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Enter Symbol
or Name
USA
CA



Canadian National Railway Company
Symbol CNR
Shares Issued 819,355,861
Close 2014-07-18 C$ 73.08
Market Cap C$ 59,878,526,322
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CN Rail's Q2 earnings rise to $847-million

2014-07-21 16:16 ET - News Release

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

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