CN (TSX: CNR) (NYSE: CNI) today reported its financial and
operating results for the third quarter ended September 30, 2023.
"Our 'Make the Plan, Run the Plan, Sell the
Plan' approach continued to perform well, delivering strong
customer service despite weak consumer demand as well as external
challenges. As volumes continue to improve, we are well positioned
to deliver incremental operating leverage. We remain confident in
our ability to accelerate sustainable, profitable growth in 2024
through 2026.” – Tracy Robinson, President and Chief Executive
Officer, CN
Financial results
highlights
- Revenues of C$3,987 million for the
third quarter of 2023, a decrease of C$526 million, or 12%, and
C$12,357 million for the first nine months of 2023, a decrease of
C$208 million, or 2%.
- Operating income of C$1,517 million
for the third quarter of 2023, a decrease of C$415 million, or 21%
and C$4,779 million for the first nine months of 2023, a decrease
of C$149 million, or 3%.
- Operating ratio, defined as
operating expenses as a percentage of revenues, of 62.0% for the
third quarter of 2023, an increase of 4.8-points and 61.3% for the
first nine months of 2023, an increase 0.5-points or an increase of
0.7-points on an adjusted basis. (1)
- Diluted earnings per share (EPS) of
C$1.69 for the third quarter of 2023, a decrease of 21% and C$5.27
for the first nine months of 2023, a decrease of 1% or a decrease
of 2% on an adjusted basis. (1)
- Free cash flow was C$581 million
for the third quarter of 2023, a decrease of C$775 million, or 57%
and C$2,274 million for the first nine months of 2023, a decrease
of C$650 million, or 22%. (1)
Operating performance
- Injury frequency rate of 1.07 (per
200,000 person hours) for the third quarter of 2023, a
deterioration of 6% and 1.02 (per 200,000 person hours) for the
first nine months of 2023, an improvement of 11%. (3)
- Accident rate of 1.86 (per million
train miles) for the third quarter of 2023, a deterioration of 10%
and 1.76 (per million train miles) for the first nine months of
2023, an improvement of 16%. (3)
- Through dwell of 7.1 (entire
railroad, hours) for the third quarter of 2023, a deterioration of
1% and 7.0 (entire railroad hours) for the first nine months of
2023, an improvement of 10%.
- Car velocity of 209 (car miles per
day) for the third quarter of 2023, a deterioration of 1% and 212
(car miles per day) for the first nine months of 2023, an
improvement of 10%.
- Through network train speed of 19.7
(mph) for the third quarter of 2023, a deterioration of 2% and 19.9
(mph) for the first nine months of 2023, an improvement of 7%.
- Fuel efficiency of 0.832 (US
gallons of locomotive fuel consumed per 1,000 gross ton miles
(GTMs)) for the third quarter of 2023, an improvement of 1% and
0.874 (US gallons of locomotive fuel consumed per 1,000 gross ton
miles (GTMs)) for the first nine months of 2023, less efficient by
2%.
- Train length of 7,927 (feet) for
the third quarter of 2023, a decrease of 3% and 7,870 (feet) for
the first nine months of 2023, a decrease of 5%.
- Revenue ton miles (RTMs) of 55,640
(millions) for the third quarter of 2023, a decrease of 5% and
171,478 (millions) for the first nine months of 2023, a decrease of
2%.
Outlooks
and shareholder distributions CN continues to
expect flat to slightly negative year-over-year growth in adjusted
diluted EPS in 2023. CN reiterates its longer-term financial
perspective and continues to target compounded annual diluted EPS
growth in the range of 10%-15% over the 2024-2026 period driven by
growing volumes more than the economy, pricing above rail inflation
and incrementally improving efficiency, all of which assumes a
supportive economy. (2)
In January 2023, CN announced the Board's
approval for a new normal course issuer bid permitting CN to
purchase for cancellation, over a 12-month period, up to 32 million
common shares. The Board has now approved an additional C$500
million, increasing the budget from approximately C$4.0 billion to
approximately C$4.5 billion.
Third quarter
2023 revenues, traffic volumes and
expenses Revenues for the third quarter of 2023 were
C$3,987 million compared to C$4,513 million for the same period in
2022. The decrease of C$526 million, or 12%, was mainly due to
lower fuel surcharge revenues as a result of lower fuel prices,
lower volumes of intermodal, crude oil and forest products,
primarily as a result of lower demand for freight services to move
consumer goods and the negative impact of the pacific coast dock
workers strike, unfavorable crude oil price spreads and weaker
market conditions for lumber and panels as well as lower ancillary
services including container storage; partly offset by freight rate
increases, higher volumes of Canadian grain and potash and the
positive translation impact of a weaker Canadian dollar.
Operating expenses for the third quarter of 2023
were C$2,470 million compared to C$2,581 million for the same
period in 2022. The decrease of C$111 million, or 4%, was mainly
due to lower fuel prices; partly offset by the negative translation
impact of a weaker Canadian dollar.
