(Canadian National Railway issued the following news release on July 20.)
MONTREAL, QUEBEC — CN today reported its financial and operating results for the three-month and six-month periods ended June 30, 2006.
Financial highlights
– Second-quarter net income of C$729 million, or C$1.35 per diluted share, including a deferred income tax recovery of C$250 million (C$0.46 per diluted share) largely attributable to lower corporate tax rates in Canada;
– Excluding this deferred income tax recovery, adjusted net income was C$479 million, or C$0.89 per diluted share, a 22 per cent increase over year-earlier diluted EPS; (1)
– Operating income of C$805 million, up 13 per cent;
– Record quarterly revenues of C$1,946 million and operating ratio of 58.6 per cent, and
– First-half 2006 free cash flow of C$740 million.
E. Hunter Harrison, president and chief executive officer of CN, said: “CN’s excellent financial performance during the quarter demonstrates the power and value of our precision railroading model.
“Precision railroading is grounded in a solid service plan, the relentless pursuit of asset velocity, and a strong focus on safety. This approach to railroading assured a fluid CN network during the quarter and permitted us to grow our business.
“CN maintained a strong free cash flow performance during the quarter, which allows the Company to continue rewarding shareholders through a new share buy-back program authorized by CN’s Board of Directors today.”
Revenues for the second quarter of 2006 increased six per cent to C$1,946 million, largely due to freight rate increases for all commodity groups, including a higher fuel surcharge resulting from an escalation in crude oil prices, and volume growth led by CN’s grain and intermodal commodity groups. Revenue gains were partly offset by the unfavourable C$100-million translation impact of the stronger Canadian dollar on U.S. dollar-denominated revenues.
Five of CN’s seven commodity groups registered revenue gains during the second quarter, driven in part by a five per cent increase in the Company’s volumes, as measured by revenue ton-miles.
Operating expenses increased by one per cent to C$1,141 million, mainly due to increased fuel costs, purchased services and material expense, and depreciation. Partly offsetting these factors were lower casualty and other expense and equipment rents, as well as the favourable C$55-million translation impact of the stronger Canadian dollar on U.S. dollar-denominated operating expenses.
CN’s operating ratio for the second quarter was 58.6 per cent, a 2.6-point improvement.
The continued appreciation of the Canadian dollar relative to the U.S. dollar reduced CN’s second-quarter net income by approximately C$25 million.
Intermodal revenues increased 17 per cent during the quarter, benefiting from growth in international container traffic, primarily from Asia, and increased transborder and domestic movements. Grain and fertilizers revenues rose 16 per cent, driven in part by higher shipments to export markets of Canadian wheat, U.S. corn, and Canadian canola and canola meal.
Metals and minerals revenues increased seven per cent, reflecting increased volumes of iron ore, and strong shipments of long steel products and machinery and dimensional loads. Petroleum and chemicals revenues, benefiting from improvements in traffic mix, increased four per cent. Coal revenues grew by two per cent, largely as a result of the expansion of metallurgical coal mines in western Canada, offset partly by lower shipments of U.S. coal and Canadian exports of petroleum coke. Forest products revenues declined one per cent, in part because of reduced shipments of pulp and paper, while automotive revenues declined six per cent on account of production slowdowns by domestic producers, partly offset by higher shipments of import vehicles via CN-served ports.
Six-month 2006 results
Net income for the first six months of 2006 was C$1,091 million, or $C2.01 per diluted share, including the C$250-million (C$0.46 per diluted share) deferred income tax recovery.
Operating income for the six-month period increased 15 per cent to C$1,430 million. Revenues increased seven per cent to C$3,793 million, while operating expenses increased by three per cent to C$2,363 million.
The continued appreciation of the Canadian dollar relative to the U.S. dollar reduced CN’s first-half revenues, operating expenses and net income by C$155 million, C$90 million, and C$35 million, respectively.
CN’s operating ratio for the first half of 2006 was 62.3 per cent, a 2.7-point improvement.
The financial results in this press release were determined on the basis of U.S. generally accepted accounting principles (U.S. GAAP).
CN – 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.