(Source: Canadian National Railway press release, January 29, 2019)
MONTREAL — CN today reported its financial and operating results for the fourth quarter and year ended Dec. 31, 2018.
“I’m very pleased with our fourth quarter results and the strong finish to 2018,” said JJ Ruest, president and chief executive officer of CN. “With approximately C$1.3 billion of revenue growth in the final three quarters of the year, CN regained its position of strength and demonstrated again its ability to grow at low incremental cost. 2019 will be a year of building on this momentum.”
“We are focused on operational productivity and services that resonate with customers,” Ruest continued. “In 2019, our record capital program of C$3.9 billion will be focused on investing in the renewal of a more efficient and reliable locomotive fleet, adding network capacity to accommodate our solid pipeline of growth in diverse markets and bringing technology to our Precision Scheduled Railroading.”
Financial results highlights
Fourth-quarter 2018 compared to fourth-quarter 2017
• Revenues of C$3,808 million, an increase of 16 per cent.
• Diluted EPS of C$1.56, a decrease of 55 per cent and adjusted diluted EPS of C$1.49, an increase of 24 per cent. (1) Included in diluted EPS in the fourth quarter of 2017 was a deferred income tax recovery of C$2.35 per diluted share resulting from the enactment of a lower U.S. federal corporate income tax rate.
• Operating margin of 38.1 per cent, an increase of 0.8 points (operating ratio of 61.9 per cent). (2) (3)
• Adjusted operating margin of 38.8 per cent, an increase of 1.5 points (adjusted operating ratio of 61.2 per cent). (1)
• Operating income of C$1,452 million, an increase of 19 per cent. (2)
Full-year 2018 compared to full-year 2017
• Revenues of C$14,321 million, an increase of 10 per cent.
• Diluted EPS of C$5.87, a decrease of 19 per cent and adjusted diluted EPS of C$5.50, an increase of 10 per cent. (1) Included in diluted EPS in 2017 was a deferred income tax recovery of C$2.33 per diluted share resulting from the enactment of a lower U.S. federal corporate income tax rate.
• Operating margin of 38.4 per cent, a decrease of 1.8 points (operating ratio of 61.6 per cent). (2) (3)
• Adjusted operating margin of 38.5 per cent, a decrease of 1.7 points (adjusted operating ratio of 61.5 per cent). (1)
• Operating income of C$5,493 million, an increase of five per cent. (2)
• Adjusted return on invested capital (adjusted ROIC) of 15.7 per cent, a decrease of 0.2 points. (1)
2019 outlook and shareholder distribution (4)
“With CN-specific growth opportunities, combined with a broadly positive economic backdrop, we expect high single-digit volume growth in 2019 in terms of revenue ton miles (RTMs),” said Ruest.
CN expects to deliver EPS growth in the low double-digit range this year compared to adjusted diluted EPS of C$5.50 in 2018. (1)
The Company’s Board of Directors today approved an 18 per cent increase to CN’s 2019 quarterly cash dividend, effective for the first quarter of 2019, demonstrating our confidence in the long-term financial health of the Company. In addition, the Company’s Board of Directors also approved a new normal course issuer bid that permits CN to purchase, for cancellation, over a 12-month period up to 22 million common shares, starting on Feb. 1, 2019, and ending no later than Jan. 31, 2020.
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, CN’s net income for the three months and year ended Dec. 31, 2018 would have been lower by C$24 million (C$0.03 per diluted share) and higher by C$4 million (C$0.01 per diluted share), respectively. (1)
Fourth-quarter 2018 revenues, traffic volumes and expenses
Revenues for the quarter increased by 16 per cent to C$3,808 million, when compared to the same period in 2017. Revenues increased for petroleum and chemicals (C$272 million or 50 per cent), intermodal (C$75 million or nine per cent), grain and fertilizers (C$74 million or 13 per cent), coal (C$30 million or 21 per cent), forest products (C$29 million or seven per cent), metals and minerals (C$20 million or five per cent), other revenues (C$13 million or seven per cent), and automotive (C$10 million or five per cent).
The increase in revenues was mainly attributable to higher volumes of petroleum crude and Canadian grain, freight rate increases, higher applicable fuel surcharge rates, and the positive translation impact of a weaker Canadian dollar; partly offset by lower volumes of frac sand.
Carloadings for the quarter increased by five per cent to 1,537 thousand.
RTMs, measuring the weight and distance of rail freight transported by CN, increased by 12 per cent. Rail freight revenue per RTM increased by four per cent.
Operating expenses for the quarter increased by 14 per cent to C$2,356 million, (2) mainly due to higher labor costs mainly as a result of an increase in headcount, and employee termination benefits and severance costs related to a workforce reduction program; higher fuel prices; higher costs as a result of increased volumes of traffic; and the negative translation impact of a weaker Canadian dollar.
Full-year 2018 revenues, traffic volumes and expenses
Revenues for 2018 increased by 10 per cent to C$14,321 million, when compared to 2017. Revenues increased for petroleum and chemicals (C$452 million or 20 per cent), intermodal (C$265 million or eight per cent), metals and minerals (C$166 million or 11 per cent), grain and fertilizers (C$143 million or six per cent), coal (C$126 million or 24 per cent), forest products (C$98 million or five per cent), other revenues (C$25 million or three per cent), and automotive (C$5 million or one per cent).
The increase in revenues was mainly attributable to freight rate increases, higher applicable fuel surcharge rates and higher volumes of petroleum crude, refined petroleum products, coal, international container traffic and Canadian grain.
Carloadings increased by four per cent to 5,976 thousand.
RTMs increased by five per cent. Rail freight revenue per RTM increased by five per cent, mainly driven by freight rate increases and higher applicable fuel surcharge rates.
Operating expenses increased by 13 per cent to C$8,828 million, (2) mainly due to higher fuel prices, higher costs as a result of increased volumes of traffic and operating performance below 2017 levels.
* (1-4) — See Link Above.