Diluted earnings per share (EPS) increased by 16 per
cent
MONTREAL, April 25, 2016 /CNW/ - CN (TSX: CNR) (NYSE: CNI)
today reported its financial and operating results for the first
quarter ended March 31, 2016.
First-quarter 2016 financial
highlights
- Net income increased 13 per cent to C$792 million, while diluted EPS increased 16 per
cent to C$1.00, compared with the
first quarter of 2015.
- Operating income increased 14 per cent to C$1,217 million.
- Revenues decreased by four per cent to C$2,964 million. Carloadings declined seven per
cent and revenue ton-miles declined nine per cent.
- Operating expenses declined 14 per cent to C$1,747 million.
- Operating ratio of 58.9 per cent, an improvement of 6.8 points
over the prior-year quarter.
- Free cash flow (1) for first-quarter 2016 was
C$584 million, up from C$521 million for the year-earlier quarter.
Claude Mongeau,
president and chief executive officer, said: "CN delivered a very
solid quarterly performance in a challenging economic environment.
We successfully aligned our resources with the reduced volume level
to achieve strong efficiency gains, while continuing to offer
superior customer service and significantly improving our safety
performance. These achievements allowed the CN team to deliver
record first-quarter financial results."
Revised 2016 financial outlook
(2)
Weaker than expected freight demand in certain markets and the
strengthening of the Canadian dollar relative to the U.S. dollar
have prompted a downward revision to CN's 2016 financial outlook.
Under its revised outlook, CN now aims to deliver 2016 EPS in line
with last year's adjusted diluted EPS (1) of
C$4.44 (compared with its
Jan. 26, 2016, financial outlook
calling for mid-single digit EPS growth this year).
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. The fluctuation of the Canadian dollar relative to the
U.S. dollar affects the conversion of the Company's
U.S.-dollar-denominated revenues and expenses. On a constant
currency basis, (1) CN's net income for the first
quarter of 2016 would have been lower by C$57 million, or C$0.07 per diluted share.
First-quarter 2016 revenues, traffic volumes
and expenses
Revenues for the first quarter of 2016 were C$2,964 million, a decrease of four per cent,
when compared to the same period in 2015. Revenues increased for
automotive (18 per cent), forest products (11 per cent), and
intermodal (one per cent). Revenues declined for grain and
fertilizers (two per cent), petroleum and chemicals (10 per cent),
metals and minerals (18 per cent), and coal (42 per cent).
The decrease in revenues was mainly attributable
to decreased shipments of energy-related commodities including
crude oil, frac sand, drilling pipe and semi-finished steel
products as a result of declining energy markets; reduced shipments
of coal due to weaker North American and global demand; reduced
U.S. grain exports via the Gulf of
Mexico; and lower applicable fuel surcharge rates. These
factors were partly offset by the positive translation impact of
the weaker Canadian dollar on U.S.-dollar-denominated revenues;
freight rate increases; as well as increased shipments of lumber
and panels to U.S. markets, higher volumes of finished vehicle
traffic, and increased domestic retail intermodal shipments.
Carloadings for the quarter declined by seven per
cent to 1,255 thousand.
Revenue ton-miles (RTMs), measuring the relative
weight and distance of rail freight transported by CN, declined by
nine per cent from the year-earlier quarter. Rail freight revenue
per RTM, a measurement of yield defined as revenue earned on the
movement of a ton of freight over one mile, increased by four per
cent over the year-earlier period, driven by the positive
translation impact of the weaker Canadian dollar and freight rate
increases, partly offset by a significant increase in the average
length of haul and lower applicable fuel surcharge rates.
Operating expenses for the first quarter
decreased by 14 per cent to C$1,747
million, mainly due to decreased fuel costs resulting from
lower fuel prices and lower volumes of traffic; decreased labor and
fringe benefits expense resulting from a lower average headcount
due to lower volumes of traffic and cost-management initiatives;
decreased purchased services and material expense due to favorable
winter conditions; and decreased casualty and other expense due to
lower accident costs. These factors were partly offset by the
negative translation impact of a weaker Canadian dollar on
U.S.-dollar-denominated expenses.
