(Source: CN press release, April 24, 2017)
REGINA — CN today reported its financial and operating results for the first quarter ended March 31, 2017.
First-quarter 2017 financial highlights
• Net income increased 12 per cent to C$884 million, while diluted EPS increased 16 per cent to C$1.16, compared with the first quarter of 2016.
• Adjusted net income increased 11 per cent to C$879 million, with adjusted diluted EPS increasing 15 per cent to C$1.15. (1)
• Operating income increased seven per cent to C$1,303 million.
• Revenues increased by eight per cent to C$3,206 million. Carloadings increased nine per cent and revenue ton-miles increased 14 per cent.
• Operating expenses increased nine per cent to C$1,903 million.
• Operating ratio of 59.4 per cent, an increase of 0.5 of a point from the prior-year quarter.
• Free cash flow (1) was C$848 million in the first quarter of 2017, up from C$584 million for the year-earlier quarter.
Luc Jobin, CN president and chief executive officer, said: “I am very proud of the solid response from our team of railroaders in accommodating the strong demand during the quarter. We delivered record first-quarter volumes, including a 14 per cent increase in Western Canadian grain tonnage moved over our network, despite a return to more demanding winter conditions versus last year.
“Our ongoing investments in people, equipment and infrastructure continue to position us well to leverage CN’s industry-leading operational performance and superior customer service,” Jobin continued. “With a strong start in Q1 and an increased volume outlook for the rest of the year, I am pleased to announce an upward revision to our 2017 financial outlook.”
Revised 2017 financial outlook (2)
Under its revised outlook, CN now aims to deliver 2017 adjusted diluted EPS in the range of C$4.95 to C$5.10, versus last year’s adjusted diluted EPS (1) of C$4.59, compared with its Jan. 24, 2017 financial outlook which called for mid-single-digit growth this year.
CN has also increased its 2017 capital program by C$100 million to C$2.6 billion, of which C$1.6 billion is still targeted toward track infrastructure. The additional capital investment will go toward the purchase of 22 high-horsepower locomotives and other projects to support growth.
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. The fluctuation of the Canadian dollar relative to the U.S. dollar affects the conversion of the Company’s U.S.-dollar-denominated revenues and expenses. On a constant currency basis, (1) CN’s net income for the first quarter of 2017 would have been higher by C$22 million, or C$0.03 per diluted share.
First-quarter 2017 revenues, traffic volumes and expenses
Revenues for the first quarter of 2017 were C$3,206 million, an increase of eight per cent, when compared to the same period in 2016. Revenues increased for coal (39 per cent), grain and fertilizers (16 per cent), metals and minerals (16 per cent), automotive (10 per cent), intermodal (seven per cent), and petroleum and chemicals (one per cent). Revenues declined for forest products (three per cent).
The increase in revenues was mainly attributable to higher volumes of Canadian and U.S. grain, frac sand, coal exports, overseas intermodal traffic, and finished vehicles; freight rate increases; and higher applicable fuel surcharge rates. These factors were partly offset by the negative translation impact of a stronger Canadian dollar on U.S.-dollar-denominated revenues.
Carloadings for the quarter increased by nine per cent to 1,368 thousand, and rail freight revenue per carload decreased by one per cent.
Revenue ton-miles (RTMs), measuring the relative weight and distance of rail freight transported by CN, increased by 14 per cent from the year-earlier quarter. Rail freight revenue per RTM decreased by six per cent over the year-earlier period, mainly driven by an increase in the average length of haul and the negative translation impact of a stronger Canadian dollar, partly offset by freight rate increases and higher applicable fuel surcharge rates.
Operating expenses for the first quarter increased by nine per cent to C$1,903 million, mainly due to higher fuel prices and higher costs due to increased volumes of traffic, partly offset by the positive translation impact of a stronger Canadian dollar on U.S.-dollar-denominated expenses.