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CN reports Q1 2021 financial results

(Source: Canadian National press release, April 26, 2021)

MONTREAL — CN today announced solid results in the first quarter of 2021, including an in-dustry-leading increase in traffic volume of five per cent year-over-year. The Company updated its 2021 financial outlook and is now targeting double-digit adjusted diluted earnings per share growth(1).

"Industry-outpacing growth in our intermodal business, as well as our strong financial perfor-mance, position CN to be the premier railway of the 21st century: an engine of North American economic growth and prosperity and both an operational and sustainability leader. Gains in safety, train length, car velocity, labor productivity, fuel efficiency and other key measures demonstrate our strong operational performance. Our proposal to combine with Kansas City Southern (KCS) will drive value to KCS and CN shareholders and significantly enhance customer choice and com-petition, while further reducing greenhouse gas emissions by converting truck to rail. We have a high degree of confidence in our business, our offer to KCS and our vision for the future. We could not have achieved these results without the extraordinary talent and dedication of our great team of railroaders, who have our respect and appreciation, as always.” — JJ Ruest, President and Chief Executive Officer of CN

Financial results highlights

First-quarter 2021 compared to first-quarter 2020

• Operating income of C$1,327 million, an increase of nine per cent, and adjusted operating income of C$1,190 million, a decrease of two per cent. (1)
• Revenues of C$3,535 million were in line with the prior year.
• Operating ratio of 62.5 per cent, an improvement of 3.2 points, and adjusted operating ratio of 66.3 per cent, an increase of 0.6 points. (1)
• Diluted earnings per share (EPS) of C$1.37, a decrease of four per cent, and adjusted diluted EPS of C$1.23, an increase of one per cent. (1)
• CN recovered C$137 million, or C$102 million after-tax (C$0.14 per diluted share), of the C$486 million loss on assets held for sale recorded in the second quarter of 2020, resulting from the Company entering into a definitive agreement for the sale of non-core lines in Wisconsin, Michigan and Ontario.

Operating Performance

First-quarter 2021 compared to first-quarter 2020

Operating performance improved in the first quarter of 2021 when compared to the same period in 2020, mainly due to the partial economic recovery and reduced impacts of the COVID-19 pandem-ic as well as the impacts of the illegal blockades in the first quarter of 2020.

• Federal Railroad Association (FRA) personal injury and accident rates decreased by 27 per cent and 36 per cent, respectively.
8 Fuel efficiency improved by four percent to 0.92 US gallons of locomotive fuel consumed per 1,000 gross ton miles.
• Train length (in feet) increased by five per cent.
• Through dwell (entire railroad, hours) remained flat.
• Car velocity (car miles per day) increased by five per cent.
• Through network train speed (mph) decreased by one per cent.

Updated 2021 financial outlook (2)

CN updated its 2021 financial outlook and is now targeting double-digit adjusted diluted EPS growth, versus 2020 adjusted diluted EPS of C$5.31(1) (compared to its financial outlook of Janu-ary 26, 2021, which called for adjusted diluted EPS growth in the high single-digit range). The Company now assumes high single-digit volume growth in 2021 in terms of revenue ton miles (RTMs). Furthermore, CN is still targeting free cash flow in the range of C$3.0 billion to C$3.3 billion in 2021 compared to C$3.2 billion in 2020.

First-quarter 2021 revenues, traffic volumes and expenses

Revenues for the first quarter of 2021 of C$3,535 million were in line with the prior year. Record first quarter intermodal traffic and shipments of Canadian grain, and freight rate increases were off-set by lower volumes for other commodity groups caused mainly by the ongoing effects of the COVID-19 pandemic, the negative translation impact of a stronger Canadian dollar and lower ap-plicable fuel surcharge rates. The unfavorable revenue impact of the polar vortex in February 2021 was similar in magnitude to the unfavorable revenue impact of the illegal blockades in February 2020.
RTMs, measuring the weight and distance of freight transported by CN, increased by five per cent from the year-earlier period. Freight revenue per RTM decreased by five per cent over the year-earlier period, mainly driven by the negative translation impact of a stronger Canadian dollar, lower applicable fuel surcharge rates and an increase in the average length of haul; partly offset by freight rate increases.

Operating expenses for the first quarter decreased by five per cent to C$2,208 million, mainly due to a recovery of the loss on assets held for sale resulting from the Company entering into an agreement for the sale of non-core lines as well as the positive translation impact of a stronger Ca-nadian dollar; partly offset by higher incentive compensation and higher fuel costs.

Proposed combination with KCS

On April 20, 2021, CN announced a superior proposal to combine with KCS (NYSE: KSU) in a transaction valued at US$325 per KCS share, or approximately US$33.7 billion(3). On April 24, 2021, KCS’ Board of Directors unanimously determined that CN’s proposal could reasonably be expected to lead to a “Company Superior Proposal” as defined in KCS’ existing merger agreement with Canadian Pacific Railway Limited (“CP”), allowing CN and KCS to engage in discussions with respect to CN’s proposal.

Under the terms of CN’s proposal, KCS shareholders will receive US$200 in cash and 1.059 shares of CN common stock upon closing of the transaction into a voting trust. CN is proposing to use a voting trust structure identical to that proposed by CP. CN anticipates that the Surface Trans-portation Board will approve CN’s proposed voting trust on the same timetable as CP’s proposal.

A combination of CN and KCS will create a safer, faster, cleaner and stronger railway that is ideal-ly positioned to support the growth of an emerging consumption-based economy through better service options and customer choice. Specifically, this combination will create an express route that connects the U.S., Mexico and Canada with a seamless single-owner, single-operator service, pre-serves access to all existing interchange options to enhance route choice and ensures robust price competition with new routes and a commitment to maintain open gateways to competitor networks. CN believes this combination will help make its customers’ businesses better, speed the movement of goods from country to country and coast to coast, enhance competition, create jobs up and down the railroad and prevent millions of tons of greenhouse gases from entering the atmosphere by converting truck traffic to rail. Together, the combined company will offer an enhanced ability to connect ports in the Atlantic, Pacific and the Gulf of Mexico while also adding more fluid, rapid and cost-efficient options across network points such as Laredo, Texas; Detroit, Michigan; and Southern Ontario, Canada, for both new and existing customers. CN looks forward to engaging constructively with KCS’ Board and all relevant stakeholders to deliver this superior transaction.

Full story: www.cn.ca

Tuesday, April 27, 2021

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