CN Railway updated its full-year financial forecast to a higher level, citing its ability to navigate U.S. tariff challenges while Canada's economy remains stable.
The railroad posted second-quarter numbers that exceeded analysts' expectations. Second-quarter revenue increased 11% year-over-year to C$4.8 billion (US$3.4 billion), while adjusted diluted earnings per share climbed 11% to C$2.08.
"Our customers have become very adept at managing the situation, and we've been there to support them along the way as they've changed some of their supply chains," said Janet Drysdale, chief commercial officer, during a conference call with analysts on Friday.
The country's biggest railroad initially projected no change in revenue per ton-mile for the year. Now it expects low-single-digit growth and anticipates improved profitability.
Tariffs imposed by U.S. President Donald Trump have dampened Canadian sentiment for the past year, and a looming 50% tariff on specific items from August 19 introduces further uncertainty. Yet the economy displays some strength, with indicators suggesting a Q2 recovery.
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Revenue increased across every product category, including forest products, which had suffered from steep tariffs the prior year. Particularly robust were grain, fertilizers, petroleum, and chemicals.
CN attributed the quarter's performance to improved productivity, better fuel efficiency, and strong commercial execution. Patrick Whitehead, chief operating officer, told analysts, "The gains we are delivering are structural and enduring, supporting value creation well beyond the quarter."
CN's operating ratio, which tracks costs as a share of revenue, edged up to 62.5% from the previous year.
Despite the headwinds from tariffs and global trade tensions, CN's strong second-quarter performance and upward revision to its guidance reflect its operational resilience. The agreements with Union Pacific are expected to further bolster its market position by improving access to key corridors. The railway's ability to raise guidance amid trade uncertainties highlights its diversified revenue base and cost-control measures. Management emphasized that productivity gains and fuel efficiency improvements are sustainable, which could support margins even if tariff risks materialize.
CN's stock fell 0.5% in Toronto trading to C$182.84 by late morning.
"Risks remain from volatile economic conditions, global trade tensions and geopolitical conflicts, along with weaker international intermodal imports and ongoing pressure in forest products," wrote Lee A. Klaskow of Bloomberg Intelligence in a research note.
Earlier this week, CN reached two pacts with Union Pacific Corp., which is pursuing a merger with Norfolk Southern Corp., to broaden each railroad's operating rights and ease regulatory competition worries tied to the deal.
"These agreements are strategic and they bring long-term benefits," Tracy Robinson, chief executive officer, told analysts. "They structurally enhance and extend our network by giving us direct and very competitive access to important markets in Kansas City and Mexico."
The second-quarter results come as Canada's economy shows signs of resilience despite persistent trade friction. CN's ability to raise its outlook reflects how the railroad and its customers have adapted supply chains to mitigate tariff impacts, while demand for grain and energy commodities remains strong.
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