(1) Non-GAAP Measures CN
reports its financial results in accordance with United States
generally accepted accounting principles (GAAP). CN uses non-GAAP
measures in this news release that do not have any standardized
meaning prescribed by GAAP, including adjusted net income, adjusted
earnings per share (EPS), adjusted operating income and adjusted
operating ratio (referred to as adjusted performance measures) 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 diluted EPS outlook (2)
excludes certain adjustments, which are expected to be comparable
to adjustments made in prior years. However, management cannot
individually quantify on a forward-looking basis the impact of
these adjustments on its adjusted diluted 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 diluted EPS
outlook.
(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, including statements based on
management’s assessment and assumptions and publicly available
information with respect to CN. By their nature, forward-looking
statements involve risks, uncertainties and assumptions. CN
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.
2023 key
assumptions CN has made a number of economic and market
assumptions in preparing its 2023 outlook. The Company now assumes
flat North American industrial production in 2023 (compared to the
July 25, 2023 assumption of negative North American industrial
production in 2023). The Company continues to assume that the
2023/2024 grain crop in Canada will be below its three-year average
(also below when excluding the significantly lower 2021/2022 crop
year) and the U.S. grain crop will be above its three-year average.
CN continues to assume pricing above rail inflation upon contract
renewals. CN also continues to assume that in 2023, the value of
the Canadian dollar in U.S. currency will be approximately $0.75,
and now assumes the average price of crude oil (West Texas
Intermediate) will be approximately US$80 per barrel (compared to
the July 25, 2023 assumption of being approximately US$75 per
barrel). Additionally, CN continues to assume that in 2023 there
will be no further significant impact from Canadian wildfires.
2024-2026 key assumptions CN
has made a number of economic and market assumptions in preparing
its three-year financial perspective. CN assumes that the North
American industrial production will increase by at least two
percent CAGR over the next three years. CN assumes continued
pricing above rail inflation. CN assumes that the value of the
Canadian dollar in U.S. currency will be approximately $0.75 and
that the average price of crude oil (West Texas Intermediate) will
be approximately US$80 per barrel during this period.
Forward-looking statements are not guarantees of
future performance and involve risks, uncertainties and other
factors which may cause actual results, performance or achievements
of CN to be materially different from the outlook or any future
results, performance or achievements 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 in this news release include,
but are not limited to, general economic and business conditions,
including factors impacting global supply chains such as pandemics
and geopolitical conflicts and tensions; 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; the availability of and cost competitiveness of
renewable fuels and the development of new locomotive propulsion
technology; and other risks detailed from time to time in reports
filed by CN with securities regulators in Canada and the United
States. Reference should also 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 relating to CN.
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.
Information contained on, or accessible through, our website is not
part of this news release.
(3) Based on Federal Railroad
Administration (FRA) reporting criteria.
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.sedarplus.com as well as on the U.S. Securities and
Exchange Commission's website at www.sec.gov through
