CN’s Third Quarter Results Reflect Strong Top-Line Growth and Renewed Focus on Scheduled Operation

CN Rail cars in Thunder Bay
CN Rail cars in Thunder Bay

MONTREAL – BUSINESS – CN (TSX: CNR) (NYSE: CNI) today reported its financial and operating results for the third quarter ended September 30, 2022. Diluted earnings per share (EPS) of C$2.13 increased by 40% on an adjusted basis, which represents a quarterly record. (1) Diluted EPS decreased by 10%, mainly due to a merger termination fee received in the same quarter of 2021. CN delivered strong top-line growth and yield, as operational advancements continued to drive improvements to key metrics, including car velocity, dwell, and train speed.

“Our back to basics approach continues to drive strong results. CN’s team of railroaders is doing a great job in delivering service to our customers and value for our shareholders. We remain focused on disciplined execution of our integrated operating plan to maximize the effectiveness and efficiency of our incredible three-coast network. We have a busy fourth quarter, with a strong start in the Canadian grain crop, and we are resourced for the months ahead. We are pleased to be raising our 2022 outlook to reflect our performance.”
– Tracy Robinson, President and Chief Executive Officer, CN

Financial results and operating highlights
Third-quarter 2022 compared to third-quarter 2021

  • Record revenues of C$4,513 million, an increase of C$922 million or 26%, mainly due to higher fuel surcharge revenue driven by higher fuel prices, freight rate increases and the positive translation impact of a weaker Canadian dollar.
  • Record operating income of C$1,932 million, an increase of 44%, or an increase of 31% on an adjusted basis. (1)
  • Diluted EPS of C$2.13, a decrease of 10%, mainly due to a merger termination fee received in the third quarter of 2021.
  • Diluted EPS increased by 40% on an adjusted basis, which represents a quarterly record. (1)
  • Operating ratio, defined as operating expenses as a percentage of revenues, of 57.2%, an improvement of 5.5-points, or an improvement of 1.8-points on an adjusted basis. (1)
  • Free cash flow for the first nine months of 2022 was C$2,924 million compared to C$2,034 million for the same period in 2021. (1)
  • Injury frequency rate (3) decreased by 29% and the accident rate (4) decreased by 19%.
  • Car velocity improved by 5% and dwell improved by 9%.
  • Fuel efficiency improved by 1% to 0.838 US gallons of locomotive fuel consumed per 1,000 gross ton miles (GTMs).
  • Origin train performance averaged 87%, an improvement of 12% compared to 78% for the same period in 2021. (5)

New 2022 financial outlook (2)
CN is now expecting to deliver approximately 25% of adjusted diluted EPS growth (compared to its April 26, 2022 target of 15-20%) and free cash flow of approximately C$4.2 billion in 2022 (compared to its April 26, 2022 target range of C$3.7 billion – C$4.0 billion). (1) CN continues to target an operating ratio below 60% and a ROIC of approximately 15% in 2022. (1)

Third-quarter 2022 revenues, traffic volumes and expenses
Revenues for the third quarter of 2022 were C$4,513 million, an increase of C$922 million, or 26%, when compared to the same period in 2021. The increase was mainly due to higher fuel surcharge revenue driven by higher fuel prices, 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.

Revenue ton miles (RTMs), measuring the weight and distance of freight transported by CN, increased by 5% compared to the year-earlier period. Freight revenue per RTM increased by 22% compared to the year-earlier period, mainly driven by higher fuel surcharge revenue driven by higher fuel prices, freight rate increases and the positive translation impact of a weaker Canadian dollar.

Operating expenses for the third quarter of 2022 increased by 15% to C$2,581 million, mainly driven by higher fuel prices and the negative translation impact of a weaker Canadian dollar; partly offset by Transaction-related costs of $84 million recorded in the third quarter of 2021 resulting from the terminated CN Merger Agreement with Kansas City Southern (“KCS”).

(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.

(5) Origin train performance is defined as the percentage of manifest, automotive, and domestic intermodal trains departing origin within allowance of the scheduled time.

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 now assumes U.S. housing starts of approximately 1.6 million units and U.S. motor vehicle sales of approximately 14 million units (compared to its January 25, 2022 assumption 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 now assumes that in 2022, the value of the Canadian dollar in U.S. currency will be approximately $0.77 (compared to its January 25, 2022 assumption of approximately $0.80) and now assumes that in 2022 the average price of crude oil (West Texas Intermediate) will be approximately US$95 per barrel (compared to its April 26, 2022 assumption of approximately 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 and on SEDAR at as well as on the U.S. Securities and Exchange Commission’s website at through EDGAR.

About CN
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.

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