(Source: Canadian National Railway press release, July 24, 2018)
MONTREAL — CN today reported its financial and operating results for the second quarter ended June 30, 2018.
Financial results highlights
Second-quarter 2018 compared to second-quarter 2017
• Net income increased by 27 percent to C$1,310 million.
• Diluted earnings per share (EPS) increased by 30 percent to C$1.77.
• Adjusted net income increased by 11 percent to C$1,120 million. (1)
• Adjusted diluted EPS increased by 13 percent to C$1.51. (1)
• Operating income increased by seven percent to C$1,519 million.
• Revenues increased by nine percent to C$3,631 million.
• Revenue ton-miles (RTMs) increased by seven percent and carloadings increased by six percent.
• Operating expenses increased by 10 percent to C$2,112 million.
• Operating ratio of 58.2 percent, an increase of 0.7 points over the second-quarter 2017 (and an improvement of 9.6 points over the first-quarter 2018).
• Free cash flow (1) for the first half of 2018 was C$1,296 million, compared with C$1,659 million for the year-earlier period.
“Our entire team pulled together quickly to turn around our operational performance following a challenging winter, delivering a best-in-class operating ratio of 58.2 percent in the quarter,” said JJ Ruest, president and chief executive officer of CN. “Record capital investments in new equipment and expanded infrastructure are on schedule, as we advance important projects that will give us the capacity and resiliency to serve the market at the industry-leading standard we and our customers expect.
“With these investments and hundreds of new qualified transportation crews in the field, CN has the momentum for a strong second half, meeting the growing economic needs of our customers and exporters, and producing value for our shareholders,” Ruest added.
Updated 2018 financial outlook (2)
Following strong second-quarter performance and with a robust demand environment, CN now aims to deliver 2018 adjusted diluted EPS in the range of C$5.30 to C$5.45 versus last year’s adjusted diluted EPS of C$4.99 (compared to its financial outlook of April 23, 2018, which called for 2018 adjusted diluted EPS in the range of C$5.10 to C$5.25). (1)
CN has also increased its 2018 capital program by C$100 million to C$3.5 billion, with additional capital investment primarily going toward the purchase of new rail cars.
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 second quarter of 2018 would have been higher by C$30 million, or C$0.04 per diluted share.
Second-quarter 2018 revenues, traffic volumes and expenses
Revenues for the second quarter of 2018 were C$3,631 million, an increase of C$302 million or nine percent, when compared to the same period in 2017. Revenues increased for petroleum and chemicals (C$67 million or 12 percent), grain and fertilizers (C$61 million or 12 percent), metals and minerals (C$58 million or 15 percent), coal (C$49 million or 39 percent), intermodal (C$48 million or six percent) and forest products (C$26 million or six percent). Revenues declined for other revenues (C$5 million or two percent) and automotive (C$2 million or one percent).
The increase in revenues was mainly attributable to increased volumes of Canadian grain, coal, overseas intermodal traffic, frac sand, refined petroleum products and U.S. grain; freight rate increases; and higher applicable fuel surcharge rates; partly offset by the negative translation impact of a stronger Canadian dollar.
RTMs, measuring the relative weight and distance of rail freight transported by CN, increased by seven percent from the year-earlier quarter. Rail freight revenue per RTM increased by two percent over the year-earlier period, mainly driven by freight rate increases and higher applicable fuel surcharge rates; partly offset by the negative translation impact of a stronger Canadian dollar.
Carloadings for the quarter increased by six percent to 1,506 thousand.