Canadian National today reported its financial and operating results for the fourth quarter and year ended December 31, 2019.
“We remain focused on executing our strategy of long-term sustainable growth at low incremental cost,” said JJ Ruest, president and chief executive officer of CN. “Our strategic deployment of technology, the next step in our Precision Scheduled Railroading model and our next driver of value, is well underway. At the same time, we continue to closely monitor the freight volume environment and rightsize our resources and costs to demand.”
“Over the past two years, CN invested C$7.4 billion in capital expenditures to increase capacity, efficiency and resiliency of the network. In 2020, our capital program will decrease to C$3.0 billion, generating higher free cash flow. CN’s strong balance sheet provides us with the financial flexibility and resiliency required in the current turbulent economic environment.”
Financial results highlights
Fourth-quarter 2019 compared to fourth-quarter 2018
- Results impacted by 8-day labour strike and weak freight demand.
- Revenues of C$3,584 million, a decrease of six per cent.
- Diluted earnings per share (EPS) of C$1.22, a decrease of 22 per cent, and adjusted diluted EPS of C$1.25, a decrease of 16 per cent. (1)
- Operating ratio of 66.0 per cent, an increase of 4.1 points, and adjusted operating ratio of 65.2 per cent, an increase of 4.0 points. (1)
- Operating income of C$1,218 million, a decrease of 16 per cent, and adjusted operating income of C$1,249 million, a decrease of 16 per cent. (1)
Full-year 2019 compared to full-year 2018
- Revenues of C$14,917 million, an increase of four per cent.
- Diluted EPS of C$5.83, a decrease of one per cent and adjusted diluted EPS of C$5.80, an increase of five per cent. (1)
- Operating ratio of 62.5 per cent, an increase of 0.9 points, and adjusted operating ratio of 61.7 per cent, an increase of 0.2 points. (1)
- Operating income of C$5,593 million, an increase of two per cent, and adjusted operating income of C$5,708 million, an increase of three per cent. (1)
- Adjusted return on invested capital (adjusted ROIC) of 15.1 per cent, a decrease of 0.6 points. (1)
2020 outlook and shareholder distribution(2)
- “We have growth opportunities that we anticipate will translate into low single-digit volume growth in 2020 in terms of revenue ton miles (RTMs), despite continued weakness in the broad freight environment,” said Ruest.
CN is targeting to deliver EPS growth in the mid single-digit range this year compared to adjusted diluted EPS of C$5.80 in 2019. (1)
CN is also targeting free cash flow in the range of C$3.0 billion to C$3.3 billion in 2020 compared to C$2.0 billion in 2019. (1)
The Company’s Board of Directors approved a seven per cent increase to CN’s 2020 quarterly cash dividend, effective for the first quarter of 2020. This is the 24th consecutive year of dividend increase, demonstrating our confidence in the long-term financial health of the Company. In addition, the Company’s Board of Directors also approved a new normal course issuer bid that permits CN to purchase, for cancellation, over a 12-month period up to 16 million common shares, starting on February 1, 2020, and ending no later than January 31, 2021.
Fourth-quarter 2019 revenues, traffic volumes and expenses
Revenues for the quarter decreased by six per cent to C$3,584 million, when compared to the same period in 2018. The decrease in revenues was mainly attributable to lower volumes, due to the weakening economic environment and the conductor strike in November; partly offset by the inclusion of TransX in the intermodal commodity group within the domestic market, freight rate increases and higher international container traffic via the Port of Prince Rupert.
RTMs, measuring the weight and distance of freight transported by CN, declined by 13 per cent. Freight revenue per RTM increased by nine per cent.
Operating expenses for the quarter remained flat, when compared to the same period in 2018. The increases in purchased services and material expense, due to the inclusion of TransX, and depreciation expense; were offset by lower costs from decreased volumes of traffic and lower incentive compensation.
Full-year 2019 revenues, traffic volumes and expenses
Revenues for 2019 increased by four per cent to C$14,917 million, when compared to 2018. The increase in revenues was mainly attributable to freight rate increases, the inclusion of TransX in the intermodal commodity group within the domestic market, the positive translation impact of a weaker Canadian dollar and higher volumes of petroleum crude, natural gas liquids and refined petroleum products in the first nine months. These factors were partly offset by lower volumes of a broad range of forest products, reduced U.S. thermal coal exports via the Gulf Coast and lower shipments of frac sand.
RTMs declined by three per cent. Freight revenue per RTM increased by eight per cent, mainly driven by freight rate increases, the inclusion of TransX in the intermodal commodity group and the positive translation impact of a weaker Canadian dollar.
Operating expenses increased by six per cent to C$9,324 million, mainly due to increased purchased services and material expense, due to the inclusion of TransX, higher depreciation expense and the negative translation impact of a weaker Canadian dollar; partly offset by lower fuel prices.
(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, such as adjusted performance measures. 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 diluted 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 diluted EPS outlook.
(2) 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.
Additional Class 1 earnings reports
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