EDGAR.
About CN CN is a world-class
transportation leader and trade-enabler. Essential to the economy,
to the customers, and to the communities it serves, CN safely
transports more than 300 million tons of natural resources,
manufactured products, and finished goods throughout North America
every year. CN's network connects Canada’s Eastern and Western
coasts with the U.S. South through a 18,600-mile rail network. CN
and its affiliates have been contributing to community prosperity
and sustainable trade since 1919. CN is committed to programs
supporting social responsibility and environmental stewardship.
|
Contacts: |
|
|
Media |
Investment Community |
| Jonathan
Abecassis |
Stacy
Alderson |
|
Director |
Assistant
Vice-President |
| Public
Affairs and Media Relations |
Investor
Relations |
| (438)
455-3692 |
(514)
399-0052 |
|
media@cn.ca |
investor.relations@cn.ca |
| |
|
| |
|
SELECTED RAILROAD STATISTICS –
UNAUDITED
| |
|
Three months ended September 30 |
Nine months
ended September 30 |
|
|
|
2023 |
|
2022 |
|
2023 |
|
2022 |
|
|
Financial measures |
|
|
|
|
|
|
|
|
|
| Key
financial performance indicators (1) |
|
|
|
|
|
|
|
|
|
| Total
revenues ($ millions) |
|
3,987 |
|
4,513 |
|
12,357 |
|
12,565 |
|
| Freight
revenues ($ millions) |
|
3,820 |
|
4,366 |
|
11,933 |
|
12,169 |
|
| Operating
income ($ millions) |
|
1,517 |
|
1,932 |
|
4,779 |
|
4,928 |
|
| Adjusted
operating income ($ millions) (2)(3) |
|
1,517 |
|
1,932 |
|
4,779 |
|
4,950 |
|
| Net income
($ millions) |
|
1,108 |
|
1,455 |
|
3,495 |
|
3,698 |
|
| Adjusted net
income ($ millions) (2)(3) |
|
1,108 |
|
1,455 |
|
3,495 |
|
3,714 |
|
| Diluted
earnings per share ($) |
|
1.69 |
|
2.13 |
|
5.27 |
|
5.34 |
|
| Adjusted
diluted earnings per share ($) (2)(3) |
|
1.69 |
|
2.13 |
|
5.27 |
|
5.37 |
|
| Free cash
flow ($ millions) (2)(4) |
|
581 |
|
1,356 |
|
2,274 |
|
2,924 |
|
| Gross
property additions ($ millions) |
|
934 |
|
744 |
|
2,270 |
|
1,830 |
|
| Share
repurchases ($ millions) |
|
1,196 |
|
1,178 |
|
3,438 |
|
3,644 |
|
| Dividends
per share ($) |
|
0.7900 |
|
0.7325 |
|
2.3700 |
|
2.1975 |
|
|
Financial ratio |
|
|
|
|
|
|
|
|
|
| Operating
ratio (%) (5) |
|
62.0 |
|
57.2 |
|
61.3 |
|
60.8 |
|
|
Adjusted operating ratio (%) (2)(3) |
|
62.0 |
|
57.2 |
|
61.3 |
|
60.6 |
|
|
Operational measures (6) |
|
|
|
|
|
|
|
|
|
|
Statistical operating data |
|
|
|
|
|
|
|
|
|
| Gross ton
miles (GTMs) (millions) |
|
108,221 |
|
115,585 |
|
333,356 |
|
347,393 |
|
| Revenue ton
miles (RTMs) (millions) |
|
55,640 |
|
58,540 |
|
171,478 |
|
175,645 |
|
| Carloads
(thousands) |
|
1,326 |
|
1,469 |
|
4,048 |
|
4,289 |
|
| Route miles
(includes Canada and the U.S.) |
|
18,600 |
|
18,600 |
|
18,600 |
|
18,600 |
|
| Employees
(end of period) |
|
25,101 |
|
23,828 |
|
25,101 |
|
23,828 |
|
|
Employees (average for the period) |
|
25,168 |
|
23,729 |
|
24,859 |
|
23,195 |
|
|
Key operating measures |
|
|
|
|
|
|
|
|
|
| Freight
revenue per RTM (cents) |
|
6.87 |
|
7.46 |
|
6.96 |
|
6.93 |
|
| Freight
revenue per carload ($) |
|
2,881 |
|
2,972 |
|
2,948 |
|
2,837 |
|
| GTMs per
average number of employees (thousands) |
|
4,300 |
|
4,871 |
|
13,410 |
|
14,977 |
|
| Operating
expenses per GTM (cents) |
|
2.28 |
|
2.23 |
|
2.27 |
|
2.20 |
|
| Labor and
fringe benefits expense per GTM (cents) |
|
0.71 |
|
0.67 |
|
0.70 |
|
0.63 |
|
| Diesel fuel
consumed (US gallons in millions) |
|
90.0 |
|
96.9 |
|
291.5 |
|
299.2 |
|
| Average fuel
price ($ per US gallon) |
|
4.66 |
|
5.70 |
|
4.56 |
|
5.31 |
|
| Fuel
efficiency (US gallons of locomotive fuel consumed per 1,000
GTMs) |
|
0.832 |
|
0.838 |
|
0.874 |
|
0.861 |
|
| Train weight
(tons) |
|
9,246 |
|
9,202 |
|
9,146 |
|
9,385 |
|
| Train length
(feet) |
|
7,927 |
|
8,140 |
|
7,870 |
|
8,259 |
|
| Car velocity
(car miles per day) |
|
209 |
|
212 |
|
212 |
|
193 |
|
| Through
dwell (entire railroad, hours) |
|
7.1 |
|
7.0 |
|
7.0 |
|
7.8 |
|
| Through
network train speed (miles per hour) |
|
19.7 |
|
20.1 |
|
19.9 |
|
18.6 |
