Record Q1 volumes and revenues lead to a 15
per cent increase in adjusted diluted earnings per share (EPS)
(1)
REGINA, April 24, 2017
/PRNewswire/ - CN (TSX: CNR) (NYSE: CNI) today reported its
financial and operating results for the first quarter ended
March 31, 2017.
First-quarter 2017 financial
highlights
- Net income increased 12 per cent to C$884 million, while diluted EPS increased 16 per
cent to C$1.16, compared with the
first quarter of 2016.
- Adjusted net income increased 11 per cent to C$879 million, with adjusted diluted EPS
increasing 15 per cent to C$1.15.
(1)
- Operating income increased seven per cent to C$1,303 million.
- Revenues increased by eight per cent to C$3,206 million. Carloadings increased nine per
cent and revenue ton-miles increased 14 per cent.
- Operating expenses increased nine per cent to C$1,903 million.
- Operating ratio of 59.4 per cent, an increase of 0.5 of a point
from the prior-year quarter.
- Free cash flow (1) was C$848
million in the first quarter of 2017, up from C$584 million for the year-earlier quarter.
Luc Jobin, CN president and chief executive
officer, said: "I am very proud of the solid response from our team
of railroaders in accommodating the strong demand during the
quarter. We delivered record first-quarter volumes, including a 14
per cent increase in Western Canadian grain tonnage moved over our
network, despite a return to more demanding winter conditions
versus last year.
"Our ongoing investments in people, equipment and
infrastructure continue to position us well to leverage CN's
industry-leading operational performance and superior customer
service," Jobin continued. "With a strong start in Q1 and an
increased volume outlook for the rest of the year, I am pleased to
announce an upward revision to our 2017 financial outlook."
Revised 2017 financial outlook
(2)
Under its revised outlook, CN now aims to deliver 2017 adjusted
diluted EPS in the range of C$4.95 to
C$5.10, versus last year's adjusted diluted EPS
(1) of C$4.59, compared
with its Jan. 24, 2017 financial
outlook which called for mid-single-digit growth this year.
CN has also increased its 2017 capital program by
C$100 million to C$2.6 billion, of
which C$1.6 billion is still targeted
toward track infrastructure. The additional capital investment will
go toward the purchase of 22 high-horsepower locomotives and other
projects to support growth.
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 2017 would have been higher by C$22 million, or C$0.03 per diluted share.
First-quarter 2017 revenues, traffic volumes
and expenses
Revenues for the first quarter of 2017 were C$3,206 million, an increase of eight per cent,
when compared to the same period in 2016. Revenues increased for
coal (39 per cent), grain and fertilizers (16 per cent), metals and
minerals (16 per cent), automotive (10 per cent), intermodal (seven
per cent), and petroleum and chemicals (one per cent). Revenues
declined for forest products (three per cent).
The increase in revenues was mainly attributable
to higher volumes of Canadian and U.S. grain, frac sand, coal
exports, overseas intermodal traffic, and finished vehicles;
freight rate increases; and higher applicable fuel surcharge rates.
These factors were partly offset by the negative translation impact
of a stronger Canadian dollar on U.S.-dollar-denominated
revenues.
Carloadings for the quarter increased by nine per
cent to 1,368 thousand, and rail freight revenue per carload
decreased by one per cent.
Revenue ton-miles (RTMs), measuring the relative
weight and distance of rail freight transported by CN, increased by
14 per cent from the year-earlier quarter. Rail freight revenue per
RTM decreased by six per cent over the year-earlier period, mainly
driven by an increase in the average length of haul and the
negative translation impact of a stronger Canadian dollar, partly
offset by freight rate increases and higher applicable fuel
surcharge rates.
Operating expenses for the first quarter
increased by nine per cent to C$1,903
million, mainly due to higher fuel prices and higher costs
due to increased volumes of traffic, partly offset by the positive
translation impact of a stronger Canadian dollar on
U.S.-dollar-denominated expenses.
(1) Non-GAAP Measures
CN 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, including adjusted performance measures, constant currency,
and free cash flow. 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.
CN's full-year adjusted EPS guidance
(2) excludes the expected impact of certain income and
expense items, as well as those items noted in the reconciliation
tables provided in the attached supplementary schedule, Non-GAAP
Measures. However, management cannot individually quantify on a
forward-looking basis the impact of these items on its EPS because
these items, which could be significant, are difficult to predict
and may be highly variable. As a result, CN does not provide a
corresponding GAAP measure for, or reconciliation to, its adjusted
EPS guidance.
