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CN reports Q3 2021 results

(Source: Canadian National Railway press release, October 19, 2021)

MONTREAL — CN today reported its financial and operating results for the third quarter ended September 30, 2021, showing strong performance across nearly all key metrics, with adjusted diluted earnings per share ("EPS") of C$1.52, up 10 per cent, an adjusted operating ratio of 59.0 per cent, an improvement of 90 basis points, and revenues of C$3.6 billion, up five per cent over the third quarter of 2020. For the same period, the Company reported a 72 per cent year-over-year increase in diluted EPS to C$2.37 and an operating ratio of 62.7 per cent.

Financial results highlights
Third-quarter 2021 compared to third-quarter 2020

• Revenues of C$3,591 million, an increase of C$182 million or five per cent.
• Operating income of C$1,341 million, a decrease of two per cent, and adjusted operating income of C$1,471 million, an increase of eight per cent on an adjusted basis. (1)
• Diluted EPS of C$2.37, an increase of 72 per cent, and adjusted diluted EPS of C$1.52, an increase of 10 per cent. (1)
• Operating ratio of 62.7 per cent, an increase of 2.8 points, and adjusted operating ratio of 59.0 per cent, an improvement of 0.9 points. (1)
• Operating income and operating ratio were impacted by transaction-related costs for the terminated CN merger agreement with KCS, a workforce reduction provision, and advisory fees related to shareholder matters. (1)
• For the nine months ended September 30, 2021, after accounting for all direct and incremental expenses as well as income generated from the merger termination fee, CN recorded additional income of C$705 million (C$616 million after-tax), as a result of its strategic decision to bid for KCS.
• Free cash flow for the first nine months of 2021 was C$2,034 million compared to C$2,087 million for the same period in 2020. (1)

“CN’s dedicated railroaders produced strong financial and operating results this quarter, despite headwinds from severe wildfires in Western Canada that caused a prolonged disruption to CN’s main line to Vancouver in July. We are proud of the team’s efforts and dedication, as well as the progress we are making on executing our strategic plan. This includes delivering immediate shareholder value while maintaining our long-term commitment to safety, customer service and sustainable value creation. Our entire organization is highly confident that the investments we have made in safety, technology and capacity over the past three years will support the Company in delivering enhanced financial results in the last quarter of this year, as well as in 2022 and beyond. Similarly, we believe that we are well positioned to achieve our targets of C$700 million of additional operating income and a 57 per cent operating ratio for 2022. We are already seeing solid progress toward these goals and are working to continue to deliver results to benefit all CN shareholders.” — JJ Ruest, President and Chief Executive Officer, CN.

Operating performance
Third-quarter 2021 compared to third-quarter 2020

Operating performance improved in the third quarter of 2021 when compared to the same period in 2020. Gross ton miles (GTMs) decreased as operations were impacted by reduced volumes of Canadian grain, compared to record volumes in the third quarter of 2020. The Company continued to focus on efficiency and network fluidity, resulting in significant improvements in Through network train speed, Through dwell and Car velocity. The Company also achieved an all-time record Fuel efficiency.

• Federal Railroad Association (FRA) injury frequency rate improved by seven per cent and the accident rate increased by 21 per cent, respectively.
• Fuel efficiency improved by one per cent to 0.84 US gallons of locomotive fuel consumed per 1,000 GTMs.
• Train length (in feet) decreased by three per cent.
• Through dwell (entire railroad, hours) improved by 20 per cent.
• Car velocity (car miles per day) improved by 17 per cent.
• Through network train speed (mph) increased by 11 per cent.

Reaffirming 2021 financial outlook

CN expects to deliver 10 per cent adjusted diluted EPS growth, versus 2020 adjusted diluted EPS of C$5.31(1). CN now assumes total revenue ton miles (RTMs) in 2021 will increase in the low single-digit range versus 2020 (compared to its September 17, 2021 assumption of an increase in the mid single-digit range). 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.

Delivering value for shareholders

As previously announced on September 17, CN has resumed share repurchases under the plan previously approved by CN’s Board of Directors in January 2021 and expects to complete the remaining C$1.1 billion of share repurchases under the plan by the end of January 2022.

Third-quarter 2021 revenues, traffic volumes and expenses

The five per cent increase in revenues for the third quarter of 2021, when compared to the same period in 2020, was mainly due to freight rate increases, higher applicable fuel surcharge rates, and an increase in intermodal ancillary services. These gains were partially offset by the negative translation impact of a stronger Canadian dollar and lower volumes of Canadian grain in terms of RTMs, compared to record volumes in the third quarter of 2020.

RTMs, measuring the relative weight and distance of freight transported by CN, declined by one per cent compared to the year-earlier period. Freight revenue per RTM increased by six per cent compared to the year-earlier period, mainly driven by a significant decrease in the average length of haul, freight rate increases and higher applicable fuel surcharge rates; partly offset by the negative translation impact of a stronger Canadian dollar.

Operating expenses for the third quarter of 2021 increased by ten per cent to C$2,250 million, mainly driven by higher fuel costs due to rising fuel prices, C$84 million of transaction-related costs resulting from the terminated CN Merger Agreement with KCS and higher incentive compensation compared to significantly lower levels of incentive compensation in 2020 due to below-target results stemming from the impact of COVID-19, partly offset by the positive translation impact of a stronger Canadian dollar.

(Full story and more information at the link above.)

Wednesday, October 20, 2021

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