Key Points
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CN remains comfortable with its full-year outlook, supported by strong Canadian grain shipments, higher volumes, network fluidity and productivity gains, despite weakness in lumber and international intermodal freight.
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The railroad generated nearly CAD 100 million in first-half savings through its Fast Track initiative, while improving crew productivity, locomotive utilization and fuel efficiency. However, rising diesel prices are reducing expected fuel-related earnings benefits and could pressure operating ratios.
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CN plans approximately CAD 2.8 billion in capital spending and sees long-term growth opportunities through expanded Union Pacific access toward Mexico, excess network capacity and potential future free-cash-flow benefits from a Canadian tax deduction.
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Canadian National Railway (NYSE:CNI) Executive Vice President and Chief Financial Officer Ghislain Houle said the railroad remains comfortable with its full-year guidance as strong Canadian grain shipments, network fluidity and productivity gains support results despite softness in lumber and international intermodal markets.
Speaking at an investor conference in Montreal, Houle said revenue ton miles were up 4.5% quarter to date and 4% year to date, driven largely by a bumper Canadian grain crop. Excluding grain, volumes were up 1% both quarter to date and year to date.
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“We’re very pleased with where our volumes are,” Houle said. He noted that grain shipments have continued into the third quarter, an unusual pattern compared with an average crop year, when grain volumes typically decline by the end of the second quarter.
Network Performance and Productivity
Houle said CN’s network has remained fluid while handling higher volumes, with car velocity running above 200 car miles per day. He pointed to first-half gains in several productivity metrics, including a 13% increase in crew productivity, a 7% increase in locomotive utilization and a 3% year-over-year improvement in fuel efficiency.
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The company’s Fast Track initiative, which reviews processes across yards, terminals, auto compounds, fleet operations and other facilities, delivered nearly CAD 100 million in savings during the first half, Houle said. While he said the company is continuing to identify efficiency opportunities, he cautioned investors not to expect another CAD 100 million to CAD 300 million in savings from the program.
