(The following story by Scott Deveau appeared on the Financial Post website on April 21, 2009.)
OTTAWA — With Hunter Harrison, Canadian National Railway Co. chief executive, set to retire by the end of the year, the country’s largest railway is close to making a decision on who will succeed him after the champion of precision railroading delivered yet another earnings boost in the first quarter Monday.
“Soon, would be fair,” is all Mr. Harrison would say Monday regarding when a decision would be made public about who will succeed him.
However, he told the Financial Post in an interview late last year that the railway has actively been grooming three or four of its top executives for the role, and that there was an 85% chance that his successor would come from within.
Names that are being considered include Claude Mongeau, its chief financial officer, James Foote, its head of sales and marketing, Keith Creel, its head of operations, and its head of corporate services, Sean Finn, sources say.
“It would have to be a strong candidate from outside to trump the internal candidates,” he said at the time.
Until a decision is made, however, Mr. Harrison said the railway was focused on continuing to improve its efficiencies rather than looking for another acquisition, after the purchase of his crowning jewel, the Elgin, Joliet & Eastern Railway Co., was approved in January.
“I considered it finished when we completed the ‘J’,” he said Monday on the call. “I think this year will be more focused on the basic ABCs.”
Certainly that sort of focus reaped its rewards in the first quarter with CN managing to buck a 14% revenue decline, excluding favourable foreign exchange, resulting from 15% decline in volumes at the railway in the first three months of the year.
The railway reported earnings of $424-million, or 90¢ per diluted share, for the first quarter, including two one-time gains largely related to the sale of a rail corridor in Toronto to GO Transit and to a lesser extent a differed income tax recovery during the quarter.
Excluding one-time items, the railways earnings grew to 64¢ a share for the quarter, compared with 62¢ for the same period last year and beat the Street’s estimates of 61¢ a share.
Mr. Harrison said the results were achieved by aggressively tackling inefficiencies in the rail lines, which has been the cornerstone of his strategy for the railway since he took over in 2003.
CN managed to improve train velocities by 18% during the quarter, its car miles per day by 26%, and reduce its head count by 400 people compared with last year despite the addition of the EJ&E and three rail subsidiaries and ferry operation of Quebec Railway Corp. to its network.
The railway’s operating ratio — an important gauge of profitability measuring operating costs as a percentage of revenue — did deteriorate by 1.2 percentage points compared with last year, or 74.1%. But, excluding the cost associated with acquisition of the EJ&E, it improved by 1.2 percentage points year over year. Mr. Harrison noted.
“There’s no stone that goes unturned as far as looking for opportunities,” he said. “I’m telling you, every time you peel it back you find a little something different and that brings up another opportunity and this gets to be fun before its over.”
While management said there are some signs that volume declines have bottomed, they were hesitant to give much guidance for the coming year. He said the railway will remained focused on improving its operations and in preparation for a recovery when it comes.