Grain News

CN Reports 3Q Net Income of C$705 Million, Up From C$664 Million in 3Q 2012

Date Posted: October 24, 2013

Montreal—CN (TSX: CNR) (NYSE: CNI) today reported its financial and operating results for the third quarter and nine-month period ended Sept. 30, 2013.

Full CN Report

Third-quarter 2013 highlights

• Third-quarter 2013 net income was C$705 million, or C$1.67 per diluted share, compared with net income of C$664 million, or C$1.52 per diluted share, for third-quarter 2012. The third-quarter 2013 results included a C$19 million (C$0.05 per diluted share) expense resulting from a one-time deferred income tax adjustment.

• Excluding the income tax expense, Q3-2013 adjusted diluted earnings per share (EPS) increased 13 per cent to C$1.72 from Q3-2012 diluted EPS of C$1.52. (1)

• Revenues for the latest quarter increased eight per cent to a quarterly record of C$2,698 million, driven by a four per cent increase in revenue ton-miles, and a three per cent increase in carloadings.

• Operating income increased 10 per cent to C$1,084 million.

• The operating ratio improved by 0.8 of a point to 59.8 per cent.

• Free cash flow totalled C$778 million for the first nine months of 2013, compared with free cash flow of C$1,036 million in the comparable period of 2012. (1)

Claude Mongeau, president and chief executive officer, said: “CN’s agenda of Operational and Service Excellence delivered outstanding financial results for the quarter. All our key operating metrics improved, service levels remained solid and we reached new levels of safety in our train operations.

“With continued focus on supply chain collaboration and solid execution, the CN team is determined to grow its business safely and efficiently at a pace faster than the overall economy and to meet its full-year 2013 financial outlook.” (2)

Foreign currency impact on results

Although CN reports its earnings in Canadian dollars, a large portion of its revenues and expenses is denominated in U.S. dollars.

As such, the Company’s results are affected by exchange-rate fluctuations.

On a constant currency basis that excludes the impact of fluctuations in foreign currency exchange rates, CN’s third-quarter 2013 net income would have been lower by C$14 million, or C$0.03 per diluted share. (1)

Third-quarter 2013 revenues, traffic volumes and expenses

The eight per cent rise in third-quarter revenues was mainly attributable to higher freight volumes due to strong energy markets, market share gains, as well as growth in the North American economy; the positive translation impact of the weaker Canadian dollar on U.S.-dollar-denominated revenues; freight rate increases; and the impact of a higher fuel surcharge as a result of year-over-year increases in applicable fuel prices and higher volumes.

Revenues increased for petroleum and chemicals (17 per cent), intermodal (13 per cent), metals and minerals (11 per cent), forest products (eight per cent), and automotive (seven per cent).

Revenues declined for grain and fertilizers (three per cent) and coal (one per cent).

Carloads increased by three per cent while revenue ton-miles, measuring the relative weight and distance of rail freight transported by CN, increased four per cent over the same quarter in 2012.

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 four per cent over the third quarter of 2012, driven by freight rate increases and the positive translation impact of the weaker Canadian dollar on U.S.-dollar-denominated revenues, partly offset by an increase in the average length of haul.

Operating expenses increased seven per cent in the third quarter of 2013, mainly due to the negative translation impact of the weaker Canadian dollar on U.S.- dollar-denominated expenses, higher labor and fringe benefits expense, higher depreciation and amortization, as well as increased purchased services and material expense.

(1) See discussion and reconciliation of non-GAAP adjusted performance measures in the attached supplementary schedule, Non-GAAP Measures.

(2) See Forward-Looking Statements for a summary of the key assumptions and risks regarding CN’s 2013 outlook.

For more information, call 905-669-3384.

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