CN Rail reports a drop in profits due to supply chain issues

On Apr. 26, Canadian National Railway Co. lowered its earnings forecast for the year after profits sagged in its first quarter.

Citing tough operating conditions and “worldwide economic uncertainty,” the company now predicts adjusted diluted earnings per share growth of between 15 and 20 per cent, versus its target of 20 per cent at the start of the year.

“We will bring this company back to being best in class,” said Tracy Robinson, who came on board as CEO on Feb. 28. She arrived from TC Energy, where she headed the energy company’s natural gas pipelines operations.

“There’s been a big shock to the supply chain. And we’re working very hard to get our rhythm back,” Robinson told analysts on a conference call.

Higher fuel surcharges and freight rates along with bigger coal and U.S. grain export volumes boosted revenue five per cent. But a smaller overall grain crop, global supply snarls and a cold winter all contributed to a net earnings drop of six per cent last quarter.

“Harsh weather — mostly in Western Canada — and supply chain disruptions impacted our ability to fully capitalize on the strong demand environments in Q1. The uncertainty from the war in Ukraine and the continuing pandemic disruptions in China and elsewhere all suggest just a little bit of caution on the year,” Robinson said.

The weaker grain crop — usually CN’s top-selling commodity, but outpaced last quarter by oil and chemicals — saw those revenues fall 15 per cent year over year in the three months ended March 31.

Supply bottlenecks caused by global backups and choke points — particularly in China, where COVID-19 lockdowns are wreaking havoc on manufacturing and shipping — made for slower container traffic on the West Coast.

Meanwhile a frigid winter further reduced freight capacity, as low temperatures impair a train’s air-brake systems, necessitating shorter trains and slower speeds.