CN Announces Alliance With Union Pacific, Mexican Railroad

Revenue, Earnings Higher in First Quarter
Image of train representing Canadian National, Union Pacific and GMTX alliance
(Canadian National Railway Co.)

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Canadian National Railway Co. reported strong first-quarter earnings that beat the expectations of Wall Street analysts.

The Montreal-based Class I railroad on April 24 also announced plans to begin what it is calling Falcon Premium Intermodal Service, to provide rail service in Mexico, the U.S. and Canada with what CN says will be a seamless rail connection in Chicago.

The railroad reported Q1 revenue soared by 16.4% to C$4.31 billion compared with C$3.70 billion in the year-ago period.

Revenue beat the consensus estimate of analysts, who told Zacks they were expecting C$4.25 billion.

CN said quarterly net income was C$1.22 billion or C$1.82 a share, compared with C$918 million a year ago or C$1.31 a share a year ago. The Zacks Consensus Estimate forecast a price of C$1.26 per share

In forming the venture, CN is partnering with Union Pacific and Mexico’s Grupo Mexico Transportes (GMTX) to move automotive parts, food, freight of all kinds, home appliances, and temperature-controlled products to and from Canada, into the U.S. and to terminals in Monterrey, Nuevo Leon; and Silao, Guanajuato.

“Falcon Premium service is a game changer for intermodal customers. By leveraging each partner’s best services and routes, we are creating a transformational new product,” Tracy Robinson, CEO of CN, said in a statement. “Our commitment is to run this service with the utmost focus to maximize speed, reliability and customer satisfaction. This service is an example of how collaboration and cooperation can improve supply chains for customers.”

CN said in the announcement that the service will allow the maximization of lading weights between Mexico and Canada for greater efficiency for customers. The three companies also believe this will contribute to lower greenhouse gas emissions through reduced rail miles and more truck-to-rail conversions.

Lance Fritz


“This bold, creative venture harnesses the strengths of three companies to provide best-in-class service to our customers in three countries while supporting our climate goals,” Union Pacific CEO Lance Fritz said. “We are excited to be a part of this new intermodal service connection, which leverages our unmatched route into and out of Mexico and strengthens our intermodal service portfolio.”

Chicago will be the centerpiece of the venture. The connection to and from Union Pacific will take place at Union Pacific’s Yard Center Intermodal Terminal, in Dolton, Ill., and at Canadian National’s Chicago Intermodal Terminal in Harvey, Ill.

According to schedules on the UP website, transit times for freight through Falcon Premium will take eight days from Monterrey to Toronto.

CN’s agreement with Union Pacific and GMTX comes six weeks after the U.S. Surface Transportation Board approved Canadian Pacific’s $31 billion acquisition of Kansas City Southern Railway. CN and CP fought a yearlong battle for control of smaller but strategically important KCS because of that railroad’s lucrative north-south routes that run into Texas and eventually deep in Mexico.

Financial terms of the agreement with UP and GMTX were not disclosed.

The railroad’s operating ratio improved to 61.5 from 66.9 a year ago.

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When Robinson became CEO last January, CN announced it was setting a goal of moving its operating ratio for the year below 60, a less-aggressive target than its earlier-announced objective of keeping it at 57 or lower.

Operating ratio measures a company’s expenses as a percentage of revenue and determines efficiency. The lower the ratio, the greater the company’s ability to make a profit.

On a conference call with reporters and financial analysts, officials also announced CN has reached a tentative agreement with the Teamsters Canada Rail Conference. The union represents approximately 6,000 CN locomotive engineers, conductors, yard conductors and yard coordinators working on mainlines, shortlines and yards.

CN also is recruiting new employees and during the first quarter headcount increased by 7.6% to 24,718 from 22,953 a year ago.

Across its various business divisions CN reported year-over-year increases with the exception of one unit:

  • Petroleum and chemical revenue increased by 10% to C$828 million from C$756 million.
  • Metals and minerals surged 30% to C$529 million from C$406 million.
  • Forest products grew 20% to C$511 million from C$426 million.
  • Coal shipments rose to C$263 million compared with C$195 million.
  • Grain and fertilizers increased 43% to C$861 million from C$604 million.
  • Automotive climbed 30% to C$215 million from C$165 million.
  • Intermodal slipped 4% year-over-to C$1.01 billion from $1.05 billion.

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