MONTREAL – BUSINESS – CN (TSX: CNR) (NYSE: CNI) has reported its financial and operating results for the second quarter ended June 30, 2022.
Financial performance improved year-over-year with record adjusted diluted earnings per share (EPS) of C$1.93, up 30%. (1) For the same period, the Company reported diluted EPS up 32% to C$1.92. CN also delivered solid operational performance with improvements in key operating metrics such as origin train performance, car velocity, through dwell and record fuel efficiency, resulting in a lower operating ratio.
“I am proud of our team of railroaders and pleased with our solid performance this quarter. Our team has the network running well, demonstrating improvements in service levels to our customers, driving greater velocity and generating strong financial results. We are preparing for a busy fall and are well positioned to achieve our 2022 outlook.”
– Tracy Robinson, President and Chief Executive Officer, CN
Financial results and operating highlights
Second-quarter 2022 compared to second-quarter 2021
- Record revenues of C$4,344 million, an increase of C$746 million or 21%.
- Record operating income of C$1,769 million, an increase of 28%, and record adjusted operating income of C$1,781 million, an increase of 29%. (1)
- Diluted EPS of C$1.92, an increase of 32%, and record adjusted diluted EPS of C$1.93, an increase of 30%. (1)
- Operating ratio, defined as operating expenses as a percentage of revenues, of 59.3%, an improvement of 2.3-points, and adjusted operating ratio of 59.0%, an improvement of 2.6-points. (1)
- Free cash flow for the first six months of 2022 was C$1,568 million compared to C$1,280 million for the same period in 2021. (1)
- Injury frequency rate (3) increased by 43% and the accident rate (4) decreased by 24%.
- Car velocity (car miles per day) improved by 2% and through dwell (entire railroad, hours) improved by 6%.
- Fuel efficiency improved by 4% to a record of 0.838 US gallons of locomotive fuel consumed per 1,000 gross ton miles (GTMs).
- For the month of June, origin train performance, defined as the percentage of actual train departure time compared to designed train departure time at selected yards, reached 91%, an improvement of 14% compared to 80% for the same period in 2021.
Reaffirming 2022 financial outlook (2)
CN confirms its 2022 outlook targeting to deliver approximately 15-20% adjusted diluted EPS growth in 2022. (1) CN continues to target an operating ratio below 60% for 2022 as well as a ROIC of approximately 15%. (1) CN maintains its free cash flow target in the range of C$3.7 billion – C$4.0 billion in 2022. (1)
Second-quarter 2022 revenues, traffic volumes and expenses
Revenues for the second quarter of 2022 were C$4,344 million, an increase of C$746 million, or 21%, when compared to the same period in 2021. The increase was mainly due to higher applicable fuel surcharge rates, freight rate increases, higher Canadian export volumes of coal via west coast ports, higher volumes of U.S. grain and the positive translation impact of a weaker Canadian dollar; partly offset by significantly lower export volumes of Canadian grain.
Revenue ton miles (RTMs), measuring the weight and distance of freight transported by CN, increased by 2% compared to the year-earlier period. Freight revenue per RTM increased by 19% compared to the year-earlier period, mainly driven by higher applicable fuel surcharge rates, freight rate increases and the positive translation impact of a weaker Canadian dollar.
Operating expenses for the second quarter of 2022 increased by 16% to C$2,575 million, mainly driven by higher fuel prices and the negative translation impact of a weaker Canadian dollar; 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, general economic and business conditions, including factors impacting global supply chains such as pandemics and geopolitical conflicts and tensions; 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 assumes that the 2022/2023 grain crop in Canada will be above its three-year average (or in line when excluding the significantly lower 2021/2022 crop year) and 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 upon contract renewals. CN assumes that in 2022, the value of the Canadian dollar in U.S. currency will be approximately $0.80, and 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. 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.