CN Rail withdraws profit forecast after rail blockades, COVID-19 downturn [UPDATED]

MONTREAL — Canadian National Railway Co. is withdrawing its profit forecast as uncertainty fostered by the COVID-19 pandemic tears up the transportation industry playbook.

The impact on freight demand of worldwide containment measures — whose duration remains unknown — has prompted the country’s largest railway to scrub its 2020 guidance as well as the three-year targets it outlined last June.

“We still feel that the worst is not behind us,” said chief financial officer Ghislain Houle.

Automotive shipments remain at unprecedented lows — down nearly 90% year over year, CN said — after an already tough quarter as Canadian assembly plants stay shuttered.

“Automotive is as low as it gets,” chief executive JJ Ruest told analysts on a conference call April 27.

“In the short-term we’re not too sure what the economy has in store for us,” he said. “It definitely feels like we’re close to the bottom… How fast the recovery after that? We don’t have the science to do that.”

CN has scaled down in response to the crisis, furloughing more than 2,500 workers, a 16% temporary reduction on top of the 1,300 employees laid off more permanently in the past six months.

“We haven’t quite seen the bottom yet,” said chief operating officer Rob Reilly, implying more furloughs are en route.

The company has also idled 500 locomotives and 14,000 cars — more than 15% of its railway car fleet — with more heading for storage in the coming weeks, he said.

Despite the current slump in demand across all commodities except grain and fertilizer, CN says it will generate a minimum of $2.5 billion in free cash flow. “You can define it as a worst-case scenario,” Houle said.

The pandemic hasn’t been the only weight on freight volumes this year.

“The illegal blockades really had an unfortunate impact on us,” Houle said, citing more than 30 in February.

Rolling blockades that halted rail traffic across large swathes of the country that month came on top of lower container volumes from China following production shutdowns triggered by the outbreak, depressing freight revenue in all areas minus grain and crude oil in the first quarter.

The plunge in productivity in Asia prompted 37 “blank sailings” — when a carrier cancels a cargo sailing — in that period, though Chinese factories are now starting to hum back to life.

CN shut down its eastern network on Feb. 13, one week into a blockade by Tyendinaga Mohawk protesters that cut a key rail link east of Belleville, Ont.

Provincial police cleared the demonstration at the end of February, which was part of a slew of pop-up blockades across the country launched in solidarity with Wet’suwet’en hereditary chiefs who oppose a natural gas pipeline slated to pass through their traditional territory in British Columbia.

Net income fell 22% year over year to $786 million while revenues remained flat at $3.55 billion in the quarter ended March 31, CN said.

On an adjusted basis, diluted earnings per share hit $1.22 compared with $1.17 a year earlier, beating analyst expectations of $1.09 per share, according to financial markets data firm Refinitiv.

The company says its board approved on April 27 a second-quarter dividend of 57.5 cents per common share, to be paid on June 30 to shareholders of record after markets close on June 9.

CN also pledged to maintain its dividend increase of 7% this year.

— By Christopher Reynolds