CN (TSX: CNR) (NYSE: CNI) today reported its financial and
operating results for the first quarter ended March 31, 2020.
“CN's team of dedicated railroaders has
demonstrated the Company's ability to overcome difficult situations
and keep the economy moving,” said JJ Ruest, president and chief
executive officer of CN. “I am very proud of how we recovered
quickly in March from the service disruptions in February. 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."
Financial results
highlightsFirst-quarter 2020 compared to
first-quarter 2019
- Revenues of C$3,545 million remained flat.
- Diluted earnings per share (EPS) of C$1.42, an increase of 31
per cent, and adjusted diluted EPS of C$1.22, an increase of four
per cent. (1)
- Operating ratio of 65.7 per cent, an improvement of 3.8 points
(or 1.5 points on an adjusted basis). (1)
- Operating income of C$1,215 million, an increase of 13 per cent
(or four per cent on an adjusted basis). (1)
Revised 2020 financial outlook,
liquidity, and scenario analysis (2)The COVID-19 pandemic is having
an unprecedented and extraordinary impact on the economy. The
economic outlook, and therefore overall demand for transportation
services, are highly correlated with the duration of containment
measures and the impacts on businesses and consumers, which at this
point remain uncertain. As a result, CN is withdrawing its 2020
financial guidance and 3-year targets provided at the 2019 Investor
Day.
CN has a solid track record of resiliency in
periods of economic weakness. The Company’s strong investment grade
credit rating, top-tier amongst all companies and the best in the
rail industry, has once again proven its strategic value, providing
CN with robust low-cost liquidity. The Company will continue to
pause share repurchases in these economic circumstances and will
reassess on an ongoing basis.
While it is clear that no one can predict the
ultimate impact of the current global economic environment, based
on what we know today, the Company is still working to generate a
minimum of approximately C$2.5 billion of free cash flow. (1)
CN is committed to maintaining its previously
announced 2020 dividend increase of 7%.
First-quarter 2020 revenues, traffic
volumes and expensesRevenues for the first quarter of 2020
of C$3,545 million remained flat when compared to the same period
in 2019. The inclusion of TransX within the domestic market of the
intermodal commodity group, freight rate increases, higher volumes
of petroleum crude and increased shipments of Canadian grain, were
offset by lower volumes across all other commodity groups mostly
due to the impacts of the illegal blockades in February 2020 and
the COVID-19 pandemic in late March.
RTMs, measuring the relative weight and distance
of freight transported by CN, declined by one per cent from the
year-earlier period. Freight revenue per RTM increased by two per
cent over the year-earlier period, mainly due to the inclusion of
TransX in the intermodal commodity group and freight rate
increases.
Operating expenses for the first quarter
decreased by five per cent to C$2,330 million, mainly driven by
lower labor costs, depreciation expense and fuel expense.
(1) Non-GAAP MeasuresCN reports
its financial results in accordance with United States generally
accepted accounting principles (GAAP). CN also uses non-GAAP
measures in this news release that do not have any standardized
meaning prescribed by GAAP, such as adjusted performance measures.
These non-GAAP measures may not be comparable to similar measures
presented by other companies. For further details of these non-GAAP
measures, including a reconciliation to the most directly
comparable GAAP financial measures, refer to the attached
supplementary schedule, Non-GAAP Measures.
(2) Forward-Looking
StatementsCertain statements included in this news release
constitute "forward-looking statements" within the meaning of the
United States Private Securities Litigation Reform Act of 1995 and
under Canadian securities laws. By their nature, forward-looking
statements involve risks, uncertainties and assumptions. The
Company cautions that its assumptions may not materialize and that
current economic conditions render such assumptions, although
reasonable at the time they were made, subject to greater
uncertainty. Forward-looking statements by their nature address
matters that are, to different degrees, uncertain, such as
statements about the potential impacts of the COVID-19 pandemic on
our business operations, financial results and financial position
and on the global supply chain. Forward-looking statements may be
identified by the use of terminology such as "believes," "expects,"
"anticipates," "assumes," "outlook," "plans," "targets," or other
similar words.
