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CN reports Q4 2013 net income of C$635 million; Full year 2013 earnings per share up 9 percent

(Source: CN press release, January 30, 2014)

MONTREAL -- CN today reported its financial and operating results for the fourth quarter and year ended Dec. 31, 2013.

Fourth-quarter and full-year 2013 financial highlights

• Fourth-quarter 2013 net income was C$635 million, or C$0.76 per diluted share, compared with net income of C$610 million or, C$0.71 per diluted share, for the year-earlier quarter.
• Full-year 2013 net income was C$2,612 million, or C$3.09 per diluted share, compared with net income of C$2,680 million, or C$3.06 per diluted share, for 2012.
• Full-year 2013 adjusted diluted EPS increased nine percent to C$3.06, with adjusted 2013 net income of C$2,582 million versus adjusted net income of C$2,456 million in 2012. (1)
• Q4-2013 operating income increased five percent to C$967 million, and full-year 2013 operating income also rose five percent to C$3,873 million.
• Fourth-quarter 2013 operating ratio increased by 1.2 points to 64.8 percent; full-year 2013 operating ratio was 63.4 percent, compared with 62.9 percent for 2012.
• 2013 free cash flow totalled C$1,623 million, compared with free cash flow of C$1,661 million for 2012. (1)

Claude Mongeau, president and chief executive officer, said: “CN’s agenda of Operational and Service Excellence delivered record volumes and revenues in 2013. Key operating and service metrics remained solid, and we continued to drive incremental improvement in our broad safety record. CN reduced its accident rate per million train miles by nine percent in 2013, the latest sign of long-term gains in safety. In the past 10 years, CN’s main-track accidents have declined by more than 50 percent despite increased freight volumes.

“CN sees good opportunities in 2014 in a number of markets, including intermodal, oil-and-gas-related commodities, Canadian and U.S. grain, and commodities related to the recovery in the U.S. housing market. With continued supply chain collaboration and solid execution, the CN team is focused on safely and efficiently growing the Company’s business at low incremental cost and at a pace faster than the overall economy.”

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. As such, the Company’s results are affected by exchange-rate fluctuations. On a constant currency basis that excludes the impact of fluctuations in foreign currency exchange rates, CN’s net income for the quarter and year ended Dec. 31, 2013, would have been lower by C$19 million, or C$0.02 per diluted share, and C$37 million, or C$0.04 per diluted share, respectively. (1)

Positive 2014 outlook, increased dividend,(2)

Mongeau said: “CN’s 2014 outlook remains consistent with the 2014 financial guidance that we announced on Dec. 10, 2013. CN is aiming to deliver double-digit EPS growth in 2014 over adjusted diluted 2013 EPS of C$3.06, as well as 2014 free cash flow in the range of C$1.6 billion to C$1.7 billion. CN is also planning for 2014 capital expenditures of approximately C$2.1 billion, compared with C$2.0 billion in 2013. (1)

“Given CN’s strong balance sheet and its solid outlook for earnings and free cash flow generation, I am pleased to announce that the Company’s Board of Directors has approved a 16 percent increase in CN’s 2014 quarterly common-share dividend.”

Fourth-quarter 2013 revenues, traffic volumes and expenses

Revenues for the fourth quarter of 2013 increased by eight percent to C$2,745 million. Revenues increased for petroleum and chemicals (22 percent), metals and minerals (12 percent), forest products (11 percent), intermodal (11 percent), automotive (four percent), and grain and fertilizers (two percent). Coal revenues declined by nine percent.

The increase in revenues was mainly attributable to higher freight volumes due to strong energy markets, market share gains, as well as growth in the North American economy; the positive translation impact of the weaker Canadian dollar on U.S.-dollar-denominated revenues; freight rate increases; and the impact of a higher fuel surcharge, as a result of higher volumes and year-over-year increases in applicable fuel prices.

Carloadings for the quarter rose three percent to 1,310 thousand.

Revenue ton-miles, measuring the relative weight and distance of rail freight transported by CN, increased by five percent over the year-earlier quarter. Rail freight revenue per revenue ton-mile, a measurement of yield defined as revenue earned on the movement of a ton of freight over one mile, increased by four percent.

Operating expenses for the quarter increased by 10 percent to C$1,778 million. The increase was primarily due to higher labor and fringe benefits expense as a result of increased pension expense and higher incentive compensation; the negative translation impact of the weaker Canadian dollar on U.S.-dollar-denominated expenses; and increased purchased services and material expense, in part due to weather-related conditions. These factors were partly offset by lower casualty and other expense.

The fourth-quarter 2013 operating ratio was 64.8 percent, compared with 63.6 percent for the year-earlier quarter.

Full-year 2013 revenues, traffic volumes and expenses

2013 revenues increased seven percent to C$10,575 million. Revenues increased for petroleum and chemicals (18 percent), intermodal (nine percent), metals and minerals (seven percent), forest products (six percent), automotive (two percent), and grain and fertilizers (one percent). Coal revenues declined by three percent.

The rise in total revenues was largely due to freight rate increases; higher freight volumes due to strong energy markets, market share gains, as well as growth in the North American economy; the positive translation impact of the weaker Canadian dollar on U.S.-dollar-denominated revenues; and the impact of a higher fuel surcharge, mainly as a result of higher volumes.

Carloadings for the year increased three percent to 5,190 thousand.

Revenue ton-miles increased by four percent over 2012, while rail freight revenue per revenue ton-mile increased by three percent.

Operating expenses for 2013 increased by seven percent to C$6,702 million, mainly due to higher labor and fringe benefits expense; the negative translation impact of the weaker Canadian dollar on U.S.-dollar-denominated expenses; and increased purchased services and material expense, in part due to weather-related conditions. These factors were partly offset by lower casualty and other expense.

The operating ratio was 63.4 percent in 2013, compared with 62.9 percent in 2012.

Friday, January 31, 2014

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