CN Operating Income Up 22% in 2022

Canadian National said on Tuesday that its operating income in 2022 rose 22 percent to $6.8 billion.

CN officials said revenue increased 18 percent, to $17 billion while adjusted earnings per share rose by 25 percent.

The operating ratio was 60 percent, a 1.2-point improvement over 2021, or 59.9 percent on an adjusted basis.

Traffic volume for 2022 was up 1 percent when measured by revenue ton-miles but was down 0.5 percent when measured by carloads.

During the fourth quarter, operating income rose 22 percent, to 1.9 billion with revenue increasing 21 percent, to $4.5 billion.

Earnings per share was up 24 percent, or 23 percent on an adjusted basis. The operating ratio improved 0.4 points to 57.9 percent.

Quarterly volume was up 6 percent on a revenue ton-mile basis, or 2.4 percent on a carload basis.

In looking ahead CN CEO Tracy Robinson said the railroad faces an uncertain outlook for 2023 due to a potential economic downturn.

Speaking during a financial call with investors, Robinson expects freight volume to outperform North American industrial production this year but see a decline of 0.5 percent due to a slowing economy.

CN executives expect bulk traffic such as grain and coal to remain strong through the first half of this year and thus provide a cushion against declines in other traffic.

CN 1st Quarter Revenue up 5%

Canadian National saw its first quarter 2022 revenue rise 5 percent to CA$3.7 billion.

The Montreal-based railroad said adjusted diluted earnings per share were CA$1.32, up 7 percent, compared with first-quarter results in 2021.

Operating income was CA$1.2 billion, down 8 percent, and adjusted operating income of CA$1.2 billion, was up 4 percent.

CN officials said net income was CA$918 million, down from CA$976 million a year ago.

CEO Tracy Robinson in a statement said CN showed resilience in the first quarter in the face of severe winter weather conditions and supply chain disruptions “to deliver solid results.”

CN reported diluted EPS of CA$1.31, down 4 percent. The company posted an operating ratio — defined as operating expenses as a percentage of revenue — of 66.9 percent, an increase of 4.4 points, and adjusted operating ratio of 66.6 percent, an increase of 0.3 points.

The velocity of the system during the quarter, which it also describes as car miles per day, fell by by 12 percent. Fuel efficiency remained flat at 0.910 U.S. gallons of locomotive fuel consumed per 1,000 gross ton miles.

The 5 percent revenue increase reflected strong demand despite reduced revenue ton miles that resulted from a significantly smaller Canadian grain crop, CN officials said.

CN attributed the revenue increase mainly to higher applicable fuel surcharge rates, freight rate increases, higher Canadian export volumes of coal via West Coast ports and higher export volumes of U.S. grain.

Revenue was partly offset by significantly lower export volumes of Canadian grain and lower international container traffic volumes via the ports of Vancouver and Prince Rupert.

Operating expenses for the quarter climbed 12 percent to CA$2.481 million, mainly due to higher fuel costs as well as the recovery of a loss on assets held for sale recorded in Q1 2021.

Due to challenging operating conditions in the quarter as well as worldwide economic uncertainty, CN now expects to deliver a 15 percent to 20 percent adjusted diluted EPS growth, compared to its Jan. 25 target of 20 percent. The company is now targeting an Operating ratio below 60 percent for 2022, compared to its Jan. 25 target of about 57 percent.

CN Reports 4th Quarter Revenue Record

Canadian National said on Tuesday that it recorded a record high $1.6 billion in quarterly operating revenue during the fourth quarter of 2021.

That’s an increase of 11 percent, CN said in a news release, and revenue rose 3 percent to $3.8 billion.

Earnings per share, adjusted for the effect of one-time items, increased 20 percent, to $1.71.

CN said it posted a fourth quarter low operating ratio of 57.9 percent. The operating ratio is the percentage of revenue devoted to operating expenses.

Freight volume fell 10 percent on a carload basis, or 11 percent when measured by revenue ton-miles, the preferred metric of Canadian railroads.

CN CEO Jean-Jacques Ruest said the decline was due to the closure of a mainline in British Columbia due to landslides and a smaller Canadian grain crop.

The affected BC mainline, which CN shares with Canadian Pacific, handled nearly 23 percent of CN’s revenue on any given day, Ruest said.