2020 assumptionsCN’s 2020 key
assumptions provided in our 2019 year-end earnings news release of
January 28, 2020 are withdrawn and can no longer be relied upon
given the high degree of business uncertainty caused by the
COVID-19 pandemic, its severity, magnitude and duration, including
impacts of the pandemic and of businesses’ and governments’
responses to the pandemic on our business, financial position,
results of operations and liquidity. In 2020, CN now plans to
invest approximately C$2.9 billion in its capital program, of which
C$1.6 billion is still targeted toward track and railway
infrastructure maintenance. A reduction of C$0.2 billion in CN's
capital program reflecting lower volumes was partly offset by
approximately C$0.1 billion due to the negative impact of foreign
exchange, resulting in a net C$0.1 billion reduction.
Forward-looking statements are not guarantees of
future performance and involve risks, uncertainties and other
factors which may cause the actual results or performance of the
Company to be materially different from the outlook or any future
results or performance implied by such statements. Accordingly,
readers are advised not to place undue reliance on forward-looking
statements. Important risk factors that could affect the
forward-looking statements include, but are not limited to, the
effects of a pandemic outbreak of a contagious illness; general
economic and business conditions, particularly in the context of
the COVID-19 pandemic; industry competition; inflation, currency
and interest rate fluctuations; changes in fuel prices; legislative
and/or regulatory developments; compliance with environmental laws
and regulations; actions by regulators; increases in maintenance
and operating costs; security threats; reliance on technology and
related cybersecurity risk; trade restrictions or other changes to
international trade arrangements; transportation of hazardous
materials; various events which could disrupt operations, including
illegal blockades of rail networks, and natural events such as
severe weather, droughts, fires, floods and earthquakes; climate
change; labor negotiations and disruptions; environmental claims;
uncertainties of investigations, proceedings or other types of
claims and litigation; risks and liabilities arising from
derailments; timing and completion of capital programs; and other
risks detailed from time to time in reports filed by CN with
securities regulators in Canada and the United States. Reference
should be made to Management’s Discussion and Analysis (MD&A)
in CN’s annual and interim reports, Annual Information Form and
Form 40-F, filed with Canadian and U.S. securities regulators and
available on CN’s website, for a description of major risk
factors.
Forward-looking statements reflect information
as of the date on which they are made. CN assumes no obligation to
update or revise forward-looking statements to reflect future
events, changes in circumstances, or changes in beliefs, unless
required by applicable securities laws. In the event CN does update
any forward-looking statement, no inference should be made that CN
will make additional updates with respect to that statement,
related matters, or any other forward-looking statement.
This earnings news release, as well as
additional information, including the Financial Statements, Notes
thereto and MD&A, is contained in CN’s Quarterly Review
available on the Company's website at
www.cn.ca/financial-results and on SEDAR at
www.sedar.com as well as on the U.S. Securities and Exchange
Commission's website at www.sec.gov through EDGAR.
CN is a true backbone of the economy
transporting more than C$250 billion worth of goods annually for a
wide range of business sectors, ranging from resource products to
manufactured products to consumer goods, across a rail network of
approximately 20,000 route-miles spanning Canada and mid-America.
CN – Canadian National Railway Company, along with its operating
railway subsidiaries – serves the cities and ports of
Vancouver, Prince Rupert, B.C., Montreal, Halifax, New Orleans, and
Mobile, Ala., and the metropolitan areas of Toronto, Edmonton,
Winnipeg, Calgary, Chicago, Memphis, Detroit, Duluth,
Minn./Superior, Wis., and Jackson, Miss., with connections to all
points in North America. For more information about CN, visit the
Company's website at www.cn.ca.
