(Source: CN press release, October 25, 2011)
MONTREAL — CN today reported its financial and operating results for the third quarter and nine-month period ended Sept. 30, 2011.
Third-quarter 2011 highlights
• Net income increased 19 per cent from the year-earlier quarter to C$659 million, with diluted earnings per share (EPS) rising 23 per cent to C$1.46. The results included an after-tax gain of C$38 million, or C$0.08 per diluted share, on the sale of substantially all of the assets of IC RailMarine Terminal Company.
• Excluding the gain on the sale, adjusted net income increased 12 per cent over the year-earlier quarter to C$621 million, with adjusted diluted EPS rising 16 per cent to C$1.38. (1)
• Revenues for third-quarter 2011 rose nine per cent to C$2,307 million, while carloadings grew by four per cent and revenue ton-miles increased six per cent.
• Operating income increased 12 per cent to C$938 million.
• CN’s operating ratio was 59.3 per cent, a 1.4-point improvement over the 60.7 per cent operating ratio for third-quarter 2010.
• Free cash flow for the first nine months of 2011 was C$1,328 million, compared with C$938 million for the same period of 2010. (1)
• CN to launch a new share repurchase program on Oct. 28, 2011, to buy back up to 17 million common shares.
Claude Mongeau, president and chief executive officer, said: “CN posted impressive third-quarter results, driven by record carloadings and revenues, strong operational execution, and rigorous cost control. The four per cent rise in carloadings and nine per cent increase in revenues outpaced general economic activity during the quarter, reflecting CN’s improved service and market positioning.
“All commodity groups posted revenue gains in the quarter, benefiting from modest growth in overall economic activity, as well as from CN’s continued focus on supply chain collaboration and service innovation with its customers and transportation partners.”
Third-quarter 2011 revenues, traffic volumes and expenses
The nine per cent rise in third-quarter revenues was mainly attributable to higher freight volumes, due in part to modest improvements in North American and global economic conditions and in the Company’s performance above market conditions in various segments; the impact of a higher fuel surcharge, as a result of year-over-year increases in applicable fuel prices and higher volumes; 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.
Revenues increased for metals and minerals (21 per cent), intermodal (12 per cent), automotive (nine per cent), forest products (seven per cent), grain and fertilizers (six per cent), petroleum and chemicals (six per cent), and coal (one per cent). Other revenues increased by six per cent.
Revenue ton-miles, measuring the relative weight and distance of rail freight transported by CN, increased six per cent from the year-earlier period.
Rail freight revenue per revenue ton-mile, a measurement of yield defined as revenue earned on the movement of a ton of freight over one mile, increased three per cent over the third quarter of 2010, largely due to the impact of a higher fuel surcharge and freight rate increases, partly offset by the negative translation impact of the stronger Canadian dollar and an increase in the Company’s average length of haul.
Operating expenses increased by six per cent to C$1,369 million, mainly owing to higher fuel costs, purchased services and material expense as well as depreciation and amortization expense. These factors were partially offset by the positive translation impact of the stronger Canadian dollar on U.S.-dollar-denominated expenses, lower casualty and other expense, as well as a decline in labor and fringe benefits expense in part due to lower incentive compensation.
2011 financial outlook
CN reaffirms the financial guidance it issued on April 26, 2011, despite a weaker economic environment than previously anticipated. CN expects to generate double-digit diluted EPS growth of up to 15 per cent in 2011, on an adjusted basis, compared with adjusted diluted EPS of C$4.20 achieved in 2010. CN also expects free cash flow for 2011 to be in the order of C$1.2 billion, which takes into consideration an expected additional pension contribution of approximately C$350 million.
Mongeau said: “I’m pleased with our solid third quarter results and feel confident about our ability to finish the year on a positive note despite growing concerns about the economy.”