During 2021, CN said its operating income was up 18 percent to $5.6 billion, Revenue increased 5 percent, to $14.4 billion while earnings per share, adjusted for one-time items, was up 12 percent, to a record $5.94.

The operating ratio for the year was 61.2 percent. CN said it expect the operating ratio in 2022 to be 57 percent. It also is projecting 20 percent growth in earnings per share.

CN Seeking to Bolster Financial Performance

Having failed to acquire Kansas City Southern, Canadian National management is now turning its attention to fighting a challenge by an activist investor group by seeking to boost its financial performance.

CN announced Friday a plan known as “Full Speed Ahead” that will seek to cut the railroad’s operating ratio to 57 percent, slash capital spending to 17 percent of revenue and resume buying back shares of its stock.

These measures will provide $700 million in new operating revenue next year, CN said, through improved operations, volume growth, a review of its non-rail businesses, and cutting management jobs.

In the first quarter of 2021, CN posted an operating revenue of 62.5 percent. Last year the operating ratio was 65.4 percent.

In a statement, CN called a 57 percent operating ratio “optimal for a world in which customers and regulators are putting a greater emphasis than ever on expanding customer choice, service and reliability.”

An operating ratio is the percentage of revenue spent on operating expenses.

The capital budget will be $3 billion next year a decline of 25 percent of revenue in 2019.

CN has in recent weeks been attacked by the TCI Fund, a London-based firm that holds $4 billion worth of CN shares.

TCI wants to replace CN CEO J.J. Ruest, Chairman Robert Pace and four members of the CN board of directors.

In response to CN’s Full Speed Ahead plan, TCI issued a statement saying it was not impressed with the plan.

“Why wasn’t this done before? The current management lacks the credibility to execute the plan.”

TCI Managing Director Chris Hohn and partner Ben Walker said CN has underperformed on nearly every measure of productivity and efficiency.

“Revenues per [revenue ton-mile], expenses per RTM, return on capital, operating ratio and profits have all gone backwards compared to the rest of the industry. CN has lost its way and the business needs to be fixed as a matter of urgency.”

TCI is seeking to rally CN stockholders behind its plan to install new top management at CN.

CN Revenue Up 2% in 2020 4th Quarter

Canadian National reported this week that fourth quarter 2020 revenues rose 2 percent to C$3.656 billion vs. the same period in 2019.

CN executives said the increase was due to increased shipments of U.S. grain, higher international container traffic via the Port of Vancouver, and freight rate increases.

However, CN said it also had lower applicable fuel surcharge rates and lower volumes of petroleum crude.

Operating income was up 16 percent to C$1.411 billion and the operating ratio fell 4.6 points to 61.4 percent compared with fourth-quarter 2019 results.

Total revenue ton miles were up 10 percent and carloads were up 7 percent in the fourth quarter compared to the fourth quarter of 2019.

Revenues for 2020 fell 7 percent to C$13.819 billion, which CN said was due to lower volumes across most commodity groups, primarily in the second and third quarter due to the COVID-19 pandemic.

CN said these lower traffic volumes were partly offset by freight rate increases as well as record Canadian grain shipments.

Operating income dropped 15 percent to C$4.777 billion, and the operating ratio increased 2.9 points to 65.4 percent vs. 2019.

Total RTMs and carloads were down 5 percent for the year compared with 2019.

CN expects to spend C$3.0 billion in 2021 on capital expenditures and is projecting “mid-single digit volume growth in 2021 in terms of RTMs.

CN Revenue Fell 19% in 2nd Quarter

Canadian National said this week that its second quarter revenue fell 19 percent to CA$3.2 billion from nearly CA$4 billion a year ago.

The company said the financial results reflected lower volumes due to the COVID-19 pandemic.

Operating income was CA$785 million, down from CA$1.68 billion a year ago; net income of CA$545 million was down from CA$1.36 billion; and diluted earnings per share of 77 Canadian cents per share, down from CA$1.88.

Adjusted earnings per share were CA$1.28, down from CA$1.73. The operating ratio was 60.4 percent for the quarter, up from 57.5 percent compared with a year earlier.

Operating expenses rose 6 percent to CA$2.4 billion, mainly driven by a loss on assets held for sale resulting from the decision to market for sale for on-going rail operations, certain non-core lines, partly offset by lower fuel and and labor costs.

Excluding that one-time charge, operating expenses fell 15 percent compared with second quarter 2019 expenses.