|
|
Locomotive utilization (trailing GTMs per total horsepower) |
|
189 |
|
202 |
|
191 |
|
197 |
|
|
Safety indicators (7) |
|
|
|
|
|
|
|
|
|
| Injury
frequency rate (per 200,000 person hours) |
|
1.07 |
|
1.01 |
|
1.02 |
|
1.15 |
|
|
Accident rate (per million train miles) |
|
1.86 |
|
1.69 |
|
1.76 |
|
2.10 |
|
|
(1) |
|
Amounts expressed in Canadian dollars and prepared in accordance
with United States generally accepted accounting principles (GAAP),
unless otherwise noted. |
|
(2) |
|
These non-GAAP measures do not have any standardized meaning
prescribed by GAAP and therefore, may not be comparable to similar
measures presented by other companies. |
|
(3) |
|
See the supplementary schedule entitled Non-GAAP Measures –
Adjusted performance measures for an explanation of these
non-GAAP measures. |
|
(4) |
|
See the supplementary schedule entitled Non-GAAP Measures –
Free cash flow for an explanation of this non-GAAP
measure. |
|
(5) |
|
Operating ratio is defined as operating expenses as a percentage of
revenues. |
|
(6) |
|
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, revenue ton
miles, freight revenue per RTM, fuel efficiency, train weight,
train length, car velocity, through dwell 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. |
|
(7) |
|
Based on Federal Railroad Administration (FRA) reporting
criteria. |
SUPPLEMENTARY INFORMATION – UNAUDITED
| |
|
Three months ended September 30 |
Nine months ended September 30 |
|
|
|
2023 |
|
2022 |
|
% Change Fav(Unfav) |
% Change atconstantcurrency (1)Fav (Unfav) |
2023 |
|
2022 |
|
% Change Fav(Unfav) |
% Change atconstantcurrency (1)Fav (Unfav) |
|
Revenues ($ millions) (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Petroleum and chemicals |
|
758 |
|
850 |
|
(11 |
%) |
(12 |
%) |
2,334 |
|
2,435 |
|
(4 |
%) |
(7 |
%) |
|
Metals and minerals |
|
515 |
|
539 |
|
(4 |
%) |
(6 |
%) |
1,541 |
|
1,411 |
|
9 |
% |
5 |
% |
|
Forest products |
|
466 |
|
550 |
|
(15 |
%) |
(17 |
%) |
1,457 |
|
1,489 |
|
(2 |
%) |
(6 |
%) |
|
Coal |
|
242 |
|
258 |
|
(6 |
%) |
(7 |
%) |
768 |
|
702 |
|
9 |
% |
8 |
% |
|
Grain and fertilizers |
|
722 |
|
621 |
|
16 |
% |
15 |
% |
2,271 |
|
1,829 |
|
24 |
% |
21 |
% |
|
Intermodal |
|
880 |
|
1,340 |
|
(34 |
%) |
(35 |
%) |
2,875 |
|
3,722 |
|
(23 |
%) |
(24 |
%) |
|
Automotive |
|
237 |
|
208 |
|
14 |
% |
12 |
% |
687 |
|
581 |
|
18 |
% |
14 |
% |
|
Total freight revenues |
|
3,820 |
|
4,366 |
|
(13 |
%) |
(14 |
%) |
11,933 |
|
12,169 |
|
(2 |
%) |
(5 |
%) |
|
Other revenues |
|
167 |
|
147 |
|
14 |
% |
12 |
% |
424 |
|
396 |
|
7 |
% |
4 |
% |
|
Total revenues |
|
3,987 |
|
4,513 |
|
(12 |
%) |
(13 |
%) |
12,357 |
|
12,565 |
|
(2 |
%) |
(4 |
%) |
|
Revenue ton miles (RTMs) (millions) (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Petroleum and chemicals |
|
10,470 |
|
11,715 |
|
(11 |
%) |
(11 |
%) |
31,915 |
|
35,604 |
|
(10 |
%) |
(10 |
%) |
|
Metals and minerals |
|
7,630 |
|
7,441 |
|
3 |
% |
3 |
% |
21,458 |
|
20,853 |
|
3 |
% |
3 |
% |
|
Forest products |
|
5,719 |
|
6,614 |
|
(14 |
%) |
(14 |
%) |
17,529 |
|
19,083 |
|
(8 |
%) |
(8 |
%) |
|
Coal |
|
5,421 |
|
5,769 |
|
(6 |
%) |
(6 |
%) |
17,234 |
|
17,264 |
|
— |
% |
— |
% |
|
Grain and fertilizers |
|
14,528 |
|
11,944 |
|
22 |
% |
22 |
% |
45,138 |
|
37,748 |
|
20 |
% |
20 |
% |
|
Intermodal |
|
11,048 |
|
14,340 |
|
(23 |
%) |
(23 |
%) |
35,918 |
|
42,966 |
|
(16 |
%) |
(16 |
%) |
|
Automotive |
|
824 |
|
717 |
|
15 |
% |
15 |
% |
2,286 |
|
2,127 |
|
7 |
% |
7 |
% |
|
Total RTMs |
|
55,640 |
|
58,540 |
|
(5 |
%) |
(5 |
%) |
171,478 |
|
175,645 |
|
(2 |
%) |
(2 |
%) |
|
Freight revenue / RTM (cents) (2)(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Petroleum and chemicals |
|
7.24 |
|
7.26 |
|
— |
% |
(2 |
%) |
7.31 |
|
6.84 |
|
7 |
% |
4 |
% |
|
Metals and minerals |
|
6.75 |
|
7.24 |
|
(7 |
%) |
(9 |
%) |
7.18 |
|
6.77 |
|
6 |
% |
2 |
% |
|
Forest products |
|
8.15 |
|
8.32 |
|
(2 |
%) |
(4 |
%) |
8.31 |
|
7.80 |
|
7 |
% |
3 |
% |
|
Coal |
|
4.46 |
|
4.47 |
