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July 24, 2018 12:00 PM, EDT

CN Rail Taps Interim Boss as CEO After Network Logjams Ease

Canadian National train Brent Lewin/Bloomberg News

Canadian National Railway Co. named Jean-Jacques Ruest as president and chief executive officer, four months after he took over as interim leader amid service stumbles that tarnished the company’s vaunted efficiency.

Ruest, 63, will also join the board, the Montreal-based railroad said in a statement July 24. His appointment to the top job is effective immediately.

The 22-year Canadian National veteran has been rushing to improve performance after the railroad proved unable to accommodate a surge in freight starting in the second half of last year. Canadian National is spending a record $2.6 billion (C$3.4 billion) this year to fix bottlenecks by adding staff, tracks, sidings and locomotives.

Jean-Jacques Ruest

Ruest

“This announcement comes as expected and we view it as favorable as it brings continuity to the management team and the company,” Walter Spracklin, an analyst with RBC Capital Markets, said in a note to clients. “We expect the company will continue to improve its service, clear the backlog and realign costs in 2018.”

The shares have gained 16% since Ruest’s interim appointment to replace Luc Jobin was announced March 5, compared with an 11% increase for Canadian industrial stocks.

Total traffic at Canada’s biggest rail carrier is up 3.7% since the start of the year, according to data from the Association of American Railroads compiled by Bloomberg. Carloads jumped 5.6% to 1.37 million in the second quarter, the data show.

Canadian National is scheduled to report second-quarter results July 24 after the close of trading. Adjusted profit is expected to climb 3% to C$1.38 a share, the average of analyst forecasts compiled by Bloomberg.

In April, Canadian National cut its earnings forecast for 2018, saying the additional spending required to clear the logjams would weigh on profit. Adjusted earnings this year will be C$5.10 to C$5.25 a share, Canadian National said April 23, 15 cents lower at both ends than the previous projection.

Investment Focus

Ruest “brought the team together to tackle the immediate operational and customer service challenges the company was facing since the fall of 2017,” Chairman Robert Pace said in the statement.

Canadian National is focusing investments on the western section of the company’s network — from the British Columbia ports of Prince Rupert and Vancouver to Chicago — where growth is strongest. Some of the spending is needed because of the expansion in intermodal traffic, which requires more track capacity, Ruest told analysts in April.

Investing in track capacity and locomotives, and adding train crews, is something that “we should have probably triggered back in April of last year,” the CEO told Bloomberg News in an interview in April. “We delayed the decision at that point regarding capacity. In hindsight, it would have been a good time to start.”