CN attributed falling revenue to lower volumes across most commodity groups caused by the pandemic and lower applicable fuel surcharge rates, which were partly offset by increased shipments of Canadian grain, higher Canadian coal exports and freight rate increases.

“By being adaptable, we were able to swiftly rightsize our resources and continue to provide our essential transportation services to our customers, the economy and the communities we serve,” said President and CEO J.J Ruest in a statement.

During an earnings call with investors this week, CN executives said rising volumes or a second wave of the coronavirus pandemic that would hammer the company’s earnings.

Traffic volume in the second quarter fell 16 percent on a carload basis, or 18 percent when measured by revenue ton-miles, the preferred metric of the Canadian railways.

CN said it ran fewer but longer trains, closed yards and shops, furloughed 4,000 employees, and storing a third of its locomotive fleet and 20,000 freight cars.

Some of those changes are expected to endure said Chief Operating Officer Rob Reilly.

“The idled locomotive shops and switching yards will remain closed,” Reilly said. “We will continue to improve train size year-over-year.”

The closed yards are at Battle Creek, Michigan; Jackson, Mississippi; Garneau, Quebec; and Kamloops, British Columbia.

CN reduced mechanical shop activity at more than 20 locations and closed four locomotive shops.

CN 1st Quarter Revenue Flat

Canadian National this week said its first quarter 2020 revenue was flat at CA$3.5 billion compared with the year-ago period.

Diluted earnings per share (EPS) rose 31 percent to CA$1.42, while adjusted diluted EPS increased 4 percent to CA$1.22, compared with the first quarter of 2019.

CN posted an operating ratio of 65.7 percent, an improvement of 3.8 points or 1.5 points on an adjusted basis, during the quarter.

Operating income increased 13 percent, or 4 percent on an adjusted basis, to CA$1.2 billion versus the year-ago period.

Operating expenses for the quarter decreased 5 percent to CA$2.3 billion, driven mainly by lower labor costs, depreciation expense and fuel expense.

In April CN’s traffic fell 15 percent led buy a nearly 90 percent drop in automotive volume due to the closure of North American assembly plants during the COVID-19 pandemic.

CN expects traffic to bottom out in May. In the meantime it has stored 500 locomotives and 15 percent of its freight car fleet.

It has suspended operations in yards in Battle Creek, Mich.; Jackson, Mississippi.; Garneau, Quebec; and Kamloops, British Columbia, and reduced mechanical shop activity at more than 20 locations across the system.

“I am very proud of how we recovered quickly in March from the service disruptions in February,” said CN President and Chief Executive Officer JJ Ruest in a statement.

“Our network is very fluid, and we are continuing the temporary right-sizing of our resources to match the weaker demand caused by the global recession. We are committed to providing long-term shareholder value by delivering on our strategic capacity investments for growth and by deploying technological innovations.”

In a news release, CN attributed its flat revenue during the first quarter in part to the impact the blockades and pandemic had on volume.

The pandemic led CN to revise its 2020 financial outlook, saying the demand for transportation services are correlated with the duration of containment measures and their effect on businesses and consumers, which remain uncertain.

CN has reduced 2020 capital expenditures by CA$200 million to CA$2.9 billion, but will spend CA$1.6 billion on track maintenance this year.

CN Revenue Fell 6% in 4th Quarter

Canadian National said this week that a labor strike and weak freight business contributed to a decline in revenue in the fourth quarter of 2019.

In a news release, CN said revenue declined 6 percent to CA$3.6 billion; diluted earnings per share (EPS) fell 22 percent to CA$1.22, adjusted diluted EPS dropped 16 percent to CA$1.25; and operating income and adjusted operating income each tumbled 16 percent to CA1.2 billion and CA$1.25 billion, respectively.

All figures are in comparison to the fourth quarter of 2018.

CN posted an operating ratio of 66 percent, up 4.1 points, and an adjusted operating ratio of 65.2 percent, up 4 points.

For the 2019 calendar year, CN had revenue of CA$14.9 billion, up 4 percent; a diluted EPS of CA$5.83, down 1 percent; an adjusted EPS of CA$5.80, up 5 percent; operating income of CA$5.6 billion, up 2 percent; and an adjusted operating income of CA$5.7 billion, up 3 percent.

The 2019 operating ratio was 62.5 percent, up 0.9 points; and an adjusted OR of 61.7 percent, up 0.2 points.