|
— |
% |
(1 |
%) |
4.46 |
|
4.07 |
|
10 |
% |
8 |
% |
|
Grain and fertilizers |
|
4.97 |
|
5.20 |
|
(4 |
%) |
(6 |
%) |
5.03 |
|
4.85 |
|
4 |
% |
1 |
% |
|
Intermodal |
|
7.97 |
|
9.34 |
|
(15 |
%) |
(15 |
%) |
8.00 |
|
8.66 |
|
(8 |
%) |
(9 |
%) |
|
Automotive |
|
28.76 |
|
29.01 |
|
(1 |
%) |
(3 |
%) |
30.05 |
|
27.32 |
|
10 |
% |
6 |
% |
|
Total freight revenue / RTM |
|
6.87 |
|
7.46 |
|
(8 |
%) |
(9 |
%) |
6.96 |
|
6.93 |
|
— |
% |
(2 |
%) |
|
Carloads (thousands) (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Petroleum and chemicals |
|
156 |
|
161 |
|
(3 |
%) |
(3 |
%) |
468 |
|
482 |
|
(3 |
%) |
(3 |
%) |
|
Metals and minerals |
|
264 |
|
264 |
|
— |
% |
— |
% |
749 |
|
709 |
|
6 |
% |
6 |
% |
|
Forest products |
|
76 |
|
86 |
|
(12 |
%) |
(12 |
%) |
234 |
|
250 |
|
(6 |
%) |
(6 |
%) |
|
Coal |
|
124 |
|
130 |
|
(5 |
%) |
(5 |
%) |
386 |
|
377 |
|
2 |
% |
2 |
% |
|
Grain and fertilizers |
|
153 |
|
135 |
|
13 |
% |
13 |
% |
483 |
|
422 |
|
14 |
% |
14 |
% |
|
Intermodal |
|
494 |
|
641 |
|
(23 |
%) |
(23 |
%) |
1,556 |
|
1,894 |
|
(18 |
%) |
(18 |
%) |
|
Automotive |
|
59 |
|
52 |
|
13 |
% |
13 |
% |
172 |
|
155 |
|
11 |
% |
11 |
% |
|
Total carloads |
|
1,326 |
|
1,469 |
|
(10 |
%) |
(10 |
%) |
4,048 |
|
4,289 |
|
(6 |
%) |
(6 |
%) |
|
Freight revenue / carload ($) (2)(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Petroleum and chemicals |
|
4,859 |
|
5,280 |
|
(8 |
%) |
(10 |
%) |
4,987 |
|
5,052 |
|
(1 |
%) |
(4 |
%) |
|
Metals and minerals |
|
1,951 |
|
2,042 |
|
(4 |
%) |
(7 |
%) |
2,057 |
|
1,990 |
|
3 |
% |
(1 |
%) |
|
Forest products |
|
6,132 |
|
6,395 |
|
(4 |
%) |
(6 |
%) |
6,226 |
|
5,956 |
|
5 |
% |
1 |
% |
|
Coal |
|
1,952 |
|
1,985 |
|
(2 |
%) |
(3 |
%) |
1,990 |
|
1,862 |
|
7 |
% |
5 |
% |
|
Grain and fertilizers |
|
4,719 |
|
4,600 |
|
3 |
% |
1 |
% |
4,702 |
|
4,334 |
|
8 |
% |
6 |
% |
|
Intermodal |
|
1,781 |
|
2,090 |
|
(15 |
%) |
(15 |
%) |
1,848 |
|
1,965 |
|
(6 |
%) |
(7 |
%) |
|
Automotive |
|
4,017 |
|
4,000 |
|
— |
% |
(2 |
%) |
3,994 |
|
3,748 |
|
7 |
% |
3 |
% |
|
Total freight revenue / carload |
|
2,881 |
|
2,972 |
|
(3 |
%) |
(5 |
%) |
2,948 |
|
2,837 |
|
4 |
% |
1 |
% |
|
(1) |
|
This non-GAAP measure does not have any standardized meaning
prescribed by GAAP and therefore, may not be comparable to similar
measures presented by other companies. See the supplementary
schedule entitled Non-GAAP Measures – Constant currency 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, free cash flow, constant currency 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
Adjusted net income, adjusted earnings per
share, adjusted operating income, adjusted operating expenses and
adjusted operating ratio are non-GAAP measures that are used to set
performance goals and to measure CN's performance. Management
believes that these adjusted performance measures provide
additional insight to management and investors into the Company's
operations and underlying business trends as well as facilitate
period-to-period comparisons, as they exclude certain significant
items that are not reflective of CN's underlying business
operations and could distort the analysis of trends in business
performance. These items may include:
- operating expense adjustments:
workforce reduction program, depreciation expense on the deployment
of replacement system, advisory fees related to shareholder
matters, losses and recoveries from assets held for sale, business
acquisition-related costs;
- non-operating expense adjustments:
business acquisition-related financing fees, merger termination
income, gains and losses on disposal of property; and
- the effect of tax law changes and
rate enactments.
These non-GAAP 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 and nine months ended September
30, 2023, the Company's net income was $1,108 million, or $1.69 per
diluted share, and $3,495 million, or $5.27 per diluted share,
respectively. There were no adjustments in the third quarter and
the first nine months of 2023.
