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CN reports Q1 2018 financial results

(Source: CN press release, April 23, 2018)

TORONTO — CN today reported its financial and operating results for the first quarter ended March 31, 2018.

Financial results highlights

First-quarter 2018 compared to first-quarter 2017
• Net income decreased by 16 per cent to C$741 million, and diluted earnings per share (EPS) decreased by 14 per cent (or 13 per cent on an adjusted basis (1)) to C$1.00.
• Operating income decreased by 16 per cent to C$1,030 million.
• Revenues for the first quarter totaled C$3,194 million, a decrease of C$12 million.
• Revenue ton-miles (RTMs) declined by four per cent and carloadings increased by three per cent.
• Operating expenses increased by nine per cent to C$2,164 million.
• Operating ratio of 67.8 per cent, an increase of 6.0 points.
• Free cash flow (1) for the first quarter of 2018 was C$322 million, compared with C$848 million for the year-earlier period.

JJ Ruest, interim president and chief executive officer of CN, said: “With our entire team focused on restoring operational and service excellence for all our customers, CN has turned the corner on a difficult quarter and winter. Our metrics are showing sustained, sequential improvement, and that momentum will build as we continue to expand track capacity, add crews and bring on new locomotives.

“We’ve increased our capital program to C$3.4 billion, with approximately C$400 million being invested in new track infrastructure, particularly in Western Canada, to build capacity and improve resiliency,” Ruest continued. “With the people, equipment and infrastructure in place, and with a solid pipeline of growth opportunities ahead of us, we are confident in our ability to bring long-term value creation to our customers and shareholders.”

Revised 2018 financial outlook (2)

Due to weaker than expected RTMs in the first quarter and a longer than anticipated construction period needed for significant infrastructure capacity projects in 2018, CN now aims to deliver 2018 adjusted diluted EPS in the range of C$5.10 to C$5.25 versus last year’s adjusted diluted EPS of C$4.99 (compared to its initial financial outlook, which called for adjusted diluted EPS in the range of C$5.25 to C$5.40 this year). (1)

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 first quarter of 2018 would have been higher by C$24 million, or C$0.03 per diluted share.

First-quarter 2018 revenues, traffic volumes and expenses

Revenues for the first quarter of 2018 were C$3,194 million, a decrease of C$12 million, when compared to the same period in 2017. Revenues declined for grain and fertilizers (11 per cent), forest products (six per cent), automotive (four per cent), petroleum and chemicals (three per cent), and other revenues (two per cent). Revenues increased for intermodal (10 per cent), coal (10 per cent), and metals and minerals (seven per cent).

The decrease in revenues was mainly attributable to reduced RTMs resulting from challenging operating conditions, including harsh winter weather and low network resiliency, as well as the negative translation impact of a stronger Canadian dollar, partly offset by higher applicable fuel surcharge rates and freight rate increases.

RTMs, measuring the relative weight and distance of rail freight transported by CN, declined by four per cent from the year-earlier quarter. Rail freight revenue per RTM increased by four per cent over the year-earlier period, mainly driven by favorable changes in traffic mix, a decrease in the average length of haul, higher applicable fuel surcharge rates and freight rate increases, partly offset by the negative translation impact of a stronger Canadian dollar.

Carloadings for the quarter increased by three per cent to 1,408 thousand.

Operating expenses for the first quarter increased by nine per cent to C$2,164 million, mainly driven by higher costs due to challenging operating conditions, including harsh winter weather and low network resiliency, higher training costs for new employees, and higher fuel prices, partly offset by the positive translation impact of a stronger Canadian dollar.

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. 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.

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. By their nature, forward-looking statements involve risks, uncertainties and assumptions. The Company 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.

Tuesday, April 24, 2018

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