MONTREAL – Canadian National has lowered its financial outlook for the year due to the impact of several factors, including the rail labor uncertainty and work stoppage in Canada, wildfires in Alberta, weaker than expected demand for forest products and metals, and delayed recovery of international intermodal volumes.
CN now expects to deliver earnings per share growth in the low single-digit range, compared to its July expectation of mid to high single-digit growth. As a result of the reduction to earnings, CN now expects adjusted return on invested capital to be in the 13%-15% range, compared to its July expectation of approximately 15%.
In light of updated expectations for 2024, and a weaker than expected economic environment, CN is replacing all its current financial outlook for the 2024-2026 period with the following: CN is now targeting compounded annual earnings per share growth in the high single-digit range. CN previously expected compounded earnings per share growth in the 10%-15% range.
CN says it remains focused on its scheduled operating plan, growing volumes more than the economy as growth opportunities come online, pricing above rail inflation, and improving efficiency.
CN, in an announcement late yesterday, said that its operations have recovered following several months of labor uncertainty as well as a complete shutdown of its Canadian network. Car velocity, train speed and dwell have all recovered, and the railway is now essentially current with demand.
TD Cowen analyst Cherilyn Radbourne noted that CN has been more affected by labor uncertainty than Canadian Pacific Kansas City, partly due to its larger international intermodal franchise. CN handles significant container volume from the ports of Vancouver and Prince Rupert, British Columbia, to the U.S. Midwest. Since spring, shippers have been diverting U.S.-bound international intermodal volume to U.S. ports in anticipation of a strike or lockout in Canada.
“This guidance revision is negative, in our view, but not at all surprising, given that CN’s July guidance update did not embed a work stoppage, and also implied risk to the company’s multi-year outlook, partly due to the macro backdrop. In our view, this update arguably represents a needed reset of expectations, although it is hard to identify a near-term positive catalyst for the stock,” Radbourne said in a note to clients today.