(2) Forward-Looking Statements
Certain 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 may be identified by the
use of terminology such as "believes," "expects," "anticipates,"
"assumes," "outlook," "plans," "targets," or other similar
words.
2017 key assumptions
CN has made a number of economic and market assumptions in
preparing its 2017 outlook. The Company is now assuming that North
American industrial production for the year will increase by
approximately two per cent (compared with its Jan. 24, 2017 assumption that North American
industrial production would increase in the range of one to two per
cent) and assumes U.S. housing starts in the range of 1.25 million
units and U.S. motor vehicle sales of approximately 17.5 million
units. For the 2016/2017 crop year, the grain crops in both
the United States and Canada were above their respective five-year
averages. The Company assumes that the 2017/2018 grain crops in
both Canada and the United States will be in line with their
respective five-year averages. With these assumptions, CN now
assumes total RTMs in 2017 will increase by approximately 10 per
cent versus 2016 (compared with its Jan. 24,
2017 assumption that total RTMs in 2017 would increase in
the range of three to four per cent versus 2016). CN expects
continued pricing improvement above inflation. CN assumes that in
2017 the value of the Canadian dollar in U.S. currency will be in
the range of $0.75, and that the
average price of crude oil (West Texas Intermediate) will be in the
range of US$50 to US$60 per barrel.
In 2017, CN now plans to invest approximately C$2.6 billion in its capital program (compared
with its Jan. 24, 2017 plan to invest
approximately C$2.5 billion in its
capital program in 2017), of which C$1.6
billion is still targeted 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 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 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; security threats; reliance on
technology; trade restrictions; transportation of hazardous
materials; various events which could disrupt operations, including
natural events such as severe weather, droughts, 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; 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 EDGAR at www.sec.gov.
CN is a true backbone of the economy,
transporting more than C$250 billion
worth of goods annually for a wide range of business sectors,
ranging from resource products to manufactured products to consumer
goods, across a rail network of approximately 20,000 route-miles
spanning Canada and mid-America.
CN – Canadian National Railway Company, along with its operating
railway subsidiaries – serves the cities and ports of Vancouver, Prince
Rupert, B.C., Montreal,
Halifax, New Orleans, and Mobile, Ala., and the metropolitan areas of
Toronto, Edmonton, Winnipeg, Calgary, Chicago, Memphis, Detroit, Duluth,
Minn./Superior, Wis., and
Jackson, Miss., with connections
to all points in North America.
For more information about CN, visit the Company's website at
www.cn.ca.
Selected Railroad Statistics – unaudited
|
|
Three months ended
March 31
|
|
|
2017
|
2016
|
|
|
|
|
Financial
measures
|
|
|
|
|
|
|
|
Key financial
performance indicators (1)
|
|
|
|
Total revenues ($
millions)
|
|
3,206
|
2,964
|
Rail freight revenues
($ millions)
|
|
3,075
|
2,845
|
Operating income
($ millions)
|
|
1,303
|
1,217
|
Net income ($
millions)
|
|
884
|
792
|
Diluted earnings per
share ($)
|
|
1.16
|
1.00
|
Adjusted diluted
earnings per share ($) (2)
|
|
1.15
|
1.00
|
Free cash flow ($
millions) (2)
|
|
848
|
584
|
Gross property
additions ($ millions)
|
|
396
|
469
|
Share repurchases
($ millions)
|
|
491
|
520
|
Dividends per share
($)
|
|
0.4125
|
0.3750
|
|
|
|
|
Financial
position (1)
|
|
|
|
Total assets ($
millions)
|
|
37,330
|
35,803
|
Total liabilities
($ millions)
|
|
22,448
|
21,029
|
Shareholders' equity
($ millions)
|
|
14,882
|
14,774
|
|
|
|
|
Financial
ratio
|
|
|
|
Operating ratio
(%)
|
|
59.4
|
58.9
|
|
|
|
|
Operational
measures (3)
|
|
|
|
|
|
|
|
Statistical
operating data
|
|
|
|
Gross ton miles
(GTMs) (millions)
|
|
116,235
|
103,468
|
Revenue ton miles
(RTMs) (millions)
|
|
59,776
|
52,256
|
Carloads
(thousands)
|
|
1,368
|
1,255
|
Route miles
(includes Canada and the U.S.)