Forward-Looking Statements
Certain
information included in this news release constitutes
"forward-looking statements" within the meaning of the United
States Private Securities Litigation Reform Act of 1995 and under
Canadian securities laws. CN cautions that, by their nature, these
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. To the extent that CN has provided
non-GAAP financial measures in its outlook, the Company may not be
able to provide a reconciliation to the GAAP measures, due to
unknown variables and uncertainty related to future results. Key
assumptions used in determining forward-looking information are set
forth below.
2016 key assumptions
CN has made a number of economic and market assumptions in
preparing its 2016 outlook. The Company is assuming that North
American industrial production for the year will increase by less
than one per cent (compared with its previous assumption announced
on Jan. 26, 2016, of approximately
one per cent) and assumes U.S. housing starts in the range of 1.2
million units and U.S. motor vehicle sales of approximately 17.5
million units. For the 2015/2016 crop year, the Canadian grain crop
was in line with the five-year average and the U.S. grain crop was
above the five-year average. The Company assumes that both the
Canadian and U.S. 2016/2017 grain crops will be in line with their
respective five-year averages. With these assumptions, CN now
assumes total carloads for 2016 will decrease by four to five per
cent versus 2015 (compared with its previous assumption of slightly
negative carloads versus 2015). CN expects continued pricing
improvement above inflation. CN now assumes that in 2016 the value
of the Canadian dollar in U.S. currency will be in the range of
$0.75 to $0.80 (compared with its
previous assumption of a range of $0.70 to
$0.75), and that the average price of crude oil (West Texas
Intermediate) will be in the range of US$35
to US$45 per barrel (as opposed to CN's previous assumption
of a price range of US$30 to US$40
per barrel). CN now plans to invest approximately C$2.75 billion in its capital program (compared
with its previous assumption of investing approximately
C$2.9 billion in its capital program
in 2016). CN still plans to target C$1.5
billion of this program toward track infrastructure.
Forward-looking statements are not guarantees of
future performance and involve known and unknown risks,
uncertainties and other factors which may cause the actual results
or performance of the Company or the rail industry to be materially
different from the outlook or any future results or performance
implied by such statements. Important risk factors that could
affect the forward-looking statements include, but are not limited
to, the effects of general economic and business conditions,
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, various events which could disrupt
operations, including natural events such as severe weather,
droughts, floods and earthquakes, labor negotiations and
disruptions, environmental claims, uncertainties of investigations,
proceedings or other types of claims and litigation, risks and
liabilities arising from derailments, 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" in CN's annual and interim
reports, Annual Information Form and Form 40-F filed with Canadian
and U.S. securities regulators, available on CN's website, for a
summary of major risk factors.
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.
- See discussion and reconciliation of non-GAAP measures in the
attached supplementary schedule, Non-GAAP Measures.
- See Forward-Looking Statements for a summary of the key
assumptions and risks regarding CN's 2016 outlook.
This earnings news release, as well as additional
information, including the Financial Statements, Notes thereto and
Management's Discussion and Analysis, is contained in CN's
Quarterly Review available on the Company's website at
www.cn.ca/quarterly-releases and on SEDAR at www.sedar.com as well
as on EDGAR at www.sec.gov.
CN is a true backbone of the economy,
transporting more than C$250 billion
worth of goods annually for a wide range of business sectors,
ranging from resource products to manufactured products to consumer
goods, across a rail network of approximately 20,000 route-miles
spanning Canada and mid-America.
CN – Canadian National Railway Company, along with its operating
railway subsidiaries -- serves the cities and ports of Vancouver, Prince
Rupert, B.C., Montreal,
Halifax, New Orleans, and Mobile, Ala., and the metropolitan areas of
Toronto, Edmonton, Winnipeg, Calgary, Chicago, Memphis, Detroit, Duluth,
Minn./Superior, Wis., and
Jackson, Miss., with connections
to all points in North America.
For more information about CN, visit the Company's website at
www.cn.ca.
