CN Rail: Tariffs could have an impact, but they aren’t likely to lead to a recession in Canada
Michael Joel-Hansen
Regina Leader-Post
The heads of Canada’s two largest railways say they can handle any fallout if United States President Donald Trump follows through on his threats to impose tariffs on Canadian and Mexican exports to the U.S.
Tracy Robinson, chief executive of Montreal based Canadian National Railway Co. (CN), said the railway has plans in place for various scenarios.
“The key for us will be to nibble and adjust quickly as the situation unfolds,” she said on a fourth-quarter earnings call with analysts on Thursday.
Robinson said tariffs could have an impact, but they aren’t likely to lead to a recession in Canada or have a large inflationary impact in the U.S.
CN’s fourth-quarter revenues were about $4.4 billion, down from $4.47 billion in the same quarter a year ago. Net income was about $1.15 billion, down from $2.1 billion.
The decreases were attributed to labour disruptions at both the railway and at Canada’s three major ports. Weather also proved challenging for the railway’s operations.
Robinson said the company is expecting growth due in part to the recovery from labour issues and other disruptions, but she said its projections are cautious. CN said it expects to deliver adjusted diluted earnings per share growth of 10 per cent to 15 per cent.
“We are assuming very modest economic growth,” she said.
CN also announced a five per cent dividend increase.
Keith Creel, chief executive of Calgary-based Canadian Pacific Kansas City Ltd. (CPKC), said the uncertainty surrounding trade between Canada and the U.S. is challenging, but the company will deal with any issues as they arise.
This advertisement has not loaded yet, but your article continues below.
Article content
“We’re focused on controlling what we can control,” he said during a fourth-quarter earnings call on Wednesday. “This is a railroad built forever, not a railroad built for 48 months.”
He said he takes Trump’s concerns about drug trafficking and immigration in regards to Canada and Mexico seriously, but believes both countries have taken positive steps to address those issues. He said the economies of all three countries remain well-integrated and that CPKC is well-positioned to service all three.
“The long-term fundamentals of the North American economy and trade between the three countries this network uniquely connects remain unchanged,” he said.
Kevin Chiang, an analyst at CIBC Capital Markets, said CPKC’s volumes may not be as trade dependent as originally feared and that it makes a convincing case about its resilience in that regard.
“Our view is that CPKC remains well-positioned to continue to leverage its company-specific growth levers,” he said in a note.
Looking back to Trump’s first term also provides some optimism, Chiang said, because rail volumes from Mexico into the U.S. remained healthy while volumes went in the right direction for both of Canada’s major railways.
“The Canadian rails were able to grow volumes under President Trump’s first term,” he said.
Creel said CPKC has not observed people pulling back on investment due to the trade uncertainty.
“The bottom line is we don’t know,” he said about the looming tariffs. “But what we do know is that in spite of that volatile, perhaps uncertain outcome, we still have investment that’s not pulling back, that’s doubling down.”
John Brooks, CPKC’s executive vice-president and chief marketing officer, said the railway will be “laser-focused” on the opportunities ahead regardless of the environment.
Frankly, if you look back to 2018 and 2019 during the last set of tariffs, the reality was that these supply chains are very complex,” he said during the call. “It’s commodity by commodity, it’s lane by lane, it’s customer by customer. And ultimately what happens, and I think what we saw, is there wasn’t a lot of change. It’s hard to change these complexities overnight.”
CKPC revenues for the fourth quarter were $3.9 billion, an increase from $3.8 billion in the same period a year ago, and net income for the quarter was $1.2 billion, up from about $1 billion in 2023.
Revenues for the full year were $14.5 billion, compared to $12.3 billion in 2023, though net income dropped to $3.7 billion from $3.9 billion. It was the railroad’s first full year operating as a fully combined entity after Canadian Pacific Railway Ltd. absorbed Kansas City Southern Railway Co. in 2023.
Creel said the railway was able to provide double-digit earnings growth during the fourth quarter despite facing a range of challenges, including weather issues and labour disputes.
He also said he’s optimistic about CPKC’s current and future labour situation despite a strike last summer and another potential one by its mechanical staff averted this week. He said management and workers are on the same page when it comes to the importance of Canada being seen as a reliable supply chain partner.
“I am encouraged that those union leaders understand that, and I am encouraged that our employees understand that,” he said.