New CN plan eyes efficiency

Canadian National Railway has unveiled details of an updated strategic plan, reassuring shareholders that the company is committed to increasing operational efficiency, boosting revenue and enhancing shareholder returns.

CN’s updated plan, entitled Full Speed Ahead — Redefining Railroading, was released Sept. 17, just days after the company learned that its US$33 billion bid to acquire United States rail carrier Kansas City Southern (KCS) had been rejected due to regulatory concerns in the U.S.

In a news release, CN said its new strategic and financial value creation plan is aimed at generating an additional C$700 million of operating income in 2022 and targeting an operating ratio of 57 percent.

The company will also reduce capital expenditures in 2022 to about 17 percent of revenue and will resume a share repurchase program that was previously authorized by the company’s board of directors.

“CN’s ambition is to build the premier railway of the 21st century by methodically investing in technologies to deliver high quality service to customers, improve safety and sustainability, create capacity and reduce costs and delays,” said CN president and chief executive officer JJ Ruest.

“Just as CN pioneered the industry’s focus on efficiency to increase reliability, we are now well-positioned to lead the industry through its next transformation by investing in the success of our customers, workforce and communities while delivering enhanced financial results.

“We spent the last several years making strategic and important customer-centric investments in our network, technology, sustainability and people,” added CN board chair Robert Pace.

“These investments have allowed us to deliver high-quality service to our customers and position us well to drive more sustainable returns to shareholders over the long-term.”

In a news release, CN said it has conducted an extensive review of revenue and costs and will increase operating income by $700 million in 2022.

CN management will review all non-rail businesses and will focus on optimizing labour productivity, the release added.

For 2022, CN expects to increase earnings per share (EPS) by about 20 percent.

To improve its operating ratio, the company will:

  • Prioritize rail operations, including car velocity, train speed and train length.
  • Pursue strategic alternatives for adjacent non-rail businesses that are not best-in-class.
  • Rationalize costs by streamlining management and improving labour productivity.

CN also reaffirmed its 2021 financial outlook targets of double-digit adjusted diluted earnings-per-share growth despite a widely anticipated reduction in Canadian grain revenue.

The company will receive US$700 million in break-up fees following the termination of an agreement to acquire Kansas City Southern.

“CN will continue to engage with market participants, railroads and shippers to ensure that all regulatory rules are enforced fairly, and customers do not suffer anti-competitive effects arising from a combination between Canadian Pacific and KCS,” CN said.

CN’s new financial targets were announced as western Canadian grain farmers are harvesting the smallest crop in years.

Grain and fertilizer haulings at CN represented the company’s third-largest source of freight revenue in 2020, behind intermodal and petroleum/chemicals.

CN’s grain and fertilizer movements generated more than C$2.6 billion in freight revenues last year, or nearly 19 percent of the company’s total freight revenues.

Total freight revenues from all lines of business in 2020 generated more than $13.8 billion.