The beleaguered CEO of the Canadian National Railway Company will retire in the new year, the railway said as it reported a sharp increase in third-quarter profits thanks to in part to a $ 770 million after-tax relief she received after walking away from a take-over bid on Kansas City Southern Railway.
The Montreal-based company says Jean-Jacques Ruest will leave at the end of January or when a successor has been appointed. Ruest has been the target of a replacement by activist shareholder TCI Fund Management Ltd.
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“I am not going anywhere and I will present today with the team here around me the results of the fourth quarter and to be sure that we have a successful setup for the 2022 business plan,” he said. to analysts on a conference call after the markets close. .
Railways president Robert Pace said Ruest postponed his retirement due to the KCS transaction and the introduction of his strategic plan.
TCI proposed former CN chief operating officer Jim Vena, but Ruest said a search committee would be looking at a wide variety of applicants both inside the railroad and elsewhere.
“We know there are candidates, at least one, but I think the world is bigger than that. And before the board makes a decision, we want to be very, very thorough. “
CN said it earned $ 1.685 billion or $ 2.37 per diluted share for the three months ended September 30, down from $ 1.38 per share or $ 985 million a year earlier.
Excluding one-time items such as breakage costs, adjusted profit increased 9.5% to $ 1.08 billion or $ 1.52 per share, from $ 985 million or $ 1.38 per share in the third quarter of 2020.
Revenue increased 5.3% to $ 3.59 billion from $ 3.41 billion.
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CN was to report $ 1.44 per diluted share in adjusted earnings on $ 3.54 billion in revenue, according to financial data firm Refinitiv.
CN said its operating ratio, a key measure of the efficiency of railways where smaller numbers are better, increased 2.8 points to 62.7% due to the impact of the fires in Western Canada and other factors, while the adjusted ratio improved to 59.0%.
The railroad “is making progress in executing our strategic plan,” Ruest said. “This includes creating immediate shareholder value while maintaining our long-term commitment to safety, customer service and sustainable value creation. “
CN said it has already achieved 75 percent of the promised job cuts of more than 1,000. Almost 600 are executives and 190 are unionized, most of them in Canada. It has also reduced the use of consultants.
The railroad expects all parts of its business to grow in 2022 except grains, as it forecasts a 10% increase in adjusted earnings per share in 2021 above $ 5.30 in 2020.
The results came a day after TCI advocated for the replacement of four directors and Ruest in an effort to improve the railway’s financial performance. An extraordinary shareholders’ meeting is scheduled for March 22.
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TCI is unhappy with CN’s offer to acquire KCS, saying it is part of the questionable decisions made by the railroad. It launched its efforts in response to CN’s US $ 33.6 billion takeover bid for Kansas City Southern.
CN deducted the breakage fee when KCS determined that CP’s bid was superior after the U.S. railroad regulator rejected its request for a fiduciary vote.
Ruest rejected suggestions that his departure brought the railroad closer to what TCI demanded.
“I think maybe it’s the other way around, maybe it’s TCI getting closer to CN’s long-term strategy,” he said.
Ruest said CN’s strategy is to position the company for the future and is looking for a leader with a growth focus and a diverse workforce.
Referring to an adage from hockey great Wayne Gretzky, he said CN wants to be where the puck is next, not where it was in 2010 or 2015.
“When you’re looking for a CEO in early 2022, you want to have someone who can really put the business as it should be in 2025.”
In a press release, TCI founder and portfolio manager Chris Hohn said a CEO change does not go far enough.
“Firing the same CEO that the board put in place just three years ago is a good start, but it does not solve the fundamental problem of lack of leadership, failure of strategic oversight and void of operational expertise at the board level, “he said.
“Filing a new plan a month ago without the CEO needing to implement it is a massive corporate governance failure and puts the future of the company in jeopardy. The good news is that TCI has a clear plan and the right people are available now to fix it. “
National Bank Financial analyst Cameron Doerksen says TCI’s written submission to shareholders was sketchy on proposed changes to improve CN’s financial and operational performance.
He said CN management had two quarters before the March shareholder meeting to show progress toward its financial goals.
The often bitter proxy battle has seen each side accuse the other of making inaccurate and misleading statements.
TCI has denied CN’s claim that it is in a conflict of interest by being the largest shareholder of rival Canadian Pacific Railway Ltd. in addition to being CN’s second-largest investor.
© 2021 The Canadian Press