Contacts: |
|
Media |
Investment
Community |
Jonathan Abecassis |
Paul Butcher |
Senior Manager |
Vice-President |
Media Relations |
Investor Relations |
(514) 399-7956 |
(514) 399-0052 |
|
|
Selected Railroad Statistics – unaudited
|
Three months ended March 31 |
|
2020 |
2019 |
Financial measures |
|
|
Key financial
performance indicators (1) |
|
|
Total revenues ($
millions) |
3,545 |
3,544 |
Freight revenues ($
millions) |
3,424 |
3,413 |
Operating income ($
millions) |
1,215 |
1,080 |
Adjusted operating income ($
millions) (2) |
1,215 |
1,164 |
Net income ($ millions) |
1,011 |
786 |
Adjusted net income ($
millions) (2) |
870 |
848 |
Diluted earnings per share
($) |
1.42 |
1.08 |
Adjusted diluted earnings per
share ($) (2) |
1.22 |
1.17 |
Free cash flow ($ millions)
(2) |
573 |
286 |
Gross property additions ($
millions) |
603 |
918 |
Share repurchases ($
millions) |
379 |
432 |
Dividends per share ($) |
0.5750 |
0.5375 |
Financial
position (1) |
|
|
Total assets ($ millions) |
46,435 |
42,609 |
Total liabilities ($
millions) |
27,601 |
25,081 |
Shareholders' equity ($ millions) |
18,834 |
17,528 |
Financial
ratio |
|
|
Operating ratio (%) |
65.7 |
69.5 |
Adjusted operating ratio (%) (2) |
65.7 |
67.2 |
Operational
measures (3) |
|
|
Statistical operating
data |
|
|
Gross ton miles (GTMs)
(millions) |
113,979 |
115,859 |
Revenue ton miles (RTMs)
(millions) |
58,370 |
59,067 |
Carloads (thousands) |
1,335 |
1,418 |
Route miles (includes Canada
and the U.S.) |
19,500 |
19,500 |
Employees (end of period) |
23,975 |
27,119 |
Employees (average for the period) |
25,264 |
26,024 |
Key operating
measures |
|
|
Freight revenue per RTM
(cents) |
5.87 |
5.78 |
Freight revenue per carload
($) |
2,565 |
2,407 |
GTMs per average number of
employees (thousands) |
4,512 |
4,452 |
Operating expenses per GTM
(cents) |
2.04 |
2.13 |
Labor and fringe benefits
expense per GTM (cents) |
0.65 |
0.69 |
Diesel fuel consumed (US
gallons in millions) |
108.9 |
117.5 |
Average fuel price ($/US
gallon) |
2.90 |
3.04 |
GTMs per US gallon of fuel
consumed |
1,047 |
986 |
Train productivity (GTMs per
train mile) |
9,134 |
8,684 |
Car velocity (car miles per
day) |
181 |
173 |
Through dwell (hours) |
8.3 |
8.7 |
Through network train speed
(miles per hour) |
18.2 |
17.1 |
Locomotive utilization (trailing GTMs per total horsepower) |
183 |
186 |
Safety
indicators (4) |
|
|
Injury frequency rate (per
200,000 person hours) |
2.14 |
2.20 |
Accident rate (per million train miles) |
1.98 |
3.10 |
(1) |
Amounts expressed in Canadian dollars and prepared in accordance
with United States generally accepted accounting principles (GAAP),
unless otherwise noted. |
(2) |
See supplementary schedule entitled Non-GAAP Measures for an
explanation of these non-GAAP measures. |
(3) |
Statistical operating data, key operating measures and safety
indicators are unaudited and based on estimated data available at
such time and are subject to change as more complete information
becomes available. Definitions of gross ton miles, train
productivity, through dwell, locomotive utilization, car velocity
and through network train speed are included within the Company’s
Management’s Discussion and Analysis. Definitions of all other
indicators are provided on CN's website, www.cn.ca/glossary. |
(4) |
Based on Federal Railroad Administration (FRA) reporting
criteria. |
|
|
Supplementary Information – unaudited
|
Three months ended March 31 |
|
2020 |
2019 |
% ChangeFav (Unfav) |
% Change at constantcurrencyFav (Unfav) (1) |
Revenues ($ millions) (2) |
|
|
|
|
|
|
Petroleum and chemicals |
791 |
735 |
8 |
% |
7 |
% |
Metals and minerals |
405 |
421 |
(4 |
%) |
(4 |
%) |
Forest products |
