MONTREAL — Canadian National Railway Co. will take fourth-quarter, after-tax charges of C$252 million ($160 million) as it cuts 5 percent of its work force and accounts for asbestos-related and other personal injury claims, Reuters reported.
CN, Canada’s biggest railway and the No. 5 in North America, said the charges amount to C$1.25 a share. That would slash the company’s expected fourth-quarter profit to about 13 Canadian cents a share from the C$1.38 consensus estimate of analysts.
The Montreal-based company plans to shed 1,146 jobs from a labor force of more than 23,000 to cut costs, taking a charge of nearly C$79 million, or 39 Canadian cents a share, for severance and other payments to employees. Some 252 of the job cuts are in management.
The cuts come after CN’s earnings have been hit hard this year by reduced grain shipments to ports following one of the worst droughts on record in western Canada.
“They’re facing a shortfall on grain revenues of C$200 million alone as a result of the drought,” Canadian Transport Minister David Collenette told reporters in Ottawa. CN had advised Collenette of the job cuts on Monday night.
CN Rail said another C$173 million of charges, amounting to 86 Canadian cents a share, stem from its provision for U.S. personal injury and other claims. Those include hearing loss, carpal tunnel syndrome and asbestos-related disease. Nearly two-thirds of the charges will go to paying asbestos-related claims.
CN’s announcement battered its shares on Tuesday morning. The stock fell C$3.99, or 6 percent, to C$61.81 on the Toronto Stock Exchange before bouncing back to C$63.54 at the close. In New York, they dropped $2.53 to $39.37, but regained ground to $40.25.
MAINTAINS 2003 PROFIT FORECAST
During a conference call with analysts and reporters, Paul Tellier, CN’s president and chief executive, said productivity benefits from the job cuts and other measures would allow the company to maintain its forecast for profit growth of 0.1 to 5 percent a share for 2003.
“This guidance remains valid,” Tellier said.
The mean estimates of seven analysts polled by Thomson First Call are for CN to earn a profit of C$5.23 a share in 2002 and C$5.46 a share in 2003.
CN expects casualty insurance and legal claim costs of about C$200 million in 2003, or C$20 million higher than originally budgeted, largely because of new ways the company is accounting for personal injury claims under U.S. law, Tellier said. CN said it expects overall severance costs to total some C$170 million for the next “couple” of years before dwindling.
“Work force reduction charges have always been viewed very positively because they more than pay for themselves,” said Rossa O’Reilly, analyst at CIBC World Markets Inc.
Roughly 30 percent of the fourth-quarter job reductions will come through normal attrition and retirement, 45 percent by early retirement and 25 percent through severance packages, the Montreal-based company said. The reductions will be split two-thirds in Canada, one-third in the United States.
LOCOMOTIVE AND RAILCAR FLEET CUTS
Labor and fringe benefits account for roughly 40 percent of CN’s operating costs. The job cuts will help CN’s bottom line, Tellier said.
“This is about C$100 million of savings,” he said. “It’s C$80 million of operating savings on a fully annualized basis when the job is completed.”
The other C$20 million in savings will come for capital expenditure savings as CN redeploys assets, Tellier said.
The railway has been thinning out its fleet of locomotives and railcars this year.
CN has removed 800 locomotives, or about one-third of the roughly 2,200 in its fleet, and some 14,000 railcars from its company-wide complement of 100,000.
“What they are doing on the locomotive and car fleet front is truly phenomenal,” said analyst O’Reilly.
CN is moving toward scheduled service, much like an airline, which allows it have fewer idled locomotives and railcars, he added.