CN news release:
CN reports Q2-2016 net income of C$858 million, or C$1.10 per diluted share
Adjusted diluted earnings per share (EPS) (1) decreased by three per cent to C$1.11
Record second-quarter operating ratio of 54.5 per cent
MONTREAL, July 25, 2016 /CNW/ - CN (TSX: CNR) (NYSE: CNI) today reported its financial and operating results for the second quarter and six-month period ended June 30, 2016.
Second-quarter 2016 financial highlights
- Net income was C$858 million, compared with net income of C$886 million for second-quarter 2015. Q2-2016 diluted EPS remained flat at C$1.10. The decrease in net income was mainly due to lower operating income and other income, and higher interest expense; net of related income taxes.
- Adjusted diluted EPS (1) of C$1.11 declined three per cent from year-earlier adjusted diluted EPS of C$1.15. The adjusted figures exclude the impact of deferred income tax adjustments resulting from higher provincial corporate income tax rates in both years.
- Operating income declined five per cent to C$1,293 million.
- Revenues decreased by nine per cent to C$2,842 million. Carloadings declined 12 per cent and revenue ton-miles declined 11 per cent.
- Operating expenses declined 12 per cent to C$1,549 million.
- Operating ratio of 54.5 per cent was a second-quarter record and an improvement of 1.9-points over the prior-year quarter.
- Free cash flow (1) for the first six months of 2016 was C$1,169 million, compared with C$1,051 million for the year-earlier period.
Luc Jobin, president and chief executive officer, said: "CN continued to face a very challenging volume environment in the second quarter and maintained strong discipline in realigning resources to keep them in line with reduced freight demand. Service remained solid, key operating metrics advanced, and we continued to improve our safety record. An important product of our cost-management and productivity focus was a record second-quarter operating ratio of 54.5 per cent.
"We expect the second quarter to be the volume trough for the year. For the balance of 2016, we continue to expect some markets to remain strong, including lumber and panels, automotive, and refined petroleum products, and we anticipate a bumper grain crop in Canada. At the same time, international intermodal volumes are expected to remain challenging while shipments of commodities related to oil and gas development, such as crude oil, frac sand and drilling pipe, are expected to decrease relative to last year.
"Given these expectations, we reiterate our April 25, 2016, financial outlook of aiming to deliver 2016 EPS in line with last year's adjusted diluted EPS (1) of C$4.44." (2)
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 second quarter of 2016 would have been lower by C$23 million, or C$0.03 per diluted share.
Second-quarter 2016 revenues, traffic volumes and expenses
Revenues for the second quarter of 2016 were C$2,842 million, a decrease of nine per cent, when compared to the same period in 2015. Revenues increased for forest products (four per cent), but were more than offset by revenue declines for coal (36 per cent), metals and minerals (17 per cent), petroleum and chemicals (16 per cent), grain and fertilizers (12 per cent), intermodal (four per cent), and automotive (one per cent).
The revenue decline 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; lower volumes of Canadian grain to North American and export markets due to lower available supply; 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, and increased domestic retail intermodal shipments.
Carloadings for the quarter declined by 12 per cent to 1,249 thousand.
Revenue ton-miles (RTMs), measuring the relative weight and distance of rail freight transported by CN, declined by 11 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 one 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 second quarter decreased by 12 per cent to C$1,549 million, mainly due to lower costs resulting from decreased volumes of traffic, lower fuel prices, lower pension expense and cost-management initiatives, partly offset by the negative translation impact of a weaker Canadian dollar on U.S.-dollar-denominated expenses.