433 |
456 |
(5 |
%) |
(6 |
%) |
Coal |
143 |
163 |
(12 |
%) |
(12 |
%) |
Grain and fertilizers |
610 |
577 |
6 |
% |
5 |
% |
Intermodal |
849 |
850 |
— |
% |
— |
% |
Automotive |
193 |
211 |
(9 |
%) |
(9 |
%) |
Total freight revenues |
3,424 |
3,413 |
— |
% |
— |
% |
Other
revenues |
121 |
131 |
(8 |
%) |
(8 |
%) |
Total
revenues |
3,545 |
3,544 |
— |
% |
— |
% |
Revenue ton miles
(RTMs) (millions) (3) |
|
|
|
|
|
|
Petroleum and chemicals |
13,688 |
12,749 |
7 |
% |
7 |
% |
Metals and minerals |
6,476 |
6,570 |
(1 |
%) |
(1 |
%) |
Forest products |
6,322 |
6,818 |
(7 |
%) |
(7 |
%) |
Coal |
4,078 |
4,294 |
(5 |
%) |
(5 |
%) |
Grain and fertilizers |
14,199 |
13,867 |
2 |
% |
2 |
% |
Intermodal |
12,762 |
13,848 |
(8 |
%) |
(8 |
%) |
Automotive |
845 |
921 |
(8 |
%) |
(8 |
%) |
Total
RTMs |
58,370 |
59,067 |
(1 |
%) |
(1 |
%) |
Freight revenue / RTM
(cents) (2) (3) |
|
|
|
|
|
|
Petroleum and chemicals |
5.78 |
5.77 |
— |
% |
— |
% |
Metals and minerals |
6.25 |
6.41 |
(2 |
%) |
(3 |
%) |
Forest products |
6.85 |
6.69 |
2 |
% |
2 |
% |
Coal |
3.51 |
3.80 |
(8 |
%) |
(8 |
%) |
Grain and fertilizers |
4.30 |
4.16 |
3 |
% |
3 |
% |
Intermodal |
6.65 |
6.14 |
8 |
% |
8 |
% |
Automotive |
22.84 |
22.91 |
— |
% |
(1 |
%) |
Total
freight revenue / RTM |
5.87 |
5.78 |
2 |
% |
1 |
% |
Carloads
(thousands) (3) |
|
|
|
|
|
|
Petroleum and chemicals |
173 |
168 |
3 |
% |
3 |
% |
Metals and minerals |
241 |
235 |
3 |
% |
3 |
% |
Forest products |
88 |
96 |
(8 |
%) |
(8 |
%) |
Coal |
77 |
80 |
(4 |
%) |
(4 |
%) |
Grain and fertilizers |
150 |
149 |
1 |
% |
1 |
% |
Intermodal |
548 |
624 |
(12 |
%) |
(12 |
%) |
Automotive |
58 |
66 |
(12 |
%) |
(12 |
%) |
Total
carloads |
1,335 |
1,418 |
(6 |
%) |
(6 |
%) |
Freight revenue /
carload ($) (2) (3) |
|
|
|
|
|
|
Petroleum and chemicals |
4,572 |
4,375 |
5 |
% |
4 |
% |
Metals and minerals |
1,680 |
1,791 |
(6 |
%) |
(7 |
%) |
Forest products |
4,920 |
4,750 |
4 |
% |
3 |
% |
Coal |
1,857 |
2,038 |
(9 |
%) |
(9 |
%) |
Grain and fertilizers |
4,067 |
3,872 |
5 |
% |
5 |
% |
Intermodal |
1,549 |
1,362 |
14 |
% |
14 |
% |
Automotive |
3,328 |
3,197 |
4 |
% |
4 |
% |
Total
freight revenue / carload |
2,565 |
2,407 |
7 |
% |
6 |
% |
(1) |
See supplementary schedule entitled Non-GAAP Measures for an
explanation of this non-GAAP measure. |
(2) |
Amounts expressed in Canadian dollars. |
(3) |
Statistical operating data and related key operating measures are
unaudited and based on estimated data available at such time and
are subject to change as more complete information becomes
available. |
|
|
Non-GAAP Measures – unaudited
In this supplementary schedule, the "Company" or "CN" refers to
Canadian National Railway Company, together with its wholly-owned
subsidiaries. Financial information included in this schedule is
expressed in Canadian dollars, unless otherwise noted.CN reports
its financial results in accordance with United States generally
accepted accounting principles (GAAP). The Company also uses
non-GAAP measures that do not have any standardized meaning
prescribed by GAAP, including adjusted performance measures,
constant currency, free cash flow and adjusted debt-to-adjusted
earnings before interest, income taxes, depreciation and
amortization (EBITDA) multiple. These non-GAAP measures may not be
comparable to similar measures presented by other companies. From
management's perspective, these non-GAAP measures are useful
measures of performance and provide investors with supplementary
information to assess the Company's results of operations and
liquidity. These non-GAAP measures should not be considered in
isolation or as a substitute for financial measures prepared in
accordance with GAAP.
