Business Context and Reporting Period
Company: Canadian National Railway Company (CN)
Filing Type: Form 6-K (Report of Foreign Issuer)
Date: June 4, 2019 (Investor Day News Release)
Context: CN presented its strategic agenda focused on growth and technology, celebrating 100 years of operation. The company outlined a three-year financial perspective and reaffirmed its 2019 outlook, emphasizing "Scheduled Railroading" and advanced information technologies to drive value creation.
Key Financial Metrics and Outlook
- 2019 Adjusted Diluted EPS: Targeting low double-digit growth versus 2018's C$5.50.
- 2019 Volume Growth: Assumed mid single-digit growth in revenue ton miles (RTMs), revised down from a previous high single-digit assumption.
- 2020-2022 Perspective: Aims for diluted EPS compound annual growth rate (CAGR) in the low double digits.
- Capital Investment (2019): Plans to invest approximately C$3.9 billion, with C$1.6 billion targeted for track and railway infrastructure maintenance.
- Revenue/Profit/Cash Flow: The filing does not provide specific current period revenue, profit, or cash flow figures; it focuses on forward-looking EPS targets.
- Debt/Liquidity: The filing does not provide specific debt or liquidity metrics.
Material Changes and Assumptions
The primary material change is the revision of the 2019 volume growth assumption from high single digits to mid single digits. Key economic assumptions underpinning the outlook include:
- Industrial Production: North American production expected to increase by approximately 2% annually.
- Housing and Autos: U.S. housing starts of ~1.25 million units and motor vehicle sales of ~17 million units.
- Grain Crops: 2019/2020 crops assumed to be in line with three-year averages for Canada and the U.S.
- Currency and Commodities: Canadian dollar at ~US$0.75; Crude oil (WTI) at US$60-US$65 per barrel.
- Pricing: Continued pricing above rail inflation.
Guidance, Risks, and Unusual Items
Guidance: Management reaffirmed the 2019 financial outlook and issued a three-year perspective (2020-2022). The company does not provide a corresponding GAAP reconciliation for its adjusted diluted EPS outlook due to the difficulty in predicting variable income and expense items.
Risks and Contingencies: Forward-looking statements are subject to significant risks, including:
- General economic and business conditions.
- Changes in fuel prices, currency, and interest rates.
- Legislative, regulatory, and environmental compliance issues.
- Trade restrictions and international trade arrangement changes.
- Operational disruptions (severe weather, derailments, cybersecurity threats).
- Labor negotiations and disruptions.
Investor Verification Checklist
- Verify the reconciliation of the non-GAAP "adjusted diluted EPS" to GAAP measures in the supplementary schedule referenced in the filing.
- Monitor the actual 2019 revenue ton miles (RTMs) to confirm if the revised "mid single-digit" growth assumption holds.
- Track the Canadian dollar exchange rate and crude oil prices against the assumed US$0.75 and US$60-65/barrel benchmarks.
- Review the capital program execution to ensure the C$3.9 billion investment aligns with operational needs and maintenance targets.
- Assess the impact of potential trade restrictions or labor negotiations on the "low double-digit" EPS growth targets.