Selected Railroad Statistics –
unaudited
|
|
Three months ended
March 31
|
|
|
2016
|
2015
|
Financial
measures
|
|
|
|
Key financial
performance indicators (1)
|
|
|
|
Total revenues ($
millions)
|
|
2,964
|
3,098
|
Rail freight revenues
($ millions)
|
|
2,845
|
2,980
|
Operating income
($ millions)
|
|
1,217
|
1,063
|
Net income ($
millions)
|
|
792
|
704
|
Diluted earnings per
share ($)
|
|
1.00
|
0.86
|
Free cash flow ($
millions) (2)
|
|
584
|
521
|
Gross property
additions ($ millions)
|
|
469
|
468
|
Share repurchases
($ millions)
|
|
520
|
429
|
Dividends per share
($)
|
|
0.3750
|
0.3125
|
Financial
position (1)
|
|
|
|
Total assets ($
millions) (3)
|
|
35,803
|
33,392
|
Total liabilities
($ millions) (3)
|
|
21,029
|
19,648
|
Shareholders' equity
($ millions)
|
|
14,774
|
13,744
|
Financial
ratio
|
|
|
|
Operating ratio
(%)
|
|
58.9
|
65.7
|
Operational
measures (4)
|
|
|
|
Statistical
operating data
|
|
|
|
Gross ton miles
(GTMs) (millions)
|
|
103,468
|
111,390
|
Revenue ton miles
(RTMs) (millions)
|
|
52,256
|
57,129
|
Carloads
(thousands)
|
|
1,255
|
1,353
|
Route miles
(includes Canada and the U.S.)
|
|
19,600
|
19,600
|
Employees (end of
period)
|
|
22,636
|
25,179
|
Employees (average
for the period)
|
|
22,694
|
25,064
|
Key operating
measures
|
|
|
|
Rail freight revenue
per RTM (cents)
|
|
5.44
|
5.22
|
Rail freight revenue
per carload ($)
|
|
2,267
|
2,203
|
GTMs per average
number of employees (thousands)
|
|
4,559
|
4,444
|
Operating expenses
per GTM (cents)
|
|
1.69
|
1.83
|
Labor and fringe
benefits expense per GTM (cents)
|
|
0.57
|
0.60
|
Diesel fuel consumed
(US gallons in millions)
|
|
103.7
|
114.3
|
Average fuel price
($/US gallon)
|
|
2.07
|
2.84
|
GTMs per US gallon of
fuel consumed
|
|
998
|
975
|
Terminal dwell
(hours)
|
|
14.4
|
16.9
|
Train velocity
(miles per hour)
|
|
27.5
|
24.9
|
Safety
indicators (5)
|
|
|
|
Injury frequency rate
(per 200,000 person hours)
|
|
1.66
|
1.64
|
Accident rate (per
million train miles)
|
|
1.11
|
2.47
|
|
|
(1)
|
Amounts expressed
in Canadian dollars and prepared in accordance with United States
generally accepted accounting principles, unless otherwise
noted.
|
(2)
|
See supplementary
schedule entitled Non-GAAP Measures for an explanation of this
non-GAAP measure.
|
(3)
|
As a result of the
retrospective adoption of new accounting standards in the fourth
quarter of 2015, certain 2015 balances have been restated. See Note
2 – Recent accounting pronouncements to the Company's 2015 Annual
Consolidated Financial Statements for additional
information.
|
(4)
|
Statistical
operating data, key operating measures and safety indicators are
based on estimated data available at such time and are subject to
change as more complete information becomes available, as such,
certain of the comparative data have been restated. Definitions of
these indicators are provided on our website,
www.cn.ca/glossary.
|
(5)
|
Based on Federal
Railroad Administration (FRA) reporting criteria.
