Harsh winter chills CN Rail's record first-quarter revenues, boosted by crude

MONTREAL — Canadian National Railway Co. saw first-quarter profits fall slightly short of analysts’ expectations as harsh winter weather worked to ramp up operating costs and offset a hefty increase in revenue.

Chief executive Jean-Jacques Ruest said that a “very, very cold, bitter winter” demanded shorter train lengths — low temperatures impair a train’s air-brake systems — and higher snow-clearing costs.

“When temperatures dropped to… -35 C, -40 F for about seven weeks, we were losing significant train capacity and in some instances we could not operate during part of three or four nights,” Ruest told investors on a conference call Monday.

“Despite a prolonged period of historic cold temperatures in key segments of our network, CN railroaders delivered record first-quarter carload volumes, adding $350 million of top-line growth,” he added in a release.

The country’s largest railway said revenues rose 11 per cent year over year to $3.54 billion last quarter — a first-quarter record — but operating expenses climbed 13 per cent to $2.46 billion.

Despite the headwinds, year-over-year revenue from petroleum and chemicals rose 25 per cent last quarter to $735 million, even after Alberta Premier Rachel Notley lowered the crude oil production cap for January by 325,000 barrels per day in response to low prices.

“Right now the biggest aspect of fluctuation was crude,” said chief financial officer Ghislain Houle. “We hope that we can help Alberta remove the curtailment on production.”

Crude-by-rail drove a six per cent boost in net income to $768 million last quarter, up from $741 million in the quarter ended March 31, CN Rail said after markets closed Monday.

Its share price has hit all-time highs over the past month, breaching $120 on April 1 and closing Monday at $126.22, giving it a market capitalization of $91.38 billion.

The Montreal-based company earned $848 million on an adjusted basis or $1.17 per diluted share last quarter.

That fell just shy of analyst expectations of $1.18 per diluted share, according to Thomson Reuters Eikon, though the number marks a 17 per cent increase from the same period in 2018.

Canadian Pacific Railway Ltd. said last week that heavy snow and temperatures well below -40 C in Western Canada also hurt its bottom line, as operating costs shot up from January through mid-March.

Chief executive Keith Creel said Tuesday it was “one of the toughest … quarters in my experience as well as the company’s,” highlighting its lowest gross ton mileage — an industry metric measuring weight moved per mile — in eight years.

CN Rail’s operating ratio, another key metric where a lower number means greater efficiency, rose 1.7 points to 69.5 per cent.



Companies in this story: (TSX:CNR, TSX:CP)

Christopher Reynolds, The Canadian Press