CN Rail rides higher grain volumes, oil prices to record Q1 revenue

Canadian National Railway Co. upped its financial forecast for the year after reaping record first-quarter revenues due to a bumper grain crop and higher oil prices.

The sunny outlook comes despite the CEO expecting a shrinking economy throughout much of the year, as volumes sag for shipping containers and some bulk cargo.

“Our current volumes reflect that we are in a mild recession. And we’re uncertain about how deep or how long it will go on. But what we’re modeling is negative North American industrial production for the full year,” said chief executive Tracy Robinson on a conference call with analysts, warning of thinner margins for parts of 2023.

While grains, coal and metals were still moving healthily this month, weaker volumes for container shipments, lumber and chemicals and plastics pulled down overall haulage figures by six per cent so far in April as measured in revenue ton miles — a key industry metric gauging how much a company makes per volume of freight transported — said CN chief financial officer Ghislain Houle.

Retail and wholesale inventory levels have remained high across the country, reducing demand for CN container shipping — its highest grossing segment — with volumes dropping 13 per cent year over year last quarter.

“Lumber remains uncertain as commodity prices are still at low levels, and housing demand is still low due to elevated interest rates despite a significant shortage of homes on the market,” said chief marketing officer Doug MacDonald.

“Petroleum and chemicals production is directly tied to the economy, so we expect demand to be soft for most of the year.”

However, fat grain yields and the soaring price of fertilizer boosted CN’s first-quarter revenue on the combined segment by 43 per cent year over year, returning it to the railway’s No. 1 revenue earner among bulk products.

As overall volumes slip, the company plans to avoid cutting employees and focus on training locomotive engineers.

“We are not going to have a knee-jerk reaction and send people home while we have the mild recession,” Houle said.

Even with the economic contraction, CN said it expected growth of adjusted diluted earnings per share in the mid-single digits this year compared to 2022, up from a low single-digit target set in January.

The company reported revenues of $4.31 billion for the quarter ended March 31, a 16 per cent boost from $3.71 billion a year earlier.

Net income jumped to $1.22 billion in its first quarter from $918 million in the same period last year.

On an adjusted basis, diluted earnings increased 38 per cent to $1.82 from $1.32 a year ago, beating analyst expectations of $1.72 per share, according to financial data firm Refinitiv.

On Monday, the company’s board approved a second-quarter dividend of 79 cents per common share, to be paid after markets close on June 30.