Railroad News

CN weathers historical cold temps in Q1 to set revenue, traffic records

By Jeff Stagl, Managing Editor

Despite extreme and prolonged cold temperatures that prompted shorter trains in portions of the first quarter, CN registered solid financial results with strong top-line growth in the period, the Class I reported yesterday.

Revenue climbed 11 percent to a first-quarter record CA$3.5 billion, diluted earnings per share (EPS) rose 8 percent to CA$1.08, operating income increased 5 percent to CA$1.08 billion, net income grew 6 percent to CA$786 million and volume ratcheted up 1 percent to a record 1.4 million units compared with Q1 2018 results.

The operating ratio worsened by 1.7 points to 69.5, but on an adjusted basis — excluding a Q1 charge related to the replacement of a positive train control back-office system — the ratio improved 0.6 points to 67.2.

Petroleum and chemicals revenue jumped 30 percent to CA$735 million, while coal revenue climbed 15 percent to CA$163 million. In addition, quarterly revenue rose 9 percent for metals and minerals to CA$421 million, 8 percent for forest products to CA$456 million, 7 percent for grain to CA$577 million, 7 percent for automotive to CA$211 million and 4 percent for intermodal to CA$850 million.

The long period of historically cold temperatures — which at one point reached 16 straight days of 40 below zero — heavily impacted operating expenses, which soared 14 percent to CA$2.5 billion. Costs rose by double-digit percentages for purchased services and materials, labor and fringe benefits, and depreciation and amortization.

Conditions in the quarter were tougher than in Q1 2018, which included one of the coldest winters in the Class I's history, CN senior executives said during an earnings conference held yesterday. But service metrics are back in line so far in Q2 and the railroad is more fluid, they added.

"CN railroaders delivered CA$350 million of top-line growth while improving car velocity," said CN President and Chief Executive Officer JJ Ruest. "We remain on track to deliver on our 2019 financial outlook and on our ability to bring long-term value creation to our customers and shareholders."

For the remainder of 2019, the railroad is projecting adjusted diluted EPS growth in the low double-digits range and volume growth — as measured by revenue ton miles — in the high single-digit range.

CN also will continue to carry out a record CA$3.9 billion capital expenditure plan this year to support a solid pipeline of business growth opportunities, senior execs said. There are 22 track upgrade projects planned in 2019 — mostly double-track and siding work in western Canada — of which two were completed in Q1.

CN also took delivery of 63 new locomotives in Q1 and expects additional deliveries of 52 units in Q2, 20 units in Q3 and five units in Q4. The total investment in the 140 locomotives exceeds CA$500 million.


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