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Oct 24, 2017

CN Rail on hiring spree after few laid-off workers return to company

CN Rail

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MONTREAL -- Canadian National Railway is on a hiring spree particularly in Western Canada, several years after a slowdown in demand prompted layoffs.

The country's largest railway says it hopes to add more than 600 conductors and crew members in the coming months after fewer laid-off workers than expected chose to return following a lengthy idle period.

CN Rail (CNR.TO) has seen its train speeds drop as it hasn't had a sufficient number of crews to handle the increased demand prompted by a stronger North American economy.

"Operating crews have proven to be our biggest challenge," chief operating officer Mike Cory said during a conference call about third-quarter results after markets closed.

He said fluidity of trains and resulting operating profits are impossible without the appropriate staffing. Hirings are strongest in Saskatchewan, Alberta and British Columbia.

"What we're doing now is really catching up in some areas where we got a little surprised by the return rate from people laid off," he told analysts.

The Montreal-based company said it has ramped up hiring and training. It expects to have 250 people qualified in the fourth quarter and another 400 in the first quarter of 2018.

The railway had on average 23,183 employees at the end of the quarter, including 16,346 in Canada and 7,082 in the United States. About 73 per cent are unionized in Canada and 79 per cent in the U.S.

CN Rail said in early 2016 that its workforce decreased by nine per cent, or 2,300 in 2015, with about 1,150 employees laid off at year's end.

The railway had said that a natural attrition rate of close to eight per cent annually would give it flexibility to hire or not, depending on market conditions.

It said Tuesday it remains on track to see its profits grow as demand has continued to increase after six quarters of decrease.

Net income slipped one per cent to $958 million or $1.27 per diluted share in the third quarter, compared to $972 million or $1.25 per share a year earlier.

CN Rail said its adjusted profits excluding one-time items reached $989 million, or $1.31 per share, during the three months ended Sept. 30. That compares to $1.25 per share a year ago and $1.32 forecast by analysts, according to RBC Capital Markets.

Revenues rose seven per cent to $3.2 billion. They were driven by a 31 per cent increase for metals and minerals. Coal was up 23 per cent, intermodal up 12 per cent, automotive rose four per cent and other revenues were up two per cent. Revenues were down two per cent for forest products, grain and by one per cent for fertilizers, while petroleum and chemicals revenues remained essentially flat.

CN Rail reaffirmed its outlook to earn $4.96 to $5.10 per adjusted diluted share for the year, up from $4.59 per share in 2016.

"Due to the good results announced by other North American rail operators, the market will likely be slightly disappointed by this result," said Daniel Sherman of Edward Jones.

The railway continued to expand shipment volumes and was hiring to expand future service.

"The company looks on track for more growth ahead," he added.

Revenue ton-miles, or RTMs, increased by 10 per cent and carloadings by 11 per cent.

The operating ratio, which measures the efficiency of the railway, rose 1.4 points to 54.7 per cent.

CN Rail president and chief executive Luc Jobin said the company continued to see increased demand across key business segments, such as frac sand, intermodal, coal and Canadian grain.

The railway said it will spend an extra $100 million in infrastructure and equipment spending this year to reach $2.7 billion.

"Our outlook remains positive for the remainder of the year," Jobin told analysts.

"We're bullish on the North American economy, where the environment remains very supportive and the prospects for export commodity is also positive - although as we've seen in the last couple of years that can be a bit volatile at times."