MONTREAL — Canadian National today reported second-quarter 2002 net income of $280 million, an increase of 17 per cent over adjusted net income (1) of $240 million for the same quarter of 2001.
Diluted earnings per share for the second quarter of 2002 were $1.39, up 15 per cent from adjusted diluted earnings per share (1) of $1.21 for the year-earlier period.
Reported net income for the second quarter of 2001 was $217 million, or $1.10 per diluted share.
Operating income for second-quarter 2002 increased 10 per cent to $490 million from $444 million – excluding the effect of a special charge to operations to recognize the costs of a workforce adjustment program – for the same quarter of 2001. Including the special charge, operating income for second-quarter 2001 was $346 million.
Revenues for the most recent quarter rose 11 per cent to $1,551 million, while operating expenses were $1,061 million. Excluding the special charge, second-quarter 2001 operating expenses were $948 million; including it, operating expenses were $1,046 million.
CN President and Chief Executive Officer Paul M. Tellier said: “We are pleased with these results, which were achieved in a difficult environment for our grain and coal units. The Wisconsin Central acquisition, and the strong performance of our petroleum and chemicals, automotive and intermodal units, drove a 17 per cent increase in net income, and 15 per cent rise in earnings per share for the second quarter. Free cash flow for the first half of 2002 was also strong, rising to $356 million from $208 million for the comparable period of 2001. In sum, the strength of our service-sensitive merchandise business and intermodal unit more than offset tough conditions for CN’s grain and coal segments.
“CN’s petroleum and chemicals unit benefited from the inclusion of WC revenues, market share gains and strong sulfur shipments to the United States and to offshore markets. Continuing high motor vehicle production, particularly in the U.S., boosted our automotive revenue sharply. And the improvement in intermodal revenues reflected stronger Canadian retail sales, higher volumes on expedited trains in the Canadian domestic segment, and increased overseas traffic in spite of the loss of some overseas moves. Grain revenues were significantly affected again by the poor 2001/2002 Canadian crop, while coal revenues declined as a result of reduced demand from power utilities and weak Canadian coal exports to offshore markets.
“CN’s strength is its service-sensitive merchandise business – petroleum and chemicals, forest products, metals and minerals, and automotive – which is growing faster than the rail industry average as a result of our disciplined, scheduled railroad service. This service edge positions CN for further market share gains in its merchandise segments, with continued economic recovery expected for the balance of the year. However, CN remains cautious about business prospects for the second half of 2002, as there are signs of uncertainty in the overall level of consumer and business confidence.”
Five of CN’s seven business units experienced revenue gains in the second quarter of 2002: petroleum and chemicals (28 per cent); forest products (24 per cent); metals and minerals (18 per cent); automotive (14 per cent); and intermodal (seven per cent). Revenues declined for coal (eight per cent), and grain and fertilizers (seven per cent).
Total carloadings for second-quarter 2002 rose 12 per cent to 1,059 thousand.
CN’s operating ratio for the most recent three-month period was 68.4 per cent, compared with 68.1 per cent, excluding the special charge, for the year-earlier quarter.
The increase in operating expenses for second-quarter 2002 was largely attributable to the consolidation of WC operating expenses, higher expenses for labor and fringe benefits, equipment rents, and casualty and other, partially offset by lower fuel costs.
First-half 2002 results
Net income for the first half of 2002 was $510 million, compared with adjusted net income (1) of $442 million for the comparable period of 2001.
Diluted earnings per share for the first six months of 2002 were $2.54 per share, up from adjusted diluted earnings per share (1) of $2.24 for the year-earlier period.
Reported net income for the first six months of 2001 was $492 million, or $2.49 per diluted share.
Operating income for the first half of 2002 was $896 million, compared with $829 million – excluding the effect of the special charge – for the same period of 2001.
Including the special charge, operating income for first-half 2001 was $731 million.
First-half 2002 revenues increased 10 per cent to $3,060 million, while operating expenses were $2,164 million. Excluding the special charge, operating expenses for the first six months of 2001 were $1,961 million; including it, operating expenses were $2,059 million.
Five of CN’s business units reported increased revenues for the first six months of 2002: forest products (28 per cent); petroleum and chemicals (23 per cent); metals and minerals (21 per cent); automotive (17 per cent); intermodal (three per cent). Revenues declined for grain and fertilizers (12 per cent) and coal (nine per cent).
Total carloadings for the first half of 2002 increased eight per cent to 2,058 thousand. (1) Adjusted net income and diluted earnings per share for the second quarter and first half of 2001 exclude a $62-million after-tax charge (31 cents per share) to operations for a workforce adjustment program; a $71-million after-tax charge (35 cents per share) to write down CN’s net investment in 360networks Inc.; and a $110 million deferred income tax recovery (55 cents per share) resulting from the enactment of lower corporate tax rates in Canada. In addition, CN’s first-half 2001 results exclude a gain from the sale of CN’s 50 per cent interest in the Detroit River Tunnel Company, equal to $73 million after-tax, or 36 cents per diluted share. Note 10 to the accompanying financial statements provides a reconciliation of adjusted net income to the Company’s net income reported in accordance with United States generally accepted accounting principles (U.S. GAAP).