CN earnings: Railway CEO says it offers 'better solution' for Kansas City Southern

Canadian National Railway (CNR.TO) said Monday that its proposed merger with Kansas City Southern (KSU) provides “the better solution” for customers and shareholders than the rival Canadian Pacific (CP.TO) bid.

Speaking on a conference call with analysts after markets closed on Monday, CN chief executive JJ Ruest said CN’s US$33.7 billion offer for the railway will enable “a better solution” for customers when it comes to moving goods across Canada, the United States and Mexico.

“Combining with KCS, we would compete head-to-head on all three coasts, (offer) lower costs, safer service, better fuel efficiencies from Mexico to the heartland of America,” Ruest said.

“Overall, we have a better bid, we’re a better partner, a better railway, and the best solution for KCS and a North American economy.”

CN is the midst of a battle with its chief rival CP to purchase the U.S. railway company. Last week CN, Canada’s largest railway, announced a cash-and-stock bid to purchase KCS valued at US$33.7 billion, topping Canadian Pacific's previously disclosed offer of US$25 billion. Over the past week, CN and its chief rival CP engaged in a war of words over which company has the superior offer to merge with KCS.

North America’s freight rail customers appear to have started choosing sides. CN released a statement Monday that said more than 400 customers, suppliers and elected officials have filed letters with the Surface Transportation Board in favour of CN's proposed merger with KCS. The company said the letters "reflect a diversity of perspectives", with many recognizing "the inherent benefits of longer single-system service and the value to rail shippers of an extended market reach." CP said last week that more than 405 stakeholders filed letters with the STB in support of its offer.

CN’s supporters include meat processor Maple Leaf Foods and steel manufacturer ArcelorMittal, while CP’s supporters include shipping and container company Hapag-Lloyd, agriculture company Viterra Inc. and an association representing Mexican automakers.

Ruest said CN’s offer would provide customers with a transportation option that would be able to capitalize on the recently revised trade deal between Canada, the United States and Mexico, and compete with long-haul trucking.

“Right now, the rail network in North America is not really designed to be as successful as it can be for long-haul distance, from say Mexico City all the way to Detroit and Toronto on the east, or Wisconsin and Calgary to the west,” he said.

The comments came as CN reported a decrease in revenue in the three month period ending March 31, with sales hitting $3.54 billion, down from $3.55 billion during the same time last year, due in part to a decrease in automotive, coal, petroleum and chemical shipments. Net income came in at $974 million, down from $1 billion last year.

Still, the company raised one of its key 2021 financial targets. CN said Monday that it expects its adjusted diluted earnings per share (EPS) growth in 2021 to be in the double-digits, up from the high-single digits the railway had previously targeted. The company reported adjusted diluted EPS of $5.31 in 2020.

With files from Reuters.

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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