|
|
19,600
|
19,600
|
Employees (end of
period)
|
|
22,549
|
22,636
|
Employees (average
for the period)
|
|
22,396
|
22,694
|
|
|
|
|
Key operating
measures
|
|
|
|
Rail freight revenue
per RTM (cents)
|
|
5.14
|
5.44
|
Rail freight revenue
per carload ($)
|
|
2,248
|
2,267
|
GTMs per average
number of employees (thousands)
|
|
5,190
|
4,559
|
Operating expenses
per GTM (cents)
|
|
1.64
|
1.69
|
Labor and fringe
benefits expense per GTM (cents)
|
|
0.50
|
0.57
|
Diesel fuel consumed
(US gallons in millions)
|
|
112.9
|
103.7
|
Average fuel price
($/US gallon)
|
|
2.77
|
2.07
|
GTMs per US gallon of
fuel consumed
|
|
1,030
|
998
|
Terminal dwell
(hours)
|
|
15.6
|
14.4
|
Train velocity
(miles per hour)
|
|
25.7
|
27.5
|
|
|
|
|
Safety
indicators (4)
|
|
|
|
Injury frequency rate
(per 200,000 person hours)
|
|
1.89
|
1.66
|
Accident rate (per
million train miles)
|
|
1.54
|
1.11
|
(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 these 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
|
|
|
2017
|
2016
|
% Change
Fav (Unfav)
|
% Change
at
constant
currency
Fav (Unfav) (1)
|
Revenues ($
millions) (2)
|
|
|
|
|
|
Petroleum and
chemicals
|
|
584
|
578
|
1%
|
4%
|
Metals and
minerals
|
|
361
|
310
|
16%
|
20%
|
Forest
products
|
|
447
|
462
|
(3%)
|
-
|
Coal
|
|
129
|
93
|
39%
|
42%
|
Grain and
fertilizers
|
|
607
|
522
|
16%
|
18%
|
Intermodal
|
|
742
|
693
|
7%
|
9%
|
Automotive
|
|
205
|
187
|
10%
|
13%
|
Total rail freight
revenues
|
|
3,075
|
2,845
|
8%
|
11%
|
Other
revenues
|
|
131
|
119
|
10%
|
13%
|
Total
revenues
|
|
3,206
|
2,964
|
8%
|
11%
|
Revenue ton miles
(RTMs) (millions) (3)
|
|
|
|
|
|
Petroleum and
chemicals
|
|
11,828
|
11,306
|
5%
|
5%
|
Metals and
minerals
|
|
6,443
|
4,703
|
37%
|
37%
|
Forest
products
|
|
7,690
|
7,929
|
(3%)
|
(3%)
|
Coal
|
|
3,602
|
2,248
|
60%
|
60%
|
Grain and
fertilizers
|
|
15,487
|
12,530
|
24%
|
24%
|
Intermodal
|
|
13,704
|
12,663
|
8%
|
8%
|
Automotive
|
|
1,022
|
877
|
17%
|
17%
|
Total
RTMs
|
|
59,776
|
52,256
|
14%
|
14%
|
Rail freight
revenue / RTM (cents) (2) (3)
|
|
|
|
|
|
Petroleum and
chemicals
|
|
4.94
|
5.11
|
(3%)
|
(1%)
|
Metals and
minerals
|
|
5.60
|
6.59
|
(15%)
|
(12%)
|
Forest
products
|
|
5.81
|
5.83
|
-
|
3%
|
Coal
|
|
3.58
|
4.14
|
(14%)
|
(12%)
|
Grain and
fertilizers
|
|
3.92
|
4.17
|
(6%)
|
(4%)
|
Intermodal
|
|
5.41
|
5.47
|
(1%)
|
-
|
Automotive
|
|
20.06
|
21.32
|
(6%)
|
(3%)
|
Total rail freight
revenue / RTM
|
|
5.14
|
5.44
|
(6%)
|
(3%)
|
Carloads
(thousands) (3)
|
|
|
|
|
|
Petroleum and
chemicals
|
|
157
|
153
|
3%
|
3%
|
Metals and
minerals
|
|
232
|
178
|
30%
|
30%
|
Forest
products
|
|
107
|
113
|
(5%)
|
(5%)
|
Coal
|
|
73
|
79
|
(8%)
|
(8%)
|
Grain and
fertilizers
|
|
164
|
146
|
12%
|
12%
|
Intermodal
|
|
568
|
523
|
9%
|
9%
|
Automotive
|
|
67
|
63
|
6%
|
6%
|
Total
carloads
|
|
1,368
|
1,255
|
9%
|
9%
|
Rail freight
revenue / carload ($) (2)
(3)
|
|
|
|
|
|
Petroleum and
chemicals
|
|
3,720
|
3,778
|
(2%)
|
1%
|
Metals and
minerals
|
|
1,556
|
1,742
|
(11%)
|
(8%)
|
Forest
products
|
|
4,178
|
4,088
|
2%
|
5%
|
Coal
|
|
1,767
|
1,177
|
50%
|
54%
|
Grain and
fertilizers
|
|
3,701
|
3,575
|
4%
|
5%
|
Intermodal
|
|
1,306
|
1,325
|
(1%)
|
-
|
Automotive
|
|
3,060
|
2,968
|
3%
|
6%
|
Total rail freight
revenue / carload
|
|
2,248
|
2,267
|
(1%)
|
1%
|
(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 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 word "Company" or "CN"
means, as the context requires, Canadian National Railway Company
and 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 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 and adjusted
earnings per share 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 these 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 items in adjusted net income and adjusted earnings per
share 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,
2017, the Company's adjusted net income was $879 million, or $1.15 per diluted share, which excludes a
deferred income tax recovery of $5
million ($0.01 per diluted
share) resulting from the enactment of a lower provincial corporate
income tax rate.
