CN President and CEO Luc Jobin has unexpectedly stepped down, effective immediately. The railroad’s Board has appointed Executive Vice President and Chief Marketing Officer.Jean-Jacques Ruest Interim President and CEO “until a permanent replacement is in place.”
CN gave no specific reason why Jobin stepped down after only about two years in the position, saying only that its Board “believes the company needs a leader who will energize the team, realize CN’s corporate vision and take the company forward with the speed and determination CN is known for,” according to Board Chairman Robert Pace. “The Board believes that in an increasingly competitive marketplace, CN must respond with speed and innovation to retain its leadership position. The Board also recognizes the immediate operational and customer service challenges the company has been facing since Fall 2017— led by high demand and insufficient network resiliency, coupled with severe winter weather conditions. CN must accelerate execution of the innovation strategy articulated at our Investor Day last June. The Board is confident this remains the right course to restore and retain industry-leading metrics and best in class customer service.”
Ruest, who has been with CN for 22 years, “is well known to customers and investors, and is well positioned to focus the company and its very experienced and proven team of railroaders to rapidly address operational challenges during the transition.” CN said that an international search for a new CEO is under way, but many industry observers believe Ruest will ultimately be appointed.
“Despite more difficult winter conditions and a very challenging start to the year, the Company remains confident about its future prospects,” CN said. CN reiterated its fiscal year 2018 guidance to deliver adjusted diluted earnings per share in the range of C$5.25 to C$5.40 this year “and will continue to invest in the safety and efficiency of its network with a record capital program in 2018 of C$3.2 billion.”
That fact that no specific reason was given for Jobin’s departure “will no doubt leave investors with more questions than answers in the short term,” observed Cowen and Company Managing Director and Railway Age Wall Street Contributing Editor Jason Seidl. “Luckily the Canadian rail giant has a deep management bench and CMO JJ Ruest is well respected by investors and customers alike. It would not be a shock to see him ultimately take over the role on a permanent basis.”
“Investors have already had to endure a nearly 9% drop in CNIs shares this year, making it the worst performing Class I railroad year to date,” Seidl noted. “Today’s news is likely to exacerbate this gap somewhat. However, we remain confident in the company’s ability to recover and deliver value to its shareholders over the long term. Indeed, CN has a long history of being one of the best performing railroads in North America with a laser focus on its customers. We do not believe this will change, but this may be little solace for those with shorter investment time horizons.”
Concerning CN’s reiteration of its 2018 annual guidance range of C$5.25-C$5.40 as well as its capital spending budget of C$3.2 billion, “we recently took CN’s full year number below this earnings range (C$5.10) due to the ongoing service issues in the first quarter,” Seidl said. “Our full year estimate also remains below the consensus expectations of $5.33. However, we expect this number to come down further as people adjust for the current quarter.”