(Source: CN press release, April 22, 2013)
MONTREAL — On April 22, CN reported its financial and operating results for the first quarter ended March 31, 2013.
First-quarter 2013 highlights
• First-quarter 2013 net income was C$555 million, or C$1.30 per diluted share, compared with net income of C$775 million, or C$1.75 per diluted share, for first-quarter 2012. The first-quarter 2013 results included an after-tax gain of C$36 million, or C$0.08 per diluted share, and the first quarter of 2012 included an after-tax gain of C$252 million, or C$0.57 per diluted share, from the sale of rail line segments in the Toronto area to a public transit agency.
• Q1-2013 adjusted diluted earnings per share (EPS) were C$1.22, an increase of three per cent over adjusted diluted EPS of C$1.18 for the same period of 2012 (excluding gains on rail line sales in both years). (1)
• Revenues for the latest quarter increased five per cent to C$2,466 million, while revenue ton-miles rose three per cent and carloadings increased two per cent.
• Operating income declined two per cent to C$780 million.
• The operating ratio was 68.4 per cent, a deterioration of 2.2 points from the year-earlier performance of 66.2 per cent.
• The Company utilized C$20 million of free cash flow in first-quarter 2013, while it generated C$48 million of free cash flow in the comparable period of 2012. (1)
Claude Mongeau, president and chief executive officer, said: “CN faced a number of operational challenges in the first quarter, including extreme cold and heavy snow in Western Canada, which hampered operations, congested the network and constrained volume growth. We’ve turned the corner since then, improving train velocity and reducing freight car dwell times in yards across the network to restore the service level expected by our customers.
“CN will emerge stronger from this first-quarter experience. To improve network resilience, particularly given our expectation of continued strong volume growth, CN is undertaking several capacity enhancement projects in its Edmonton-Winnipeg corridor. These and other productivity initiatives will increase CN’s planned 2013 capital spending to C$2 billion, an increase of C$100 million over our original 2013 plan.”
2013 financial outlook (2)
CN is maintaining the 2013 financial outlook it issued on Jan. 22, 2013, except for its revised plan to invest approximately C$2 billion in capital programs in 2013, compared with the previous plan to invest C$1.9 billion. Approximately C$1.1 billion of the total expenditure will be targeted on track infrastructure to maintain a safe and fluid railway network. In addition, the Company will invest in projects to support a number of productivity and growth initiatives.
Foreign currency impact on results
Although CN reports its earnings in Canadian dollars, a large portion of its revenues and expenses is denominated in U.S. dollars. As such, the Company’s results are affected by exchange-rate fluctuations. There was minimal impact on CN’s first-quarter 2013 net income on a constant currency basis. (1)
First-quarter 2013 revenues, traffic volumes and expenses
The five per cent rise in first-quarter revenues was mainly attributable to freight rate increases and higher freight volumes, due in part to growth in the North American and Asian economies, partly offset by operational challenges that constrained volumes.
Revenues increased for petroleum and chemicals (17 per cent), intermodal (seven per cent), metals and minerals (three per cent), forest products (two per cent), automotive (two per cent), and grain and fertilizers (one per cent). Coal revenues declined one per cent.
Carloads increased by two per cent while revenue ton-miles, measuring the relative weight and distance of rail freight transported by CN, increased three per cent over the same quarter in 2012.
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 two per cent over the first quarter of 2012, driven by freight rate increases, partly offset by an increase in the average length of haul.
Operating expenses increased nine per cent in the first quarter of 2013, mainly due to higher labor and fringe benefits expense, increased purchased services and material expense, increased fuel costs, as well as operational challenges including harsher winter conditions in Western Canada.
(1) See discussion and reconciliation of non-GAAP adjusted performance measures in the attached supplementary schedule, Non-GAAP Measures.
(2) See Forward-Looking Statements for a summary of the key assumptions and risks regarding CN’s 2013 outlook.