CN (TSX: CNR, NYSE: CNI) today announced the details of its
strategic and financial value creation plan, “Full Speed Ahead –
Redefining Railroading,” which will allow CN to continue delivering
high-quality service to customers while generating profitable
growth and enhanced returns to shareholders. The plan announced
today builds upon CN’s January 2021 strategic plan to lead on
safety, customer value, operational excellence, sustainability and
social inclusion, while also delivering industry-leading
shareholder returns.
“CN’s ambition is to build the premier railway
of the 21st century by methodically investing in technologies to
deliver high-quality service to customers, improve safety and
sustainability, create capacity and reduce costs and delays. Just
as CN pioneered the industry’s focus on efficiency to increase
reliability, we are now well-positioned to lead the industry
through its next transformation by investing in the success of our
customers, workforce and communities while delivering enhanced
financial results.”— JJ Ruest, President and Chief Executive
Officer of CN
“We spent the last several years making
strategic and important customer-centric investments in our
network, technology, sustainability and people. These investments
have allowed us to deliver high-quality service to our customers
and position us well to drive more sustainable returns to
shareholders over the long-term. I am confident that CN’s senior
management, a team of world-class railroaders who are focused on
redefining the rail industry, have the skills and determination to
lead the Company into this exciting next phase.”— Robert Pace,
Chair of the Board of Directors of CN
CN’s Vision for the Future
(1)
CN is a unique franchise with 19,500 miles of
railroad network connecting Canada’s Eastern and Western coasts
with the U.S. South. As the only railroad with this three-coast
access, CN has the best rail network in North America to drive
long-term, sustainable, profitable growth.
CN has outlined a plan that is both ambitious
and achievable. The Company’s focus will be on redefining
railroading, driving profitable growth and making structural
improvements for the next generation. CN has conducted an extensive
review of all revenue and cost levers and has targeted C$700
million of operating income improvements to drive future growth. To
achieve these improvements in 2022, CN intends to use a balanced
approach that includes a strategic review of non-rail businesses
and an optimization of labor productivity.
For 2022 CN expects to grow earnings per share
(EPS) by approximately 20% and improve its operating ratio to 57%.
Additionally, CN is reviewing its capital structure and financial
leverage with a view to increasing total shareholder
distributions.
CN is committed to operational excellence and
delivering value for its shareholders by:
- Resuming share
repurchases: CN will recommence share repurchases under
the plan previously approved by CN’s Board of Directors in January
2021 and expects to complete the remaining C$1.1 billion of share
repurchases by the end of January 2022.
- Increasing shareholder
returns: CN is reviewing capital structure and financial
leverage with a view to increase total shareholder distributions,
including share repurchases in the range of C$5 billion for
2022.
- Reducing capital
expenditures: CN expects to reduce capex to 17% of revenue
in 2022 as a result of the current good condition of its network
and the Company’s continued absolute commitment to safety and
customer service. CN expects to maintain capex at 17% of revenue
for 2023-24 unless there are significant market shifts.
- Producing compelling
financial returns: CN is committed to driving top-quartile
Total Shareholder Return (TSR), leading the industry in organic
revenue growth driven by CN’s intermodal business and showing
continuous improvement on its operating margin.
- Lowering its operating
ratio: CN is targeting an operating ratio of 57% for 2022
by:
- Prioritizing rail operations,
including car velocity, train speed and train length, and
committing to pursuing strategic alternatives for adjacent non-rail
businesses that are not best-in-class; and
- Rationalizing its cost structure by
streamlining management, especially support functions, to improve
labor productivity by accelerating speed and quality of decision
making.
CN believes an operating ratio of 57% is optimal
for a world in which customers and regulators are putting a greater
emphasis than ever on expanding customer choice, service and
reliability.
