Canadian National Railway Company (CNI)

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Canadian National Railway Company (CNI)

Q4 2018 Results Earnings Conference Call

January 29, 2019, 4:30 pm ET

Company Participants

Paul Butcher - Vice President of Investor Relations

JJ Ruest - President, Chief Executive Officer

Mike Cory - Executive Vice President, Chief Operating Officer

Ghislain Houle - Executive Vice President, Chief Financial Officer

Doug MacDonald - Senior Vice-President of Rail Centric Supply Chain Growth

Keith Reardon - Senior Vice President of Consumer Product Supply Chain Growth

Conference Call Participants

Turan Quettawala - Scotiabank

Chris Wetherbee - Citigroup

Cherilyn Radbourne - TD Securities

David Vernon - Bernstein

Fadi Chamoun - BMO

Benoit Poirier - Desjardins

Allison Landry - Credit Suisse

Seldon Clarke - Deutsche Bank

Justin Long - Stephens

Walter Spracklin - RBC Capital Markets

Ken Hoexter - Merrill Lynch

Tom Wadewitz - UBS

Brian Ossenbeck - JPMorgan



CN fourth quarter 2018 financial results conference call will begin momentarily. I would like to remind you that today's remarks contain forward-looking statements within the meaning of applicable securities laws. Such statements are based on assumptions that may not materialize and are subject to risks described in CN fourth quarter 2018 financial results press release and analyst presentation documents that can be found on CN's website.

As such, actual results could differ materially. Reconciliations for any non-GAAP measures are also posted on CN's website at www.cn.ca. Please standby, your call will begin shortly.

Welcome to CN fourth quarter 2018 financial results conference call. I would now like to turn the meeting over to Paul Butcher, Vice President, Investor Relations. Ladies and gentlemen, Mr. Butcher.

Paul Butcher

Thank you Patrick. Good afternoon everyone and thank you for joining us today for CN's fourth quarter and year-end 2018 earnings call. I would like to remind you about the comments already made regarding forward-looking statement. With me today is JJ Ruest, our President and Chief Executive Officer, Mike Cory, our Executive Vice President and Chief Operating Officer and Ghislain Houle, our Executive Vice President and Chief Financial Officer. Also joining us on the call today for the Q&A session is Doug MacDonald, our Senior Vice President Carload as well as Keith Reardon, our Senior Vice President Consumer Products.

In order to be fair to all participants, I would ask you to please limit yourself to one question. The IR team will be available after the call for any follow-up questions.

It now my pleasure to turn the call over to the CN's President and Chief Executive Officer, JJ Ruest.

JJ Ruest

Thank you Paul and good afternoon everyone. Welcome to our winter earning call. And before I start, I would like just to take a short moment to congratulate Jim Vena on his return to the rail industry. Best of luck, Jim. We wish you all the best.

We have a solid result and outlook to report. In the fourth quarter, we produced adjusted EPS growth of 24%, revenue growth of $0.5 billion, our best-quality pricing of the last seven years, pretty solid volume growth of 12% in revenue ton mile, higher fuel surcharge and especially in December, much improved operating metrics resulting from our CapEx and resource plan, that is improved car velocity, improved train velocity, less total number of cars online and our lean high horsepower fleet is running at much higher uptime. Also last quarter, the overall adjusted operating margin was 38.8% and the adjusted operating ratio was 61.2%. To be noted about December, we downsized our nonunion labor force and took a one-time $27 million restructuring charge.

Now turning to page five. The year of 2018 in review. After a dismal first quarter in 2018, in the last nine months we bounced back to increase revenue by $1.3 billion producing adjusted operating margin of 40.4% during those same nine months, proof again of the CN skill in growing the rail business profitably.

Now a quick review of the fourth quarter book of business, starting with intermodal. Intermodal revenue was up 9% from better pricing and good volume growth on the port of Prince Rupert and the port of Vancouver. Overall coal revenue grew by 21%, mainly from West Coast export to Asia and Gulf Coast export to Europe. Canadian grain revenue grew by 17% with Q4 Canadian shipment up 14%. This crop year, which hits from its beginning since last August, CN Canadian grain export tonnage is 1.5 million metric ton ahead of last year's pace. This is an all-time company record for crop year-to-date. Our CN railroaders are getting the job done for the Canadian grain farmer.

Potash, semifinished steel, refined products, each grew revenue at solid double-digit. Paper, wood pulp and chemicals grew low double-digit. Lumber, after a plea last year from shippers to get more supply of lumber car, the lumber business is down and we currently have 1,200 lumber cars parked. On crude, we moved on average 230,000 barrels a day in the quarter versus about 130,000 barrel a day in the third quarter. Our CN railroaders are also getting the job done for the Alberta oil industry and we are willing to do more as needed.

In Vancouver, from November 1 to mid-January, we moved solid 10% more volume than last year. CN and a good number of world-class supply chain terminal operator that are committed to the efficiency of running 24 hours a day, seven days a week have kept the big port of Vancouver going at a time of strong demand and harsh condition. Automotive was up about 5% and we are entering a phase of overall market softness.

Looking to 2019, we have a good start to the year with about 10% increase in our production to-date of revenue ton mile volume. We have diverse and solid opportunity ahead of us and we are aiming for high single digit volume growth for this year as measured in RTM. So please refer to our detailed topline outlook in page six.

Read the rest of this transcript on seekingalpha.com