Mr. Claude Mongeau reports
CN REPORTS Q2-2014 NET INCOME OF C$847 MILLION, UP 18 PER CENT FROM YEAR-EARLIER NET INCOME OF C$717 MILLION
Canadian National Railway Company has released its financial and operating results for the second quarter and
six-month period ended June 30, 2014.
Second quarter of 2014 financial highlights:
- Net income was $847-million, or $1.03 per diluted share, compared with
net income of $717-million, or 84 cents per diluted share, for the
year-earlier quarter. The second quarter of 2013 results included a net gain of $13-million (one cent per diluted share) resulting from a gain on a
non-monetary transaction with another railway that was partly offset by
the effect of the enactment of higher provincial corporate income tax
rates.
- Excluding the second quarter of 2013 net gain, second quarter of 2014 diluted earnings per share of $1.03 increased
24 per cent over last year's adjusted diluted EPS of 83 cents.
Operating income for the second quarter of 2014 increased 21 per cent to
$1,258-million.
- Second quarter of 2014 revenues increased 17 per cent to $3,116-million,
revenue ton-miles grew by 14 per cent and carloadings increased 11 per
cent.
- CN's operating ratio for the second quarter of 2014 improved by 1.3 points to 59.6 per cent
from 60.9 per cent for the year-earlier quarter.
- Free cash flow for the first half of 2014 was $1,270-million, compared
with $788-million for the year-earlier first half.
Claude Mongeau, president and chief executive officer, said: "CN
recovered swiftly from the first quarter winter weather challenges --
just as our customers would expect us to do -- thanks to solid execution
by our dedicated team of railroaders. CN delivered record volumes in
the quarter by bringing its key supply chains back into sync and taking
advantage of continued strength in several of our core markets. This
solid operational recovery underscores our ability to accommodate
growth at low incremental cost and to drive very strong financial
results."
CN's Western Canadian grain-hopper-car movements were particularly strong
during the second quarter, up nearly 70 per cent from the year-earlier
period. The company expects such hopper-car movements for the crop year
ending July 31, 2014, to be a new record and close to 25 per cent
higher than average crop-year movements.
Mr. Mongeau said: "We are pleased that the Canadian grain supply chain CN
serves is now back in sync. Our wait list of customer grain car orders
represents only about one week of shipments from the Prairies and
grain vessel lineups at all ports are back to normal."
Revised 2014 financial outlook
CN's strong second quarter results, and continued growth opportunities in
intermodal, bulk and merchandise markets, have prompted a positive
revision to the company's 2014 financial outlook. Under its revised
2014 outlook, CN now expects to:
- Deliver solid double-digit EPS growth in 2014 over adjusted diluted 2013
EPS of $3.06, compared with its earlier forecast of aiming for
double-digit 2014 EPS growth;
- Generate free cash flow in the range of $1.8-billion to $2-billion,
compared with the earlier free cash flow projection of $1.6-billion to
$1.7-billion for 2014.
Mr. Mongeau said, "The continuing success of our agenda of operational and
service excellence positions CN well to achieve this improved financial
outlook for the year."
Foreign currency impact on results
Although CN reports its earnings in Canadian dollars, a large portion of
its revenues and expenses are denominated in U.S. dollars. As such, the
company's results are affected by exchange-rate fluctuations. On a
constant-currency basis that excludes the impact of fluctuations in
foreign currency exchange rates, CN's second quarter of 2014 net income
would have been lower by $28-million or three cents per diluted share.
Second quarter of 2014 revenues, traffic volumes and expenses
Revenues for the second quarter of 2014 increased by 17 per cent to
$3,116-million. Revenues increased for grain and fertilizers (35 per
cent), metals and minerals (20 per cent), intermodal (17 per cent),
petroleum and chemicals (17 per cent) automotive (15 per cent), forest
products (9 per cent), and coal (5 per cent).
The increase in revenues was mainly attributable to higher freight
volumes due to a record Canadian grain crop, strong energy markets and
market share gains, particularly in intermodal, the positive
translation impact of the weaker Canadian dollar on
U.S.-dollar-denominated revenues, and freight rate increases.
Revenues in the second quarter of 2014 also benefited from increased
volumes as the company recovered from winter-weather-related challenges
that delayed shipments in the first quarter of 2014.
Carloadings for the second quarter rose 11 per cent to 1,463,000.
Revenue ton-miles, measuring the relative weight and distance of rail
freight transported by CN, increased by 14 per cent over the
year-earlier quarter. Rail freight revenue per revenue ton-mile, a
measurement of yield defined as revenue earned on the movement of a ton
of freight over one mile, increased by 4 per cent over the
year-earlier period, driven by the positive translation impact of the
weaker Canadian dollar and freight rate increases, partly offset by an
increase in the average length of haul.
Operating expenses for the quarter increased by 14 per cent to $1,858-million. That was mainly attributable to the negative translation
impact of a weaker Canadian dollar on U.S.-dollar-denominated expenses,
higher fuel costs, increased labour and fringe benefits expense, and
increased purchased services and material expense.
CONSOLIDATED STATEMENT OF INCOME
(in millions of dollars, except per-share amounts)
Three months ended Six months ended
June 30, June 30,
2014 2013 2014 2013
Revenues $ 3,116 $ 2,666 $ 5,809 $ 5,132
Operating expenses
Labour and fringe benefits 560 498 1,147 1,067
Purchased services and material 390 341 778 669
Fuel 484 402 952 807
Depreciation and amortization 257 250 513 485
Equipment rents 84 68 161 136
Casualty and other 83 65 180 146
Total operating expenses 1,858 1,624 3,731 3,310
Operating income 1,258 1,042 2,078 1,822
Interest (expense) (91) (88) (183) (177)
Other income 2 28 96 70
Income before income taxes 1,169 982 1,991 1,715
Income tax (expense) (322) (265) (521) (443)
Net income $ 847 $ 717 $ 1,470 $ 1,272
Earnings per share
Basic $ 1.03 $ 0.85 $ 1.78 $ 1.50
Diluted $ 1.03 $ 0.84 $ 1.77 $ 1.49
We seek Safe Harbor.
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