As part of its strategic and financial plan, CN
is reaffirming its 2021 financial outlook targets of double-digit
adjusted diluted EPS growth versus 2020 adjusted diluted EPS of
C$5.31, capital investments of approximately C$3.0 billion and free
cash flow in the range of C$3.0 to C$3.3 billion.(2)
Focused on Leading the Industry with ESG
Commitments
CN has a high-quality, experienced management
team with a proven track record of executing on a forward-looking
strategy as part of a sustainable future. CN continues to be the
industry leader in fuel and carbon efficiency, with an
uncompromising commitment to safety while also enhancing its top
tier corporate governance profile. Key progress made on our plan to
Deliver Responsibly includes:
- Setting a science-based target of
43% carbon emission intensity reduction by 2030 based on 2019
levels;
- Becoming the
North American rail industry leader in fuel efficiency, consuming
approximately 15% less locomotive fuel per gross ton mile;
- Introducing an
annual advisory vote on CN’s climate change action plan;
- Aligning
executive compensation with ESG objectives, including safety and
fuel efficiency;
- Reducing the
mandatory retirement age and confirmed term limits for the Board of
Directors;
- Adding two new
directors in 2021, along with a March 2021 announcement that our
Board Chair will not be seeking re-election when his term expires
in 2022; and
- Setting a target of at least 50% of
non-management directors coming from diverse groups, including
gender parity, by the end of 2022.
Commitment to Enhancing
Competition
Despite the recently terminated transaction,
CN’s bid for Kansas City Southern reaffirmed CN as the premier
North American railroad and secured CN an incremental US$700
million in break-up fees.
CN will continue to engage with market
participants, railroads and shippers to ensure that all regulatory
rules are enforced fairly, and customers do not suffer
anti-competitive effects arising from a combination between
Canadian Pacific and KCS.
Conference Call and Additional
Information
CN will host a conference call today at 8:00am
Eastern Time to discuss its strategic and financial value creation
plan. JJ Ruest, CN President and Chief Executive Officer, will lead
the call.
Parties wishing to participate via telephone may
dial 1-866-324-3683 (Canada / U.S.), or 1-509-844-0959
(International) using 4682157 as the passcode. Participants are
advised to dial in 10 minutes prior to the call.
CN will webcast the presentation live and
furnish slides supporting the remarks via the Investors section of
its website at www.CN.ca/en/investors. A webcast replay will be
available after the call ends.
About CNCN is a world-class
transportation leader and trade-enabler. Essential to the economy,
to the customers, and to the communities it serves, CN safely
transports more than 300 million tons of natural resources,
manufactured products, and finished goods throughout North America
every year. As the only railroad connecting Canada’s Eastern and
Western coasts with the U.S. South through a 19,500-mile rail
network, CN, and its affiliates have been contributing to community
prosperity and sustainable trade since 1919. CN is committed to
programs supporting social responsibility and environmental
stewardship.
(1) Forward-Looking Statements
Certain statements included in this news release constitute
“forward-looking statements” within the meaning of the United
States Private Securities Litigation Reform Act of 1995 and under
Canadian securities laws, including statements based on
management’s assessment and assumptions and publicly available
information with respect to CN. By their nature, forward-looking
statements involve risks, uncertainties and assumptions. CN
cautions that its assumptions may not materialize and that current
economic conditions render such assumptions, although reasonable at
the time they were made, subject to greater uncertainty.
Forward-looking statements may be identified by the use of
terminology such as “believes,” “expects,” “anticipates,”
“assumes,” “outlook,” “plans,” “targets,” or other similar
words.
Forward-looking statements are not guarantees of
future performance and involve risks, uncertainties and other
factors which may cause actual results, performance or achievements
of CN to be materially different from the outlook or any future
results, performance or achievements implied by such statements.
Accordingly, readers are advised not to place undue reliance on
forward-looking statements. Important risk factors that could
affect the forward-looking statements in this news release include,
but are not limited to: the duration and effects of the COVID-19
pandemic, general economic and business conditions, particularly in
the context of the COVID-19 pandemic; industry competition;
inflation, currency and interest rate fluctuations; changes in fuel
prices; legislative and/or regulatory developments; compliance with
environmental laws and regulations; actions by regulators;
increases in maintenance and operating costs; security threats;
reliance on technology and related cybersecurity risk; trade
restrictions or other changes to international trade arrangements;
transportation of hazardous materials; various events which could
disrupt operations, including illegal blockades of rail networks,
and natural events such as severe weather, droughts, fires, floods
and earthquakes; climate change; labor negotiations and
disruptions; environmental claims; uncertainties of investigations,
proceedings or other types of claims and litigation; risks and
liabilities arising from derailments; timing and completion of
capital programs; and other risks detailed from time to time in
reports filed by CN with securities regulators in Canada and the
United States. Reference should also be made to Management’s
Discussion and Analysis in CN’s annual and interim reports, Annual
Information Form and Form 40-F, filed with Canadian and U.S.
securities regulators and available on CN’s website, for a
description of major risk factors relating to CN.