For the three and nine months ended September
30, 2022, the Company's adjusted net income was $1,455 million, or
$2.13 per diluted share, and $3,714 million, or $5.37 per diluted
share, respectively. The adjusted figures for the nine months ended
September 30, 2022 exclude advisory fees related to shareholder
matters of $22 million, or $16 million after-tax ($0.03 per diluted
share) recorded in Casualty and other within the Consolidated
Statements of Income.
Adjusted net income is defined as Net income in
accordance with GAAP adjusted for certain significant items.
Adjusted diluted earnings per share is defined as adjusted net
income divided by the weighted-average diluted shares outstanding.
The following table provides a reconciliation of Net income and
Earnings per share in accordance with GAAP, as reported for the
three and nine months ended September 30, 2023 and 2022, to the
non-GAAP adjusted performance measures presented herein:
| |
|
Three months ended September 30 |
Nine months ended September 30 |
|
In millions, except per share data |
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|
Net income |
|
$ |
1,108 |
|
$ |
1,455 |
|
$ |
3,495 |
|
$ |
3,698 |
|
|
Adjustments: |
|
|
|
|
|
|
Advisory fees related to shareholder matters |
|
|
— |
|
|
— |
|
|
— |
|
|
22 |
|
|
Tax effect of adjustments (1) |
|
|
— |
|
|
— |
|
|
— |
|
|
(6 |
) |
|
Total adjustments |
|
|
— |
|
|
— |
|
|
— |
|
|
16 |
|
|
Adjusted net income |
|
$ |
1,108 |
|
$ |
1,455 |
|
$ |
3,495 |
|
$ |
3,714 |
|
|
Diluted earnings per share |
|
$ |
1.69 |
|
$ |
2.13 |
|
$ |
5.27 |
|
$ |
5.34 |
|
|
Impact of adjustments, per share |
|
|
— |
|
|
— |
|
|
— |
|
|
0.03 |
|
|
Adjusted diluted earnings per share |
|
$ |
1.69 |
|
$ |
2.13 |
|
$ |
5.27 |
|
$ |
5.37 |
|
|
(1) |
|
The tax impact of adjustments is based on the nature of the item
for tax purposes and related tax rates in the applicable
jurisdiction. |
Adjusted operating income is defined as
Operating income in accordance with GAAP adjusted for certain
significant operating expense items. Adjusted operating expenses is
defined as Operating expenses in accordance with GAAP adjusted for
certain significant operating expense items. Adjusted operating
ratio is defined as adjusted operating expenses as a percentage of
revenues. The following table provides a reconciliation of
Operating income, Operating expenses and operating ratio, as
reported for the three and nine months ended September 30, 2023 and
2022, to the non-GAAP adjusted performance measures presented
herein:
| |
Three months endedSeptember 30 |
Nine months endedSeptember 30 |
|
In millions, except percentages |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|
Operating income |
$ |
1,517 |
|
$ |
1,932 |
|
$ |
4,779 |
|
$ |
4,928 |
|
|
Adjustment: |
|
|
|
|
|
|
|
Advisory fees related to shareholder matters |
|
— |
|
|
— |
|
|
— |
|
|
22 |
|
|
Total adjustment |
|
— |
|
|
— |
|
|
— |
|
|
22 |
|
|
Adjusted operating income |
$ |
1,517 |
|
$ |
1,932 |
|
$ |
4,779 |
|
$ |
4,950 |
|
|
|
|
|
|
|
|
|
| Operating
expenses |
$ |
2,470 |
|
$ |
2,581 |
|
$ |
7,578 |
|
$ |
7,637 |
|
|
Total adjustment |
|
— |
|
|
— |
|
|
— |
|
|
(22 |
) |
|
Adjusted operating expenses |
$ |
2,470 |
|
$ |
2,581 |
|
$ |
7,578 |
|
$ |
7,615 |
|
|
|
|
|
|
|
|
|
| Operating
ratio |
|
62.0 |
% |
|
57.2 |
% |
|
61.3 |
% |
|
60.8 |
% |
|
Impact of adjustment |
|
— |
% |
|
— |
% |
|
— |
% |
|
(0.2 |
)% |
|
Adjusted operating ratio |
|
62.0 |
% |
|
57.2 |
% |
|
61.3 |
% |
|
60.6 |
% |
Free cash flow
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 (i) business
acquisitions and (ii) merger transaction-related payments, cash
receipts and cash income taxes, which are items that are not
indicative of operating trends. 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 in accordance with GAAP,
as reported for the three and nine months ended September 30, 2023
and 2022, to the non-GAAP free cash flow presented herein:
| |
|
Three months ended September 30 |
Nine months ended September 30 |
|
In millions |
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|
Net cash provided by operating activities |
|
$ |
1,512 |
|
$ |
2,112 |
|
$ |
4,552 |
|
$ |
4,395 |
|
|
Net cash used in investing activities |
|
|
(931 |
) |
|
(756 |
) |
|
(2,278 |
) |
|
(1,573 |
) |
|
Net cash provided before financing activities |
|
|
581 |
|
|
1,356 |
|
|
2,274 |
|
|
2,822 |
|
|
Adjustment: |
|
|
|
|
|
|
Cash income taxes for merger transaction-related payments and cash
receipts (1) |
|
|
— |
|
|
— |
|
|
— |
|
|
102 |
|
|
Free cash flow |
|
$ |
581 |
|
$ |
1,356 |
|
$ |
2,274 |
|
$ |
2,924 |
|
|
(1) |
|
Relates to income tax payments of $102 million for KCS merger
transaction-related payments and cash receipts. See Note 4 –
Acquisition to the Company's 2022 Annual Consolidated Financial
Statements for additional information. |
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 weighted average foreign exchange rates used to
translate transactions denominated in US dollars of the comparable
period of the prior year.
