(Source: CN press release, January 24, 2012)
MONTREAL, Jan. 24, 2012 — CN today reported its financial and operating results for the fourth quarter and year ended Dec. 31, 2011.
Fourth-quarter and full-year 2011 highlights:
• Net income for the final quarter of 2011 was C$592 million, or C$1.32 per diluted share, versus fourth-quarter 2010 net income of C$503 million, or C$1.08 per diluted share.
• Adjusted Q4-2011 net income of C$581 million increased by 16 per cent over comparable adjusted 2010 net income of C$503 million, with Q4-2011 adjusted diluted earnings per share (EPS) of C$1.30, up 20 per cent over adjusted diluted EPS of C$1.08 for the final quarter of 2010. (1)
• Operating income for the fourth quarter of 2011 increased eight per cent to C$839 million.
• Fourth-quarter revenues increased 12 per cent to a best-ever C$2,377 million, while carloadings grew by four per cent and revenue ton-miles increased three per cent.
• Fourth-quarter operating ratio was 64.7 per cent, a 1.3-point increase compared with 63.4 per cent for the 2010 final quarter.
• Full-year revenues increased nine per cent to a record C$9,028 million, while full-year 2011 carloadings rose four per cent and revenue ton-miles increased five per cent.
• 2011 free cash flow increased to C$1,175 million from C$1,122 million for 2010. (1)
Net income for full-year 2011 was C$2,457 million, or C$5.41 per diluted share, compared with 2010 net income of C$2,104 million, or C$4.48 per diluted share.
The financial results for both years included a number of items that affect the comparability of the results, including in 2011 an after-tax gain on the disposal of a segment of CN’s Kingston subdivision known as the Lakeshore East of C$254 million, or C$0.55 per diluted share, and an after-tax gain of C$38 million (C$0.08 per diluted share) on the sale of the assets of IC RailMarine Terminal Company. Excluding items in both years, adjusted 2011 net income was C$2,194 million, or C$4.84 per diluted share, compared with 2010 adjusted net income of C$1,973 million, or C$4.20 per diluted share. Adjusted diluted EPS for 2011 increased by 15 per cent. (1)
Claude Mongeau, CN president and chief executive officer, said: “Solid operational and service performance helped CN deliver exceptional financial results for the fourth quarter and 2011 as a whole. Our broad-based service innovation benefited our customers and enabled us to grow our business faster than the overall economy and close the year with record carloadings and revenues. Moving forward, our goal of becoming a true supply chain enabler is the foundation of our commitment to deliver solid shareholder value.”
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 2011 fourth-quarter net income would have been lower by C$2 million (nil impact per diluted share), and its 12-month net income higher by C$43 million, or C$0.09 per diluted share. (1)
Positive 2012 outlook, increased dividend (2)
Mongeau said: “Although the economic recovery may be affected by global uncertainty, CN believes the gradual improvement in the North American economy will continue in 2012. Despite significant headwinds from additional pension expense of about C$120 million in 2012, CN is aiming to achieve a growth of up to 10 per cent in diluted earnings per share (EPS) over adjusted diluted EPS of C$4.84 for 2011. CN also expects to generate 2012 free cash flow in the order of C$875 million, which is in line with 2011 excluding major asset sales.” (1)
Mongeau added: “With a strong balance sheet and solid prospects for earnings and free cash flow generation, I’m pleased to announce that our Board of Directors has approved a 15 per cent increase in CN’s 2012 quarterly common-share dividend.”
Fourth-quarter 2011 revenues and expenses
Revenues for the fourth quarter of 2011 increased by 12 per cent to C$2,377 million. All but one of CN’s commodity groups experienced increased revenues: metals and minerals (30 per cent), intermodal (16 per cent), petroleum and chemicals (14 per cent), automotive (13 per cent), forest products (12 per cent), and grain and fertilizers (three per cent.) Coal revenues were flat. Revenue ton-miles increased three per cent over the fourth quarter of 2010, while rail freight revenue per revenue ton-mile increased by nine per cent.
Total operating expenses for the fourth quarter increased by 15 per cent to C$1,538 million.
Full-year 2011 revenues and expenses
Revenues for the year increased by nine per cent to C$9,028 million, mainly attributable to higher freight volumes, due to a modest improvement in the North American and global economies and to the Company’s performance above base market conditions in a number of segments; the impact of a higher fuel surcharge; and freight rate increases. These factors were partly offset by the negative translation impact of the stronger Canadian dollar on U.S.-dollar-denominated revenues in the first nine months of the year.
All commodity groups saw revenue increases for 2011: metals and minerals (17 per cent), intermodal (14 per cent), grain and fertilizers (seven per cent), petroleum and chemicals (seven per cent), forest products (seven per cent), automotive (six per cent), and coal (three per cent). Revenue ton-miles for the year increased by five per cent from 2010, while rail freight revenue per revenue ton-mile increased by four per cent.
Operating expenses for 2011 increased by nine per cent to C$5,732 million, mainly due to higher fuel costs, purchased service and material expense, labor and fringe benefits expense as well as higher depreciation and amortization. These factors were partially offset by the positive translation impact of the stronger Canadian dollar on U.S.-dollar-denominated expenses, particularly in the first nine months of 2011, and lower casualty and other expense.
CN’s operating ratio for 2011 was 63.5 per cent, compared with 63.6 per cent for 2010, a 0.1-point reduction.
(1) Please 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.