OTTAWA — Canadian National Railway Co. said yesterday that the drought in Western Canada will cut the company’s profit this year and reduce revenue by $170-million, the Globe and Mail reported.
“Obviously, [the drought] is having a major impact,” Paul Tellier, the company’s president and chief executive officer, said yesterday. “It’s catastrophic what’s happening in Western Canada.”
Montreal-based CN said that, because of the drought, its earnings per share growth for 2002 will be at the low end of the 5- to 10-per-cent range that the company previously announced. CN did not specify an amount, but said the forecast is based on 2001 earnings of $4.92 a share, which excluded some special items. Analysts had expected it to earn $5.43 a share in 2002.
Canadian farmers have faced one of the worst droughts in years and they are harvesting what is expected to be the smallest grain crop in nearly 30 years.
Last month, Statistics Canada said wheat production in 2002 will be nearly 40 per cent lower than 2001. The barley crop will be 27 per cent lower and canola will be down 35 per cent. In the spring, the Canadian Wheat Board expected the 2002 crop to be 6 per cent higher than 2001. Last year’s crop was also among the lowest on record.
CN’s revenue from grain shipments was $1.16-billion last year, or 21 per cent of the company’s total revenue of $5.65-billion. A $170-million drop in grain revenue is higher than some analysts have forecasted.
Traditionally, grain shipments are highly profitable for railways, with profit margins of 30 to 40 per cent.
“We are faced with two bad crop years in a row, which has significantly reduced the amount of product we can move,” Mr. Tellier said.
A labour dispute at the Port of Vancouver also has disrupted grain shipments and forced CN to reroute cars to Prince Rupert, B.C.
CN’s earnings announcement came as analysts at J.P. Morgan Securites Inc. and Morgan Stanley lowered their earnings estimates for the company because of the poor grain harvest.
In a report Tuesday, J.P. Morgan cut its year-end forecast for CN to $3.40 (U.S.) a share from $3.45. “We are trimming our [estimates] to reflect a continuing weak Canadian grain volume outlook and increasingly tough cost comparisions,” Jill Evans, a transportation analyst wrote. However, the report noted that many other parts of CN’s operations, such as intermodal shipments, are performing well.
This week, Morgan Stanley maintained its 2002 estimate but cut its 2003 forecast by 30 cents (Canadian) to $5.90 a share. “We now anticipate grain revenues to slide $130-million in 2002 and another $100-million in 2003 due to back-to-back drought conditions,” wrote James Valentine, the firm’s transportation analyst.