The average foreign exchange rates were $1.34
and $1.35 per US$1.00 for the three and nine months ended September
30, 2023, respectively, and $1.31 and $1.28 per US$1.00 for the
three and nine months ended September 30, 2022, respectively. On a
constant currency basis, the Company's net income for the three and
nine months ended September 30, 2023 would have been lower by
$18 million ($0.03 per diluted share) and $94 million ($0.14
per diluted share), respectively.
The following table provides a reconciliation of
the impact of constant currency and related percentage change at
constant currency on the financial results, as reported for the
three and nine months ended September 30, 2023:
| |
|
Three months
ended September 30 |
Nine months ended September 30 |
|
In millions, except per share data |
|
|
2023 |
|
Constantcurrencyimpact |
|
2022 |
|
% Changeat constantcurrency Fav(Unfav) |
|
2023 |
|
Constantcurrencyimpact |
|
2022 |
|
% Changeat constantcurrencyFav(Unfav) |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
Petroleum and chemicals |
|
$ |
758 |
|
$ |
(14 |
) |
$ |
850 |
|
(12 |
%) |
$ |
2,334 |
|
$ |
(70 |
) |
$ |
2,435 |
|
(7 |
%) |
|
Metals and minerals |
|
|
515 |
|
|
(11 |
) |
|
539 |
|
(6 |
%) |
|
1,541 |
|
|
(58 |
) |
|
1,411 |
|
5 |
% |
|
Forest products |
|
|
466 |
|
|
(10 |
) |
|
550 |
|
(17 |
%) |
|
1,457 |
|
|
(53 |
) |
|
1,489 |
|
(6 |
%) |
|
Coal |
|
|
242 |
|
|
(2 |
) |
|
258 |
|
(7 |
%) |
|
768 |
|
|
(13 |
) |
|
702 |
|
8 |
% |
|
Grain and fertilizers |
|
|
722 |
|
|
(9 |
) |
|
621 |
|
15 |
% |
|
2,271 |
|
|
(55 |
) |
|
1,829 |
|
21 |
% |
|
Intermodal |
|
|
880 |
|
|
(7 |
) |
|
1,340 |
|
(35 |
%) |
|
2,875 |
|
|
(45 |
) |
|
3,722 |
|
(24 |
%) |
|
Automotive |
|
|
237 |
|
|
(5 |
) |
|
208 |
|
12 |
% |
|
687 |
|
|
(24 |
) |
|
581 |
|
14 |
% |
|
Total freight revenues |
|
|
3,820 |
|
|
(58 |
) |
|
4,366 |
|
(14 |
%) |
|
11,933 |
|
|
(318 |
) |
|
12,169 |
|
(5 |
%) |
|
Other revenues |
|
|
167 |
|
|
(3 |
) |
|
147 |
|
12 |
% |
|
424 |
|
|
(12 |
) |
|
396 |
|
4 |
% |
|
Total revenues |
|
|
3,987 |
|
|
(61 |
) |
|
4,513 |
|
(13 |
%) |
|
12,357 |
|
|
(330 |
) |
|
12,565 |
|
(4 |
%) |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
Labor and fringe benefits |
|
|
773 |
|
|
(6 |
) |
|
770 |
|
— |
% |
|
2,332 |
|
|
(39 |
) |
|
2,204 |
|
(4 |
%) |
|
Purchased services and material |
|
|
534 |
|
|
(5 |
) |
|
520 |
|
(2 |
%) |
|
1,698 |
|
|
(28 |
) |
|
1,615 |
|
(3 |
%) |
|
Fuel |
|
|
486 |
|
|
(13 |
) |
|
649 |
|
27 |
% |
|
1,528 |
|
|
(68 |
) |
|
1,846 |
|
21 |
% |
|
Depreciation and amortization |
|
|
457 |
|
|
(5 |
) |
|
435 |
|
(4 |
%) |
|
1,354 |
|
|
(25 |
) |
|
1,278 |
|
(4 |
%) |
|
Equipment rents |
|
|
89 |
|
|
(2 |
) |
|
72 |
|
(21 |
%) |
|
262 |
|
|
(10 |
) |
|
254 |
|
1 |
% |
|
Casualty and other |
|
|
131 |
|
|
(2 |
) |
|
135 |
|
4 |
% |
|
404 |
|
|
(13 |
) |
|
440 |
|
11 |
% |
|
Total operating expenses |
|
|
2,470 |
|
|
(33 |
) |
|
2,581 |
|
6 |
% |
|
7,578 |
|
|
(183 |
) |
|
7,637 |
|
3 |
% |
|
Operating income |
|
|
1,517 |
|
|
(28 |
) |
|
1,932 |
|
(23 |
%) |
|
4,779 |
|
|
(147 |
) |
|
4,928 |
|
(6 |
%) |
| Interest
expense |
|
|
(185 |
) |
|
4 |
|
|
(141 |
) |
(28 |
%) |
|
(523 |
) |
|
22 |
|
|
(395 |
) |
(27 |
%) |
| Other
components of net periodic benefit income |
|
|
121 |
|
|
— |
|
|
125 |
|
(3 |
%) |
|
360 |
|
|
— |
|
|
374 |
|
(4 |
%) |
|
Other income (loss) |
|
|
(2 |
) |
|
— |
|
|
(1 |
) |
(100 |
%) |
|
— |
|
|
— |
|
|
(25 |
) |
100 |
% |
|
Income before income taxes |
