By Tom Bradley

“We are doing what we can to protect profitability.” – Claude Mongeau, CEO of CN Rail

2016 is turning out to be a tough year for the railroads. Carloads were down 6%. Oil, coal and fertilizer volumes are particularly weak.

CN Rail is arguably the best run railroad in North America, but it too is feeling the effects of the slowdown. The company reported this week that revenues were down 4% in the first quarter.

The quote above is CN’s response to the slowdown. At first blush, Mr. Mongeau’s comments warmed my shareholder’s heart (Note: we own the stock in the Equity Fund), but upon further reflection, I’m not so sure.

I'd be happier in a situation like this if a CEO acknowledged the cyclical nature of their business and said something like: “With volumes down, we recognize that our short-term profits are going to be under pressure, but our priorities are to keep our service levels high and help our customers get through this tough period. By reinforcing our long-term relationships and investing in our team, we will create more value for shareholders.”

This is what our managers and I would love to hear. The question managements face, however, is would there be rumblings that they weren’t focusing enough on shareholder value and would the stock get hammered in the short term? The answer: Maybe to the rumblings and almost certainly to the one-day stock price.

It would be refreshing to hear a few firms boldly announce that they’re sacrificing 3 cents a share in earnings to enhance the long-term value of the franchise. Oh so refreshing.