CN Rail CEO Steps Down After Less Than Two Years
Overwhelmed by a surge in freight, Canadian National Railway Co. said its CEO is stepping down after less than two years, vowing to replace with a leader who can deliver “speed and determination.”
Chief Marketing Officer Jean-Jacques Ruest, 62, was appointed interim CEO effective immediately. An international search for a new CEO is under way, the Montreal-based company said March 5.
“They’ve had a pretty poor operating performance since the fall,’’ Cameron Doerksen, an analyst at National Bank Financial, said in an interview. “The longer the operating issues persist, the more risk you have of losing customers. CN does have an experienced leadership team, so I don’t have any concerns.’’
Luc Jobin (Canadian National Railway Co.)
Ruest, a 22-year veteran of the company, will need to act quickly to turn around a railroad that long had been a standard of efficiency but that has grappled with network congestion in recent months. Canadian National recently earned a rare public rebuke from key customer Halliburton Co., which said rail service delays would hurt earnings at the oilfield-services company.
“The company needs a leader who will energize the team, realize CN’s corporate vision and take the company forward with the speed and determination CN is known for,” Chairman Robert Pace said in a statement. The railroad didn’t elaborate on Jobin’s exit or compensation he may be owed. Canadian National didn’t provide his age, though it listed him as 58 in a filing on March 7, 2017.
The shares dropped less than 1% to C$96.37 at 9:51 a.m. in Toronto, leaving them down 7% this year.
Laggard Returns
Jobin ascended to the top post when CEO Claude Mongeau retired because of health reasons. Jobin, previously the railroad’s chief financial officer, had taken over on an interim basis less than a year earlier while Mongeau was on medical leave.
The carrier’s shares returned only about 30% under Jobin’s leadership. That trailed the 37% total return for smaller rival Canadian Pacific Railway Ltd. and a subindex of Canadian industrial stocks. Canadian National’s stock has been the worst performer this year among North America’s publicly traded railroads.
And the carrier’s operating ratio, a benchmark of efficiency, worsened almost 4 percentage points in the fourth quarter. As a result, last year was the first time in more than two decades that Canadian National didn’t top rival Canadian Pacific in the measure.
Customer Complaints
Halliburton blamed Canadian National last month for halting new shipments of sand needed to produce oil and gas from shale formations through hydraulic fracturing. Another customer, Emerge Energy Services, shifted some shipments of fracking sand to BNSF Railway Co., the railroad owned by Warren Buffett’s Berkshire Hathaway Inc.
“This news will likely be a surprise for all investors,” Jason Seidl, a Cowen & Co. analyst, said in a note to clients. “This announcement, along with operational issues in the first quarter, should keep near term pressure on shares.” He said he wouldn’t be surprised if Ruest, “a seasoned rail veteran,” became permanent CEO.
Vowing to fix its service problems, Canadian National is boosting its 2018 capital-spending budget to a record C$3.2 billion (US$2.5 billion) and hiring about 400 conductors in the first quarter alone. The company in December said it would buy 200 locomotives.
Guidance Reaffirmed
The railroad on March 5 reaffirmed that it expects full-year profit will climb to C$5.25 to C$5.40 a share from C$4.99 in 2017. Analysts predict C$5.36 for this year, based on the average of estimates compiled by Bloomberg. At least one firm was skeptical of the company’s forecast.
“It is safe to say that the company’s guidance is now off the table — both the 2018 guidance provided during the Q4 results, as well as the long-term guidance provided at the 2017 investor day,” Walter Spracklin, an analyst at RBC Capital Markets, wrote in a note to investors.