|
|
1,451 |
|
|
(24 |
) |
|
1,915 |
|
(25 |
%) |
|
4,616 |
|
|
(125 |
) |
|
4,882 |
|
(8 |
%) |
|
Income tax expense |
|
|
(343 |
) |
|
6 |
|
|
(460 |
) |
27 |
% |
|
(1,121 |
) |
|
31 |
|
|
(1,184 |
) |
8 |
% |
|
Net income |
|
$ |
1,108 |
|
$ |
(18 |
) |
$ |
1,455 |
|
(25 |
%) |
$ |
3,495 |
|
$ |
(94 |
) |
$ |
3,698 |
|
(8 |
%) |
|
Diluted earnings per share |
|
$ |
1.69 |
|
$ |
(0.03 |
) |
$ |
2.13 |
|
(22 |
%) |
$ |
5.27 |
|
$ |
(0.14 |
) |
$ |
5.34 |
|
(4 |
%) |
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 the
last twelve months of adjusted EBITDA. Adjusted debt is defined as
the sum of Long-term debt and Current portion of long-term debt as
reported on the Company’s Consolidated Balance Sheets as well as
Operating lease liabilities, including current portion and pension
plans in deficiency recognized on the Company's Consolidated
Balance Sheets due to the debt-like nature of their contractual and
financial obligations. Adjusted EBITDA is calculated as Net income
excluding Interest expense, Income tax expense, Depreciation and
amortization, operating lease cost, Other components of net
periodic benefit income, Other income (loss), and other significant
items that are not reflective of CN's underlying business
operations and which could distort the analysis of trends in
business performance. Adjusted debt and adjusted EBITDA are
non-GAAP measures used to compute the Adjusted debt-to-adjusted
EBITDA multiple. 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 in accordance with GAAP, reported as at and for
the twelve months ended September 30, 2023 and 2022, to the
adjusted measures presented herein, which have been used to
calculate the non-GAAP adjusted debt-to-adjusted EBITDA
multiple:
|
In millions, unless otherwise indicated |
As at and for the twelve months ended September 30, |
|
|
2023 |
|
|
2022 |
|
|
Debt |
$ |
18,382 |
|
$ |
15,392 |
|
|
Adjustments: |
|
|
|
Operating lease liabilities, including current portion (1) |
|
429 |
|
|
484 |
|
|
Pension plans in deficiency (2) |
|
351 |
|
|
444 |
|
|
Adjusted debt |
$ |
19,162 |
|
$ |
16,320 |
|
|
Net income |
$ |
4,915 |
|
$ |
4,899 |
|
|
Interest expense |
|
676 |
|
|
520 |
|
|
Income tax expense |
|
1,582 |
|
|
1,557 |
|
|
Depreciation and amortization |
|
1,805 |
|
|
1,661 |
|
|
Operating lease cost (3) |
|
147 |
|
|
138 |
|
|
Other components of net periodic benefit income |
|
(484 |
) |
|
(486 |
) |
|
Other loss |
|
2 |
|
|
4 |
|
|
Adjustment: |
|
|
|
Advisory fees related to shareholder matters (4) |
|
— |
|
|
35 |
|
|
Adjusted EBITDA |
$ |
8,643 |
|
$ |
8,328 |
|
|
Adjusted debt-to-adjusted EBITDA multiple
(times) |
|
2.22 |
|
|
1.96 |
|
|
(1) |
|
Represents the present value of operating lease payments. |
|
(2) |
|
Represents the total funded deficit of all defined benefit pension
plans with a projected benefit obligation in excess of plan
assets. |
|
(3) |
|
Represents the operating lease costs recorded in Purchased services
and material and Equipment rents within the Consolidated Statements
of Income. |
|
(4) |
|
Relates to advisory fees related to shareholder matters recorded in
Casualty and other within the Consolidated Statements of Income.
See the section entitled Adjusted performance measures of the
Company's 2022 Annual MD&A for additional information. |
Canadian National Railway (TSX:CNR)
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Canadian National Railway (TSX:CNR)
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