Forward-looking statements reflect information
as of the date on which they are made. CN assumes no obligation to
update or revise forward-looking statements to reflect future
events, changes in circumstances, or changes in beliefs, unless
required by applicable securities laws. In the event CN does update
any forward-looking statement, no inference should be made that CN
will make additional updates with respect to that statement,
related matters, or any other forward-looking statement.
2021 Key Assumptions CN has
made a number of economic and market assumptions in preparing its
2021 outlook. The Company assumes that North American industrial
production for the year will increase in the high single-digit
range and assumes U.S. housing starts of approximately 1.45 million
units and U.S. motor vehicle sales of approximately 16 million
units. For the 2020/2021 crop year, the grain crop in Canada was
above its three-year average and the U.S. grain crop was in line
with its three-year average. The Company now assumes that the
2021/2022 grain crops in both Canada and the U.S. will be below
their respective three-year averages (compared to its July 20, 2021
assumption that both would be in line with their respective
three-year averages). CN now assumes total RTMs in 2021 will
increase in the mid single-digit range versus 2020 (compared to its
July 20, 2021 assumption of an increase in the high single-digit
range). CN assumes continued pricing above rail inflation. CN
assumes that in 2021, the value of the Canadian dollar in U.S.
currency will be approximately $0.80, and that in 2021 the average
price of crude oil (West Texas Intermediate) will be approximately
US$60 per barrel.
2022 Key Assumptions CN has
made a number of economic and market assumptions in preparing its
2022 targets. The Company assumes that North American industrial
production for 2022 will increase in the mid single-digit range in
2022 and assumes U.S. housing starts of approximately 1.57 million
units and U.S. motor vehicle sales of approximately 16.9 million
units. The Company assumes that the 2021/2022 grain crops in both
Canada and the U.S. will be below their respective three-year
averages. CN assumes the RTMs in 2022 will increase in the low
single-digit range versus 2021. CN assumes continued pricing above
rail inflation. CN assumes that in 2022, the value of the Canadian
dollar in U.S. currency will be approximately $0.80, and that in
2022 the average price of crude oil (West Texas Intermediate) will
be approximately US$65 per barrel.
(2) Non-GAAP MeasuresCN reports
its financial results in accordance with United States generally
accepted accounting principles (GAAP). CN also uses non-GAAP
measures in this news release that do not have any standardized
meaning prescribed by GAAP, such as adjusted performance measures.
These non-GAAP measures may not be comparable to similar measures
presented by other companies. For further details of these non-GAAP
measures, including a reconciliation to the most directly
comparable GAAP financial measures, refer to the attached
supplementary schedule, Non-GAAP Measures.
CN's full-year 2021 adjusted diluted EPS
outlook excludes the expected impact of certain income and
expense items. However, management cannot individually quantify on
a forward-looking basis the impact of these items on its EPS
because these items, which could be significant, are difficult to
predict and may be highly variable. As a result, CN does not
provide a corresponding GAAP measure for, or reconciliation to, its
adjusted diluted EPS outlook.
Contacts:
MediaCanadaMathieu GaudreaultCN
Media Relations & Public Affairs(514)
249-4735Mathieu.Gaudreault@cn.caLongview Communications &
Public AffairsMartin Cej (403) 512-5730
mcej@longviewcomms.caUnited StatesBrunswick
GroupJonathan Doorley / Rebecca Kral(917) 459-0419 / (917)
818-9002jdoorley@brunswickgroup.comrkral@brunswickgroup.com |
Investment CommunityPaul
ButcherVice-PresidentInvestor Relations(514)
399-0052investor.relations@cn.ca |
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