Adjusted performance measures
Management believes that adjusted net income, adjusted earnings
per share, adjusted operating income and adjusted operating ratio
are useful measures of performance that can facilitate
period-to-period comparisons, as they exclude items that do not
necessarily arise as part of CN's normal day-to-day operations and
could distort the analysis of trends in business performance.
Management uses adjusted performance measures, which exclude
certain income and expense items in its results that management
believes are not reflective of CN's underlying business operations,
to set performance goals and as a means to measure CN's
performance. The exclusion of such income and expense items in
these measures does not, however, imply that these items are
necessarily non-recurring. These measures do not have any
standardized meaning prescribed by GAAP and therefore, may not be
comparable to similar measures presented by other companies.For the
three months ended March 31, 2020, the Company's adjusted net
income was $870 million, or $1.22 per diluted share, which excludes
a current income tax recovery of $141 million ($0.20 per diluted
share) resulting from the enactment of the Coronavirus Aid, Relief,
and Economic Security (CARES) Act, a U.S. tax-and-spending package
aimed at providing additional stimulus to address the economic
impact of the COVID-19 pandemic.For the three months ended March
31, 2019, the Company's adjusted net income was $848 million, or
$1.17 per diluted share, which excludes a depreciation expense of
$84 million, or $62 million after-tax ($0.09 per diluted share),
related to costs previously capitalized for a Positive Train
Control (PTC) back office system, following the deployment of a
replacement system.The following table provides a reconciliation of
net income and earnings per share, as reported for the three months
ended March 31, 2020 and 2019, to the adjusted performance measures
presented herein:
|
Three months ended March 31 |
In
millions, except per share data |
2020 |
|
2019 |
|
Net income |
$ |
1,011 |
|
$ |
786 |
|
Adjustments: |
|
|
Depreciation expense |
— |
|
84 |
|
Income tax recovery (1) |
(141 |
) |
(22 |
) |
Adjusted net income |
$ |
870 |
|
$ |
848 |
|
Basic earnings per share |
$ |
1.42 |
|
$ |
1.08 |
|
Impact
of adjustments, per share |
(0.20 |
) |
0.09 |
|
Adjusted basic earnings per share |
$ |
1.22 |
|
$ |
1.17 |
|
Diluted earnings per
share |
$ |
1.42 |
|
$ |
1.08 |
|
Impact
of adjustments, per share |
(0.20 |
) |
0.09 |
|
Adjusted diluted earnings per share |
$ |
1.22 |
|
$ |
1.17 |
|
(1) |
The tax effect of adjustments reflects tax law and rate enactments,
as well as tax rates in the applicable jurisdiction and the nature
of the item for tax purposes. |
|
|
The following table provides a reconciliation of operating
income and operating ratio, as reported for the three months ended
March 31, 2020 and 2019, to the adjusted performance measures
presented herein:
|
Three months ended March 31 |
In millions, except percentage |
2020 |
|
2019 |
|
Operating income |
$ |
1,215 |
|
$ |
1,080 |
|
Adjustment: Depreciation expense |
— |
|
84 |
|
Adjusted operating income |
$ |
1,215 |
|
$ |
1,164 |
|
Operating ratio (1) |
65.7 |
% |
69.5 |
% |
Impact
of adjustment |
— |
|
(2.3)-pts |
Adjusted operating ratio |
65.7 |
% |
67.2 |
% |
(1) |
Operating ratio is defined as operating expenses as a percentage of
revenues. |
|
|
Constant currency
Financial results at constant currency allow results to be
viewed without the impact of fluctuations in foreign currency
exchange rates, thereby facilitating period-to-period comparisons
in the analysis of trends in business performance. Measures at
constant currency are considered non-GAAP measures and do not have
any standardized meaning prescribed by GAAP and therefore, may not
be comparable to similar measures presented by other companies.
