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Weakness in grain, coal and crude-by-rail volumes weighed on Canadian National Railway Co. in the second quarter, but the company is betting that efficiency improvements — including layoffs — will help it generate strong earnings growth this year.
Several analysts were expecting the Montreal-based railway to lower its full-year forecast as a confluence of factors put pressure on carloads in the second quarter.
However, CN reaffirmed its outlook for double-digit earnings-per-share growth, “notwithstanding the fact that we are experiencing weaker conditions than expected in several markets, such as energy-related commodities and coal, along with challenging year-over-year comparables,” chief marketing officer Jean-Jacques Ruest said on a conference call with analysts Monday.
CN said it temporarily laid off 600 employees in the second quarter to help pare down labour costs. It also idled some of its older locomotives and ran its remaining trains faster. These steps helped to reduce the railway’s operating ratio — a key measure of efficiency, where a lower number is better — by 3.2 points to a record low of 56.4 per cent in the quarter.
“We held our own in what was a challenging environment, and most importantly we had a very swift response to that slower-growth environment,” said chief executive Claude Mongeau.
“That’s all we can do when the environment is a little tougher from a volume standpoint. It’s how fast and how efficient you are at reacting that makes the difference.”
This article first appeared on business.financialpost.com
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