CN on Sept. 11 announced that its operations have recovered following “several months of labor uncertainty” as well as a complete shutdown of its Canadian network, and that it is adjusting its 2024 guidance and long-term financial outlook based on “demand weakness persisting in key sectors.”
CN said its “scheduled operating plan, and the steps taken to affect a safe and orderly shutdown, have enabled a swift network recovery following the labor stoppage. Car velocity, train speed and dwell have all recovered, and the company is now essentially current with demand. CN remains focused on the disciplined execution of its scheduled operating plan, growing volumes more than the economy as its company specific growth opportunities come online, pricing above rail inflation, and improving efficiency.”
CN is revising its 2024 full-year financial guidance “due to the impact of CN’s labor uncertainty and work stoppage, the impact of the wildfires in Alberta, weaker than expected demand in forest products and metals, as well as the delayed recovery of overseas intermodal due to on-going port labor uncertainty. The 3Q24-to-date additional impact of labor uncertainty and the work stoppage, as well as the wildfires in Alberta, is estimated at around C$0.20 of EPS.
CN said it now expects to deliver adjusted diluted EPS growth in the low single-digit range, compared to its July 23, 2024, expectation of mid- to high-single-digit growth. The railroad “continues to expect to invest approximately C$3.5 billion in its capital program, net of amounts reimbursed by customers. As a result of the reduction to earnings, CN now expects adjusted return on invested capital (ROIC) to be in the 13%-15% range, compared to its July 23, 2024, 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 and is now targeting compounded annual adjusted diluted EPS growth in the high-single-digit range.”
2024 Key Assumptions
CN noted it has made several economic and market assumptions in preparing its 2024 outlook. The railroad “continues to assume slightly positive North American industrial production in 2024. For the 2023/2024 crop year, the grain crop in Canada was below its three-year average, also below when excluding the significantly lower 2021/2022 crop year and the U.S. grain crop was above its three-year average. The company continues to assume that the 2024/2025 grain crop in Canada will be in line with its three-year average, excluding the significantly lower 2021/2022 crop year, and that the U.S. grain crop will be above its three-year average. CN now assumes RTM (revenue ton-mile) growth will be at the low end of the 3%-5% range assumed previously and continued pricing above rail inflation upon contract renewals. CN also continues to assume that in 2024, the value of the Canadian dollar in U.S. currency will be approximately $0.75, and that in 2024 the average price of WTI (West Texas Intermediate) crude oil will be in the range of US$80 to US$90 per barrel.
2024-2026 Key Assumptions
In preparing its three-year financial perspective, CN said it “now assumes that the North American industrial production will increase by ~1% CAGR (Compound Annual Growth Rate) over the 2024 to 2026 period, compared to 2%+ CAGR assumed previously. CN assumes continued pricing above rail inflation, and that the value of the Canadian dollar in U.S. currency will be approximately $0.75 and that the average price of WTI crude oil will be approximately US$80 per barrel during this period.”
