MONTREAL — After several tumultuous years of cost cuts and consolidation, Canadian National Railway Co. now hopes to buoy sales with better service, CN president and chief executive officer Paul Tellier said in a Globe and Mail news article.
“The railroad sector has not been successful in the past growing the top line,” Mr. Tellier told a conference in New York hosted by investment bank Bear Stearns & Co. Inc.
Since it went public in late 1995, CN’s stock has risen more than 30 per cent a year, driven by stronger profit generated through increased efficiency and cost cuts.
But further sustainable gains are uncertain, some industry watchers believe, because of stiff competition in the transportation sphere.
From $5.2-billion in sales in 1999 to analyst predictions of about $6.2-billion this year, CN’s top line has climbed 6 per cent a year over the past three years.
During the same period — should CN reach analysts’ 2002 profit estimate of $5.44 a share — profit rose more than twice as fast.
Mr. Tellier said improvements at CN have made the railway more competitive with the trucking industry. The company has cut transport times and runs more than 90 per cent of its trains on time. Now, he said, the company must earn its “credibility” with shippers.
The challenges remain formidable, Mr. Tellier said. The Montreal-based company is “still very cautious” on the outlook for the North American economy, seeing “a great many pockets of weakness,” he said. Competition among North America’s major railways is also fierce, he continued, adding there is “tremendous pressure” from customers to keep rail prices down.
“We must increase market share and we must increase rates,” Mr. Tellier said.
Such gains will be difficult, a report by investment bank UBS Warburg Inc. suggests.
“Freight rate increases and market share gains require significant improvement in service levels by all industry participants,” Fadi Chamoun, a UBS Warburg analyst, said in the late April report.
Mr. Chamoun noted that the majority of CN’s sales “are at some point transported by another railway.”
Price increases may be disappointing, according to a May report from Salomon Smith Barney Inc.
“We believe pricing will migrate to 1 per cent to 2 per cent a year,” analyst Scott Flower told his clients. In a Salomon survey of 1,500 shippers, Salomon found that railways are now seeking price increases of about 3 per cent, on average.
Further industry consolidation is another growth strategy, Mr. Tellier said.
“Consolidation will continue,” he said, explaining that less
than a quarter of the almost 40 North American railways that existed in 1980 are still in business.
CN stock closed at $50 (U.S.) yesterday, down 74 cents or 1.5 per cent, on the New York Stock Exchange.