MONTREAL – BUSINESS – As reported this morning, CN was to report First-Quarter financial results after the market closed.
This evening, CN (TSX: CNR) (NYSE: CNI) today reported its financial and operating results for the first quarter ended March 31, 2022. CN delivered sound operating and financial performance across the board, with adjusted diluted earnings per share (EPS) of C$1.32, up 7%. (1) For the same period, the Company reported diluted EPS down 4% to C$1.31.
“CN has an incredible tri-coastal network, the best on the continent. Our team of experienced railroaders demonstrated resilience in the first quarter, managing through severe winter weather conditions and supply chain disruptions to deliver solid results. I am encouraged by the cadence that we developed at the end of the quarter as we lifted out of winter operations. Looking ahead, our immediate focus is on restoring CN’s network to its full capacity and running a scheduled railroad with an emphasis on velocity. I am confident that we will have a strong year and deliver on our 2022 financial outlook.”
— Tracy Robinson, President and Chief Executive Officer, CN
Financial results and operating highlights
First-quarter 2022 compared to first-quarter 2021
- Revenues of C$3,708 million, an increase of C$173 million or 5%.
- Operating income of C$1,227 million, a decrease of 8%, and adjusted operating income of C$1,237 million, an increase of 4%. (1)
- Diluted EPS of C$1.31, a decrease of 4%, and adjusted diluted EPS of C$1.32, an increase of 7%. (1)
- Operating ratio, defined as operating expenses as a percentage of revenues, of 66.9%, an increase of 4.4-points, and adjusted operating ratio of 66.6%, an increase of 0.3-points. (1)
- Free cash flow for the first three months of 2022 was C$571 million compared to C$539 million for the same period in 2021. (1)
- Injury frequency rate (3) improved by 18% and the accident rate (4) increased by 93%.
- Car velocity (car miles per day) decreased by 12%.
- Fuel efficiency remained flat at 0.910 US gallons of locomotive fuel consumed per 1,000 gross ton miles (GTMs).
Updated 2022 financial outlook (2)
Due to challenging operating conditions in the first quarter as well as worldwide economic uncertainty, CN now expects to deliver approximately 15-20% adjusted diluted EPS growth (compared to its January 25, 2022 target of 20%). (1) CN is now targeting an operating ratio below 60% for 2022 (compared to its January 25, 2022 target of approximately 57%) as well as approximately 15% of ROIC. (1) CN is also now targeting free cash flow in the range of C$3.7 billion – C$4.0 billion in 2022 (compared to its January 25, 2022 target of approximately C$4.0 billion). (1)
First-quarter 2022 revenues, traffic volumes and expenses
Revenues for the first quarter of 2022 were C$3,708 million compared to C$3,535 million for the same period in 2021, reflecting strong demand, despite reduced RTMs resulting from the significantly smaller Canadian grain crop, persistent global supply chain disruptions and challenging operating conditions, including harsher winter weather. The increase of 5%, was mainly due to higher applicable fuel surcharge rates, freight rate increases, higher Canadian export volumes of coal via west coast ports and higher export volumes of U.S. grain; partly offset by significantly lower export volumes of Canadian grain and lower international container traffic volumes via the ports of Vancouver and Prince Rupert.
RTMs, measuring the weight and distance of freight transported by CN, declined by 8% compared to the year-earlier period. Freight revenue per RTM increased by 15% compared to the year-earlier period, mainly driven by a significant decrease in the average length of haul, higher applicable fuel surcharge rates and freight rate increases.
Operating expenses for the first quarter of 2022 increased by 12% to C$2,481 million, mainly due to higher fuel costs due to the rapid rise in fuel prices as well as the recovery of the loss on assets held for sale recorded in the first quarter of 2021 resulting from the Company entering into an agreement for the sale of non-core lines; partly offset by lower average headcount.
(1) Non-GAAP Measures
CN reports its financial results in accordance with United States generally accepted accounting principles (GAAP). CN may also use non-GAAP measures in this news release that do not have any standardized meaning prescribed by GAAP, including adjusted net income, adjusted earnings per share, adjusted operating income and adjusted operating ratio (referred to as adjusted performance measures) 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 diluted EPS outlook (2), ROIC outlook (2) and free cash flow outlook (2) exclude certain adjustments, which are expected to be comparable to adjustments made in prior years. However, management cannot individually quantify on a forward-looking basis the impact of these adjustments on its adjusted diluted EPS, ROIC or free cash flow 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, its ROIC outlook or its free cash flow 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, including statements based on management’s assessment and assumptions and publicly available information with respect to CN. By their nature, forward-looking statements involve risks, uncertainties and assumptions. CN 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.
