CN reports Q2-2017 net income of C$1,031 million, or C$1.36 per diluted share
Continued strong volume growth leads to record revenues and 21 per cent increase in adjusted diluted earnings per share (EPS) (1)
MONTREAL, July 25, 2017 /CNW/ - CN (TSX: CNR) (NYSE: CNI) today reported its financial and operating results for the second quarter and six-month period ended June 30, 2017.
Second-quarter 2017 financial highlights
- Net income increased 20 per cent to C$1,031 million, while diluted EPS increased 24 per cent to C$1.36, compared with the second quarter of 2016.
- Adjusted net income increased 17 per cent to C$1,013 million, with adjusted diluted EPS increasing 21 per cent to C$1.34. (1)
- Operating income increased 16 per cent to C$1,495 million.
- Revenues increased by 17 per cent to a quarterly record of C$3,329 million. Carloadings increased 14 per cent, and revenue ton-miles increased 18 per cent.
- Operating expenses increased 18 per cent to C$1,834 million.
- Operating ratio of 55.1 per cent, an increase of 0.6 points over the prior-year quarter.
- Free cash flow (1) for second-quarter 2017 was C$811 million, up from C$585 million for the year-earlier quarter.
Luc Jobin, president and chief executive officer, said: "Once again, CN delivered solid quarterly performance with strong volume growth across most commodity groups, building on the momentum started in the fourth quarter of 2016. Our team of railroaders remained focused on balancing operational and service excellence while efficiently adjusting to the growing demand.
"The North American economic outlook continues to be positive, and we remain committed to delivering on our 2017 financial outlook. However, volume comparisons in the second half of the year will be more challenging, and the strengthening of the Canadian dollar will constitute a headwind."
Reaffirmed 2017 financial outlook (2)
CN aims to deliver 2017 adjusted diluted EPS in the range of C$4.95 to C$5.10 compared to last year's adjusted diluted EPS (1) of C$4.59.
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 2017 would have been lower by C$28 million, or C$0.04 per diluted share.
Second-quarter 2017 revenues, traffic volumes and expenses
Revenues for the second quarter of 2017 were C$3,329 million, an increase of 17 per cent, when compared to the same period in 2016. Revenues increased for metals and minerals (33 per cent), coal (33 per cent), grain and fertilizers (23 per cent), automotive (20 per cent), intermodal (17 per cent), petroleum and chemicals (12 per cent), and forest products (six per cent).
The increase in revenues was mainly attributable to higher volumes across several sectors, such as Canadian grain and fertilizers, overseas intermodal traffic, frac sand, coal and petroleum coke exports, crude oil, and finished vehicles. Also contributing to increased revenues were higher applicable fuel surcharge rates, freight rate increases, and the positive translation impact of a weaker Canadian dollar.
Carloadings for the quarter increased by 14 per cent to 1.4 million.
Revenue ton-miles (RTMs), measuring the relative weight and distance of rail freight transported by CN, increased by 18 per cent from the year-earlier quarter. Rail freight revenue per RTM decreased by 1 per cent over the year-earlier period, mainly driven by an increase in the average length of haul; partly offset by higher applicable fuel surcharge rates, freight rate increases, and the positive translation impact of a weaker Canadian dollar.
Operating expenses for the second quarter increased by 18 per cent to C$1,834 million, mainly due to higher fuel costs, increased purchased services and material costs, and higher labor and fringe benefits expense resulting from increased volumes, as well as increased casualty and other expense, and 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 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 outlook (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 outlook.
