(Source: Canadian National press release, April 23, 2012)
MONTREAL — CN today reported its financial and operating results for the first quarter ended March 31, 2012.
First-quarter 2012 highlights:
• Net income for the first quarter of 2012 was C$775 million, or C$1.75 per diluted share, versus first-quarter 2011 net income of C$668 million, or C$1.45 per diluted share. The first-quarter 2012 results included an after-tax gain of C$252 million, or C$0.57 per diluted share, and the first quarter of 2011 included an after-tax gain of C$254 million, or C$0.55 per diluted share, from the sale of rail line segments in the Toronto area to a public transit agency.
• Excluding the gain on the sale of the rail line segments, adjusted diluted earnings per share (EPS) for first-quarter 2012 was C$1.18, an increase of 31 per cent over adjusted diluted EPS of C$0.90 for the same period of 2011. (1)
• Revenues increased 13 per cent to C$2,346 million, while revenue ton-miles rose six per cent and carloadings increased five per cent.
• Operating income increased 23 per cent to C$793 million.
• The operating ratio was 66.2 per cent, a 2.8-point improvement over the year-earlier first-quarter performance of 69.0 per cent.
• Free cash flow was C$48 million, reflecting the impact of Q1-2012 voluntary pension plan contributions totalling C$450 million, compared with free cash flow of C$445 million for the same quarter of 2011. (1)
Claude Mongeau, president and chief executive officer, said: “While CN benefited from a milder winter and improving economic conditions, our very solid first-quarter results underscore that our strategy is working. The CN team executed well on all key fronts, delivering high-quality service while handling solid volume growth at low incremental cost.
“CN’s commitment to operational and service excellence is the core driver of our strategy. It allows us to offer a more valuable transportation product that improves the supply chains we serve and helps our customers compete more effectively in their own markets.”
Revised 2012 financial outlook (2)
CN’s strong first-quarter results and assumption of continued improvement in economic conditions have prompted a positive revision to the Company’s 2012 financial outlook, first issued on Jan. 24, 2012.
Under its revised 2012 outlook, CN is aiming to:
• Deliver a full 10 per cent growth in diluted EPS, on an adjusted basis, over diluted EPS of C$4.84 in 2011 despite significant headwinds from additional pension expense of approximately C$100 million versus 2011. This compares with CN’s prior 2012 diluted EPS growth forecast of up to 10 per cent, including headwinds from additional pension expense of approximately C$120 million.
• Generate free cash flow of approximately C$950 million, compared with the previous guidance in the order of C$875 million. (1)
Mongeau said: “We believe our solid first-quarter performance and our clear focus on helping our customers succeed position us 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 is 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 first-quarter 2012 net income would have been lower by C$4 million, or C$0.01 per diluted share. (1)
First-quarter 2012 revenues, traffic volumes and expenses
The 13 per cent rise in first-quarter revenues mainly resulted from higher freight volumes, due in part to continuing improvements in North American and global economies, a milder winter, as well as the Company’s performance above market conditions in a number of segments; the impact of a higher fuel surcharge resulting from year-over-year increases in applicable fuel prices and higher volumes; and freight rate increases.
Revenues increased for metals and minerals (31 per cent), coal (18 per cent), intermodal (17 per cent), petroleum and chemicals (15 per cent), automotive (13 per cent), and forest products (10 per cent). Grain and fertilizer revenues declined two per cent.
Revenue ton-miles, measuring the relative weight and distance of rail freight transported by CN, increased six per cent from the year-earlier period.
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 six per cent over the first quarter of 2011, driven by the impact of a higher fuel surcharge and freight rate increases, partly offset by an increase in the average length of haul.
Operating expenses for the first quarter increased by eight per cent to C$1,553 million, mainly due to higher fuel costs as well as labor and fringe benefits expense. These factors were partly offset by lower casualty and other expense.
(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 2012 outlook.