(The following story by Paul Vieira appeared on the National Post website on April 23.)
MONTREAL — Canadian National Railway Co. told analysts yesterday it expects to reduce its payroll by up to 1,200 employees in the next 18 months, largely from productivity improvements it believes can be attained based on lessons managers learned from filling in for striking workers this year.
Hunter Harrison, the railway’s chief executive, made the suggestion during a conference call to outline CN’s first-quarter results, which saw profit drop, as expected, due to a four-week strike by its mechanics, intermodal yard workers and customer service staff. The strike, in which 4,500 workers walked off the job, cost CN $24-million, or 8 cents in share profit.
During the strike, roughly 2,000 CN managers filled in to keep the railway moving to near-normal levels. “There are always lessons to be learned when you get closer to the business,” Mr. Harrison said. As a result, “we will see significant productivity initiatives and achievements in all the areas.”
Mr. Harrison said it is working with the Canadian Auto Workers union, which represented the striking workers, on developing a more positive relationship, which will be key if CN wants to pursue what it believes are productivity enhancements.
“If I had to place a number on it, in the next 12 months there will probably be in the order of magnitude 500 less positions,” the CEO told analysts. “We got some new projects that are groundbreaking, and we will see how they work. But I think it’s not unrealistic to think … in 18 months we could see a point where we would be down 1,000 to 1,200 less [employees].”
At the end of the quarter, the railway employed 21,424 people, compared to 21,578 at March 31, 2003.
One of the initiatives the company is considering is outsourcing certain roles, although no specifics were provided. Other moves aimed at reducing costs include revamping certain routes, such as Chicago to Memphis.
As for CN’s earnings, the profit drop, or 16.6%, was in line with expectations. Despite the setback, the company believes it will achieve its stated goal of 2004 earnings growth in the high single-digit range.
CN profit for the three-month period, ended March 31, was $210-million or 74 cents a share, compared to the year-ago quarter figures of $252-million or 86 cents. However, the year-ago share profit included a 16 cents gain due to an accounting change.
This was based on slightly lower revenue, of $1.43-billion, a drop of roughly 4%.
“This group continues to face challenges and continues to deliver results,” Mr. Harrison said. “I think it demonstrates the strength of this model.”
The company’s operating ratio, a key measure of a railway’s efficiency, also improved year-over-year by 250 basis points, to 72.5% from 75%. The ratio expresses expenses as a percentage of revenue.
Free cash flow in the quarter was $272-million, compared with $181-million for the same three-month period of 2003.
Another factor affecting CN was the appreciation of the Canadian dollar versus the U.S. dollar. The dollar shaved $120-million from CN’s sales, $40-million from operating profit and $20-million from final profit.