Traffic volume in the fourth quarter dropped 7 percent on a carload basis, or 13 percent when measured by revenue ton miles. Every commodity category fell during the quarter.

For the year CN’s traffic volume fell 1 percent on a carload basis or 3 percent on a revenue ton mile basis.

“We remain focused on executing our strategy of long-term sustainable growth at low incremental cost,” said CN President and Chief Executive Officer J.J. Ruest in a statement.

“”Our strategic deployment of technology, the next step in our precision scheduled railroading model and our next driver of value, is well underway. At the same time, we continue to closely monitor the freight volume environment and rightsize our resources and costs to demand.”

CNS said that during the past years it has spent CA$7.4 billion in capital expenditures to increase network capacity, efficiency and resiliency

Ruest said the 2020 capital spending budget will rise to CA$3 billion.

Although CN sees growth opportunities in 2020, it expects low single-digit volume growth in terms of revenue ton miles.

“The first half will be a challenge,” Ruest said.

CN is targeting an EPS growth in the mid single-digit range this year compared to adjusted diluted EPS of CA$5.80 in 2019.

Ruest said CN will look to additional small acquisitions and partnerships as a way to boost freight volume.

“We’re very mindful for the rail industry to be successful, including at CN, we need to grow the pie,” he said.  “Just exchanging pieces of pie, that’s not a long-term solution.”

In the long run Ruest said CN needs to do a better job of competing with trucks.

CN has discarded 5,000 freight cars, returned all leased locomotives, vacated some office space in Montreal, and eliminated 1,300 positions.

CN Adjusts 2019 Outlook in Aftermath of Strike

Canadian National has revised its 2019 full-year financial outlook to reflect the effects of an eight-day strike that recently ended.

CN estimates that the strike by members of the Teamsters Canada Rail Conference will affect the company by 15 cents of earnings per share.

The revised full-year financial outlook now calls for adjusted diluted EPS growth in the low-to-mid single-digit range versus last year’s adjusted EPS of CA$5.50.

In October CN had projected an adjusted diluted EPS growth in the high single-digit range for the year.

The strike began when more than 3,000 conductors and rail yard workers walked off the job during contentious negotiations for a new contract.

The union workers are in the process of voting on ratification of the tentative agreement that ended the strike.

CN Revenue Rose 4% in 3rd Quarter

Canadian National reported this week that its third quarter 2019 revenue increased 4 percent to CA$3.8 billion.

Diluted earnings per share rose 8 percent to CA$1.66, operating income increased by 8 percent to CA$1.6 million and net income was up 0.5 percent to CA$1.2 billion compared with the third quarter of 2018.

The third quarter 2019 operating ratio was 57.9 percent compared with 59.5 percent a year ago.

“Our team of railroaders swiftly aligned resources with the weaker demand to achieve solid efficiency gains,” said CN President and Chief Executive Officer JJ Ruest in a statement.

“We remain committed to our long-term agenda of growing faster than the economy at low incremental cost, and to taking scheduled railroading to the next level by deploying advanced operating technology.”

In a news release, CN said the revenue growth came from freight rate increases and higher intermodal revenue.

Operating expenses for the quarter were up 1 percent to CA2.2 billion due to higher purchased services and material expenses as well as higher depreciation and amortization expenses.

A slowing demand for rail service led CN to revise its profit outlook for 2019.

It is now projecting adjusted diluted EPS growth in the high single-digit range for 2019 versus last year’s adjusted diluted EPS of CA$5.50.

This past July CN’s financial outlook called for low double-digit growth in adjusted diluted EPS.

The carrier also expects a “slightly negative volume growth” this year in revenue ton miles.

CN said it sees signs of two economies, one of which is a strong consumer sector that’s boosting intermodal and automotive traffic and the other a struggling industrial economy that’s depressing demand for carload freight.

Volume for the third quarter was down 1 percent on a revenue ton-mile basis and by 0.4 percent on a carload basis.

In recent months, CN has responded to softening traffic by reducing its motive power and freight car fleets.

“We’re in process of returning nearly 3,000 railcars that were on lease, scrapping another 2,000 railcars, and have parked over 6,000 cars to saving car hire expense,” said Chief Operating Officer Rob Reilly.

CN has 150 locomotives in storage and will return remaining leased units this quarter.

It has furloughed train and engine crews, as well as mechanical employees.