For the three months ended March 31,
2016, the Company's net income as reported and adjusted net
income were $792 million, or
$1.00 per diluted share.
The following table provides a reconciliation of net income and
earnings per share, as reported for the three months ended
March 31, 2017 and 2016, to the
adjusted performance measures presented herein:
|
|
|
|
Three months ended
March 31
|
In millions,
except per share data
|
|
|
|
|
2017
|
|
2016
|
Net income as
reported
|
|
|
|
$
|
884
|
$
|
792
|
Adjustment:
Income tax recovery
|
|
|
|
|
(5)
|
|
-
|
Adjusted net
income
|
|
|
|
$
|
879
|
$
|
792
|
Basic earnings per
share as reported
|
|
|
|
$
|
1.16
|
$
|
1.01
|
Impact of
adjustment, per share
|
|
|
|
|
(0.01)
|
|
-
|
Adjusted basic
earnings per share
|
|
|
|
$
|
1.15
|
$
|
1.01
|
Diluted earnings per
share as reported
|
|
|
|
$
|
1.16
|
$
|
1.00
|
Impact of
adjustment, per share
|
|
|
|
|
(0.01)
|
|
-
|
Adjusted diluted
earnings per share
|
|
|
|
$
|
1.15
|
$
|
1.00
|
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 $1.32 and $1.38 per
US$1.00, respectively, for the three
months ended March 31, 2017 and
2016.
On a constant currency basis, the Company's net income for the
three months ended March 31, 2017
would have been higher by $22 million
($0.03 per diluted share).
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 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, 2017 and 2016, to
free cash flow:
|
|
|
Three months ended
March 31
|
In
millions
|
|
|
|
2017
|
|
2016
|
Net cash provided by
operating activities
|
|
|
$
|
1,256
|
$
|
1,065
|
Net cash used in
investing activities (1)
|
|
|
|
(408)
|
|
(481)
|
Free cash
flow
|
|
|
$
|
848
|
$
|
584
|
(1)
|
As a result of the
retrospective adoption of Accounting Standards Update 2016-18 in
the first quarter of 2017, changes in restricted cash and cash
equivalents are no longer classified as investing activities within
the Consolidated Statement of Cash Flows and are no longer included
as an adjustment in the Company's definition of free cash flow.
There is no impact to free cash flow.
|
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 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,
|
|
2017
|
|
2016
|
Debt
|
|
$
|
10,924
|
$
|
10,128
|
Adjustment:
Present value of operating lease commitments
(1)
|
|
516
|
|
587
|
Adjusted
debt
|
|
$
|
11,440
|
$
|
10,715
|
|
|
|
|
|
|
Net income
|
|
$
|
3,732
|
$
|
3,626
|
Interest
expense
|
|
|
479
|
|
458
|
Income tax
expense
|
|
|
1,279
|
|
1,384
|
Depreciation and
amortization
|
|
|
1,241
|
|
1,169
|
EBITDA
|
|
|
6,731
|
|
6,637
|
Adjustments:
|
|
|
|
|
|
|
Other
income
|
|
|
(92)
|
|
(48)
|
|
Deemed interest on
operating leases
|
|
|
24
|
|
28
|
Adjusted
EBITDA
|
$
|
6,663
|
$
|
6,617
|
Adjusted
debt-to-adjusted EBITDA multiple (times)
|
|
1.72
|
|
1.62
|
(1)
|
The operating
lease commitments have been discounted using the Company's implicit
interest rate for each of the periods presented.
|
SOURCE CN