(CN issued the following news release on October 27.)
MONTREAL — CN today reported its financial results for the third quarter and nine-month period ended Sept. 30, 2004.
Third-quarter 2004 highlights
— Net income of $346 million, an 18 per cent increase from 2003;
— Diluted earnings per share of $1.19, a 17 per cent improvement over third-quarter 2003 results;
— Operating income of $591 million, up 30 per cent year-over-year;
— Operating ratio of 65.4 per cent, 2.5 percentage points better than the prior year’s quarterly performance;
— Nine-month 2004 free cash flow of $754 million, compared with $455 million for the same period of 2003.(1)
E. Hunter Harrison, president and chief executive officer of CN, said: “These results demonstrate the power of CN’s business model, franchise and people. Our success is built on solid railroading execution, a strong merchandise traffic base, productivity and pricing discipline, and a proven ability to leverage new acquisitions for the benefit of customers and shareholders.
“Third-quarter revenues grew 21 per cent, reflecting core business growth in a strong North American economy and the acquisitions of BC Rail and the railroad and related holdings of Great Lakes Transportation (GLT). The integration of these carriers into our network continues in seamless fashion, and we believe anticipated merger benefits will outpace our original expectations.
“I am particularly proud of our nine-month 2004 free cash flow of $754 million. This cash generation ability is one of CN’s key strengths, giving it the financial flexibility to reward shareholders now and in the future.”
Revenues for the latest quarter increased to a record $1,709 million despite a stronger Canadian dollar. Factors driving the improved performance were increased merchandise traffic revenues, the inclusion of $148 million of GLT and BC Rail revenues, a solid intermodal performance, and an improved Canadian grain crop. CN began to record the operations of GLT as of May 10, 2004, and BC Rail as of July 14, 2004.
All seven CN business units registered revenue gains: metals and minerals (56 per cent); forest products (25 per cent); coal (25 per cent); petroleum and chemicals (17 per cent); automotive (nine per cent); intermodal (eight per cent); and grain and fertilizers (five per cent).
Operating expenses for the most recent quarter increased by 17 per cent to $1,118 million. The rise reflected the inclusion of $93 million of GLT and BC Rail expenses, increased fuel costs, and higher expenses for personal injuries, labor and fringe benefits, and purchased services.
The stronger Canadian dollar affected the conversion of CN’s U.S. dollar denominated revenues and expenses, and accordingly, reduced the company’s third-quarter revenues, operating income and net income by approximately $45 million, $15 million and $7 million, respectively.
Nine-month 2004 financial results
Net income for the first nine months of 2004 was $882 million, or $3.05 per diluted share, compared with net income of $790 million, or $2.71 per diluted share, for the same period of 2003.
Nine-month 2003 net income included a cumulative benefit of $48 million after tax, resulting from a change in the accounting for removal costs for certain track structure assets. Excluding the effect of this change, net income for the first nine months of 2004 increased 19 per cent, with diluted earnings per share rising 20 per cent.
Operating income for the first nine months of this year increased 23 per cent to $1,561 million. Revenues rose by 10 per cent to $4,812 million, while operating expenses increased by five per cent to $3,251 million.
CN’s operating ratio for the first nine months of 2004 was 67.6 per cent, a 3.5-percentage point improvement over the year-earlier performance.
The translation impact of the stronger Canadian dollar reduced nine-month 2004 revenues, operating income and net income by approximately $195 million, $70 million and $37 million, respectively.
The financial results in this press release are reported in Canadian dollars and were determined on the basis of U.S. generally accepted accounting principles (U.S. GAAP).
(1) Please see discussion and reconciliation of this non-GAAP adjusted performance measure in the attached supplementary schedule, Non-GAAP Measures.
This news release contains forward-looking statements. CN cautions that, by their nature, forward-looking statements involve risk and uncertainties and that its results could differ materially from those expressed or implied in such statements. Reference should be made to CN’s most recent Form 40-F filed with the United States Securities and Exchange Commission, and the Annual Information Form filed with the Canadian securities regulators, for a summary of major risks.
Canadian National Railway Company spans Canada and mid-America, from the Atlantic and Pacific oceans to the Gulf of Mexico, serving the ports of Vancouver, Prince Rupert, B.C., Montreal, Halifax, New Orleans, and Mobile, Ala., and the key cities of Toronto, Buffalo, Chicago, Detroit, Duluth, Minn./Superior, Wis., Green Bay, Wis., Minneapolis/St. Paul, Memphis, St. Louis, and Jackson, Miss., with connections to all points in North America.