Financial results at constant currency are obtained by translating
the current period results denominated in US dollars at the foreign
exchange rates of the comparable period in the prior year. The
average foreign exchange rates were $1.34 and $1.33 per US$1.00 for
the three months ended March 31, 2020 and 2019, respectively.On a
constant currency basis, the Company's net income for the three
months ended March 31, 2020 would have remained the same.
Free cash flow
Management believes that free cash flow is a useful measure of
liquidity as it demonstrates the Company's ability to generate cash
for debt obligations and for discretionary uses such as payment of
dividends, share repurchases, and strategic opportunities. The
Company defines its free cash flow measure as the difference
between net cash provided by operating activities and net cash used
in investing activities, adjusted for the impact of business
acquisitions, if any. Free cash flow does not have any standardized
meaning prescribed by GAAP and therefore, may not be comparable to
similar measures presented by other companies.The following table
provides a reconciliation of net cash provided by operating
activities as reported for the three months ended March 31, 2020
and 2019, to free cash flow:
|
Three months ended March 31 |
In millions |
2020 |
|
2019 |
|
Net cash provided by operating activities |
$ |
1,180 |
|
$ |
997 |
|
Net
cash used in investing activities |
(607 |
) |
(878 |
) |
Net cash provided before
financing activities |
573 |
|
119 |
|
Adjustment: Acquisition, net of cash acquired (1) |
— |
|
167 |
|
Free
cash flow |
$ |
573 |
|
$ |
286 |
|
(1) |
Relates to the acquisition of the TransX Group of Companies
("TransX"). See Note 3 - Business combinations to CN's 2020
unaudited Interim Consolidated Financial Statements for additional
information. |
|
|
Adjusted debt-to-adjusted EBITDA multiple
Management believes that the adjusted debt-to-adjusted EBITDA
multiple is a useful credit measure because it reflects the
Company's ability to service its debt and other long-term
obligations. The Company calculates the adjusted debt-to-adjusted
EBITDA multiple as adjusted debt divided by adjusted EBITDA. These
measures do not have any standardized meaning prescribed by GAAP
and therefore, may not be comparable to similar measures presented
by other companies.The following table provides a reconciliation of
debt and net income to the adjusted measures presented below, which
have been used to calculate the adjusted debt-to-adjusted EBITDA
multiple:
In
millions, unless otherwise indicated |
As at and for the twelve months ended March 31, |
2020 |
|
2019 |
|
Debt |
$ |
15,287 |
|
$ |
13,433 |
|
Adjustments: |
|
|
Operating lease liabilities, including current portion |
493 |
|
567 |
|
Pension plans in deficiency |
527 |
|
475 |
|
Adjusted debt |
$ |
16,307 |
|
$ |
14,475 |
|
Net income |
$ |
4,441 |
|
$ |
4,373 |
|
Interest
expense |
546 |
|
498 |
|
Income tax
expense |
1,122 |
|
1,349 |
|
Depreciation and amortization |
1,514 |
|
1,446 |
|
EBITDA |
7,623 |
|
7,666 |
|
Adjustments: |
|
|
Other income |
(62 |
) |
(372 |
) |
Other components of net periodic benefit income |
(319 |
) |
(305 |
) |
Operating lease cost |
166 |
|
208 |
|
Adjusted EBITDA |
$ |
7,408 |
|
$ |
7,197 |
|
Adjusted debt-to-adjusted EBITDA multiple (times) |
2.20 |
|
2.01 |
|
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