|
Supplementary Information – unaudited
|
|
Three months ended March 31
|
|
|
|
2016
|
2015
|
% Change
Fav
(Unfav)
|
|
% Change
at
constant
currency
Fav (Unfav)
(2)
|
|
Revenues ($
millions) (1)
|
|
|
|
|
|
|
|
Petroleum and
chemicals
|
|
578
|
643
|
(10%)
|
|
(16%)
|
|
Metals and
minerals
|
|
310
|
377
|
(18%)
|
|
(24%)
|
|
Forest
products
|
|
462
|
418
|
11%
|
|
2%
|
|
Coal
|
|
93
|
159
|
(42%)
|
|
(45%)
|
|
Grain and
fertilizers
|
|
522
|
535
|
(2%)
|
|
(7%)
|
|
Intermodal
|
|
693
|
689
|
1%
|
|
(4%)
|
|
Automotive
|
|
187
|
159
|
18%
|
|
8%
|
|
Total rail freight
revenues
|
|
2,845
|
2,980
|
(5%)
|
|
(10%)
|
|
Other
revenues
|
|
119
|
118
|
1%
|
|
(5%)
|
|
Total
revenues
|
|
2,964
|
3,098
|
(4%)
|
|
(10%)
|
|
Revenue ton miles
(RTMs) (millions)
|
|
|
|
|
|
|
|
Petroleum and
chemicals
|
|
11,306
|
13,617
|
(17%)
|
|
(17%)
|
|
Metals and
minerals
|
|
4,703
|
5,711
|
(18%)
|
|
(18%)
|
|
Forest
products
|
|
7,929
|
7,242
|
9%
|
|
9%
|
|
Coal
|
|
2,248
|
4,210
|
(47%)
|
|
(47%)
|
|
Grain and
fertilizers
|
|
12,530
|
12,944
|
(3%)
|
|
(3%)
|
|
Intermodal
|
|
12,663
|
12,593
|
1%
|
|
1%
|
|
Automotive
|
|
877
|
812
|
8%
|
|
8%
|
|
Total
RTMs
|
|
52,256
|
57,129
|
(9%)
|
|
(9%)
|
|
Rail freight
revenue / RTM (cents)
|
|
|
|
|
|
|
|
Petroleum and
chemicals
|
|
5.11
|
4.72
|
8%
|
|
1%
|
|
Metals and
minerals
|
|
6.59
|
6.60
|
-
|
|
(8%)
|
|
Forest
products
|
|
5.83
|
5.77
|
1%
|
|
(6%)
|
|
Coal
|
|
4.14
|
3.78
|
10%
|
|
2%
|
|
Grain and
fertilizers
|
|
4.17
|
4.13
|
1%
|
|
(4%)
|
|
Intermodal
|
|
5.47
|
5.47
|
-
|
|
(4%)
|
|
Automotive
|
|
21.32
|
19.58
|
9%
|
|
-
|
|
Total rail freight
revenue per RTM
|
|
5.44
|
5.22
|
4%
|
|
(2%)
|
|
Carloads
(thousands)
|
|
|
|
|
|
|
|
Petroleum and
chemicals
|
|
153
|
164
|
(7%)
|
|
(7%)
|
|
Metals and
minerals
|
|
178
|
237
|
(25%)
|
|
(25%)
|
|
Forest
products
|
|
113
|
109
|
4%
|
|
4%
|
|
Coal
|
|
79
|
115
|
(31%)
|
|
(31%)
|
|
Grain and
fertilizers
|
|
146
|
154
|
(5%)
|
|
(5%)
|
|
Intermodal
|
|
523
|
522
|
-
|
|
-
|
|
Automotive
|
|
63
|
52
|
21%
|
|
21%
|
|
Total
carloads
|
|
1,255
|
1,353
|
(7%)
|
|
(7%)
|
|
Rail freight
revenue / carload ($)
|
|
|
|
|
|
|
|
Petroleum and
chemicals
|
|
3,778
|
3,921
|
(4%)
|
|
(10%)
|
|
Metals and
minerals
|
|
1,742
|
1,591
|
9%
|
|
1%
|
|
Forest
products
|
|
4,088
|
3,835
|
7%
|
|
(1%)
|
|
Coal
|
|
1,177
|
1,383
|
(15%)
|
|
(20%)
|
|
Grain and
fertilizers
|
|
3,575
|
3,474
|
3%
|
|
(2%)
|
|
Intermodal
|
|
1,325
|
1,320
|
-
|
|
(4%)
|
|
Automotive
|
|
2,968
|
3,058
|
(3%)
|
|
(11%)
|
|
Total rail freight
revenue per carload
|
|
2,267
|
2,203
|
3%
|
|
(3%)
|
|
|
|
|
|
|
|
|
|
Statistical
operating data and related key operating measures are based on
estimated data available at such time and are subject to change as
more complete information becomes available.
|
(1) Amounts expressed in Canadian
dollars.
|
(2) See supplementary schedule entitled Non-GAAP
Measures for an explanation of this non-GAAP
measure.
|
Non-GAAP Measures - unaudited
This supplementary schedule includes non-GAAP
measures that do not have any standardized meaning prescribed by
GAAP and therefore, 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.
