Earnings Call: CN’s Q3 2023 Results Reveal Resilience Amid Challenges, Anticipates Volume Improvement

CN (Canadian National Railway (TSX:CNR)) revealed its third quarter 2023 financial and operational results in a recent earnings call, indicating a resilient performance despite challenges such as forest fires, flooding, and port strikes. The company announced key executive appointments and expressed confidence in its growth plan and the robustness of the North American economy. The earnings per share (EPS) for the third quarter were 21% lower than last year and revenues were down 12% due to lower fuel surcharge rates and volumes, partially offset by solid pricing.Key takeaways from the call include:

• The appointment of Derek Taylor as Executive Vice President and Chief Field Operating Officer, and Pat Whitehead as Executive Vice President and Chief Network Operating Officer.

• Despite operational challenges, CN's performance remained strong with bulk business thriving and merchandise business firming up, reflecting the company's impressive gross profit margins of 56.82% as per InvestingPro Data.

• CN's commitment to providing industry-leading service remains unwavering, with expected volume improvement in the coming months.

• CN reaffirmed its full-year 2023 guidance, citing improving volumes and a robust balance sheet. This is in line with InvestingPro Tips that highlight CN's consistent increase in earnings per share and the fact that it has raised its dividend for 28 consecutive years.

• The company is focusing on driving long-term value for shareholders and expects sequential improvement in volumes and operating ratio in Q4. This aligns with the InvestingPro Tip that CN management has been aggressively buying back shares, indicating confidence in the company's potential.

• CN is working on new partnerships and services to improve efficiency and attract customers, including initiatives in the electric vehicle supply chain.

During the call, CN Railway CEO Ed Harris expressed confidence in the company's performance and the next generation of operating talent. Doug MacDonald, Chief Marketing Officer, discussed the company's top-line performance and market outlook, noting that volumes hit their lowest point in July but have shown improvement in August and September. He also highlighted the performance of different business segments, such as merchandise, metals and minerals, petroleum, intermodal, and bulk. MacDonald stated that the company expects a gradual recovery in consumer-related freight demand in 2024. He also discussed various growth initiatives, including agreements with AltaGas (TSX:ALA) and plans for the electric vehicle supply chain. Ghislain Houle, the EVP and CFO, provided further details on the company's third-quarter performance, including a 5% decrease in volumes, operating income of around $1.5 billion (down 21% from the previous year), and EPS of $1.69 (down 21% from the previous year). Tracy Robinson, the EVP and CMO, addressed questions on TEU trends out of Prince Rupert and the impact of the West Coast port strike. She expressed confidence that the volume would come back gradually due to the structural advantages and economic benefits of using Prince Rupert. Robinson also mentioned the company's focus on growing its business on the Rupert corridor and the potential impact of BILL C-47 and interswitching.In a discussion about the intermodal service, executives mentioned that the service is a proof of concept and it is expected to start small and grow over time. They also mentioned that STG has joined the service and started shipping their first load a few weeks ago. The executives reaffirmed their guidance of 10% to 15% earnings growth and stated that the growth plan is based on both the strength of the economy and specific customer initiatives. They expect the timing of the growth to shift depending on economic conditions.Ed Harris highlighted the long-term growth potential in the electric vehicle (EV) supply chain. The company has started building a supply chain for EVs, particularly in Eastern Canada, with six plants dedicated to the construction, refining, and production of EV batteries and parts. Despite GM delaying their EV production schedule, the company is confident in the overall progress of the EV industry and believes there are still plenty of opportunities in the automotive sector. The call concluded with Tracy Robinson expressing gratitude to Ed and introducing Derek and Pat as the new leaders, assuring that the company is well-prepared to execute their plans for future growth.To gain more insights on CN's performance and future prospects, consider exploring additional InvestingPro Tips . These tips, which number 17 in total for CN, provide a comprehensive view of the company's financial health and market position, and can be a valuable resource for investors.

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