigned suddenly (and I would guess, surprisingly); CN has pledged to rectify that and we hear that Rob Knight has been watching only Nouvelle Vague cinema of late
- It may have just been me, but the webcast was breaking up constantly….
Anthony B. Hatch
abh consulting
http://www.abhatchconsulting.com
anthonybhatch@gmail.com
Twitter @ABHatch18