All financial information included in this
supplementary schedule is expressed in Canadian dollars, unless
otherwise noted.
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
of the prior year. The average foreign exchange rates were
$1.38 and $1.24 per US$1.00,
respectively, for the three months ended March 31, 2016 and 2015.
On a constant currency basis, the Company's net
income for the three months ended March 31,
2016 would have been lower by $57
million ($0.07 per diluted
share).
Free cash flow
Free cash flow is a non-GAAP measure that is
reported as a supplementary indicator of the Company's performance.
Management believes that free cash flow is a useful measure of
performance as it demonstrates the Company's ability to generate
cash for debt obligations and for discretionary uses such as
payment of dividends 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 changes in restricted cash and
cash equivalents and the impact of major 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, 2016 and 2015,
to free cash flow:
|
|
Three months ended
March 31
|
In
millions
|
|
|
2016
|
|
2015
|
Net cash provided by
operating activities
|
|
$
|
1,065
|
$
|
992
|
Net cash used in
investing activities
|
|
|
(480)
|
|
(481)
|
Net cash provided
before financing activities
|
|
|
585
|
|
511
|
|
|
|
|
|
|
Adjustment:
Change in restricted cash and cash equivalents
|
|
|
(1)
|
|
10
|
Free cash
flow
|
|
$
|
584
|
$
|
521
|
Adjusted debt-to-adjusted EBITDA
multiple
Management believes that the adjusted
debt-to-adjusted earnings before interest, income taxes,
depreciation and amortization (EBITDA) multiple is a useful credit
measure because it reflects the Company's ability to service its
debt. The Company calculates the adjusted debt-to-adjusted EBITDA
multiple as adjusted debt divided by adjusted EBITDA. The Company
excludes Other income in the calculation of EBITDA. This measure
does not have any standardized meaning prescribed by GAAP and
therefore, may not be comparable to similar measures presented by
other companies.
In millions,
unless otherwise indicated
|
|
As at and for the
twelve months ended March 31,
|
|
2016
|
|
2015
|
Debt
(1)
|
|
|
$
|
10,128
|
$
|
9,366
|
Add: Present
value of operating lease commitments (2)
|
|
|
|
587
|
|
644
|
Adjusted
debt
|
|
|
$
|
10,715
|
$
|
10,010
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
$
|
5,420
|
$
|
4,867
|
Add:
Depreciation and amortization
|
|
|
|
1,169
|
|
1,090
|
EBITDA (excluding
Other income)
|
|
|
|
6,589
|
|
5,957
|
Add: Deemed
interest on operating leases
|
|
|
|
28
|
|
30
|
Adjusted
EBITDA
|
|
|
$
|
6,617
|
$
|
5,987
|
Adjusted
debt-to-adjusted EBITDA multiple (times)
|
|
|
|
1.62
|
|
1.67
|
|
|
(1)
|
As a result of the
retrospective adoption of a new accounting standard in the fourth
quarter of 2015, the prior period debt balance has been adjusted
and the related financial ratio has been restated. See Note 2 -
Recent accounting pronouncements to the Company's 2015 Annual
Consolidated Financial Statements for additional
information.
|
(2)
|
The operating
lease commitments have been discounted using the Company's implicit
interest rate for each of the periods presented.
|
The decrease in the Company's adjusted
debt-to-adjusted EBITDA multiple at March
31, 2016, as compared to the same period in 2015, was mainly
due to a higher operating income earned during the twelve months
ended March 31, 2016, as compared to
the same period in 2015, partly offset by an increased debt level
as at March 31, 2016, resulting from
the net issuance of debt, and a weaker Canadian-to-US dollar
foreign exchange rate.
SOURCE CN