Forward-looking statements are not guarantees of future performance and involve risks, uncertainties and other factors which may cause actual results, performance or achievements of CN to be materially different from the outlook or any future results, performance or achievements implied by such statements. Accordingly, readers are advised not to place undue reliance on forward-looking statements. Important risk factors that could affect the forward-looking statements in this news release include, but are not limited to, the duration and effects of the COVID-19 pandemic; general economic and business conditions, particularly in the context of the COVID-19 pandemic; industry competition; inflation, currency and interest rate fluctuations; changes in fuel prices; legislative and/or regulatory developments; compliance with environmental laws and regulations; actions by regulators; increases in maintenance and operating costs; security threats; reliance on technology and related cybersecurity risk; trade restrictions or other changes to international trade arrangements; transportation of hazardous materials; various events which could disrupt operations, including illegal blockades of rail networks, and natural events such as severe weather, droughts, fires, floods and earthquakes; climate change; labor negotiations and disruptions; environmental claims; uncertainties of investigations, proceedings or other types of claims and litigation; risks and liabilities arising from derailments; timing and completion of capital programs; and other risks detailed from time to time in reports filed by CN with securities regulators in Canada and the United States. Reference should also be made to Management’s Discussion and Analysis (MD&A) in CN’s annual and interim reports, Annual Information Form and Form 40-F, filed with Canadian and U.S. securities regulators and available on CN’s website, for a description of major risk factors relating to CN.
Forward-looking statements reflect information as of the date on which they are made. CN assumes no obligation to update or revise forward-looking statements to reflect future events, changes in circumstances, or changes in beliefs, unless required by applicable securities laws. In the event CN does update any forward-looking statement, no inference should be made that CN will make additional updates with respect to that statement, related matters, or any other forward-looking statement.
(3) Per 200,000 person hours, based on Federal Railroad Administration (FRA) reporting criteria.
(4) Per million train miles, based on FRA reporting criteria.
2022 key assumptions
CN has made a number of economic and market assumptions in preparing its 2022 outlook. The Company assumes that North American industrial production for the year will increase in the mid single-digit range and assumes U.S. housing starts of approximately 1.6 million units and U.S. motor vehicle sales of approximately 15.5 million units. For the 2021/2022 crop year, the grain crop in Canada was below its three-year average and the U.S. grain crop was in line with its three-year average. The Company now assumes that the 2022/2023 grain crop in Canada will be above its three-year average (compared to its January 25, 2022 assumption that it would be in line with its three-year average) and assumes that the 2022/2023 U.S. grain crop will be in line with its three-year average. CN assumes total RTMs in 2022 will increase in the low single-digit range versus 2021. CN assumes continued pricing above rail inflation. CN assumes that in 2022, the value of the Canadian dollar in U.S. currency will be approximately $0.80, and now assumes that in 2022 the average price of crude oil (West Texas Intermediate) will be in the range of US$90 – US$100 per barrel (compared to its January 25, 2022 assumption of approximately US$65 – US$70 per barrel). In 2022, CN plans to invest approximately 17% of revenues in its capital program.
This earnings news release, as well as additional information, including the Financial Statements, Notes thereto and MD&A, is contained in CN’s Quarterly Review available on the Company’s website at www.cn.ca/financial-results and on SEDAR at www.sedar.com as well as on the U.S. Securities and Exchange Commission’s website at www.sec.gov through EDGAR.
CN is a world-class transportation leader and trade-enabler. Essential to the economy, to the customers, and to the communities it serves, CN safely transports more than 300 million tons of natural resources, manufactured products, and finished goods throughout North America every year. As the only railroad connecting Canada’s Eastern and Western coasts with the U.S. South through a 18,600-mile rail network, CN and its affiliates have been contributing to community prosperity and sustainable trade since 1919. CN is committed to programs supporting social responsibility and environmental stewardship.