CN’s first-quarter 2015net income was C$704 million, or C$0.86 per diluted share, compared with net income of C$623 million, or C$0.75 per diluted share, in first-quarter 2014 (a 28% increase over adjusted net income of C$551 million for 1Q2014). Diluted EPS increased 30% to C$0.86 from adjusted diluted EPS of C$0.66 in 1Q2014, which excluded a gain on a rail line sale. Operating income increased 30% to C$1.06 billion. Revenues increased 15% to C$3.1 billion, revenue ton-miles grew by 7%, and carloadings increased 9%. The operating ratio improved by 3.9 points to 65.7%, compared to 69.6% the year before. Free cash flow C$521 million, up from C$494 million for the year-earlier quarter.
CN saw revenue increases in most categories. Revenues increased for grain and fertilizers (24%), forest products (23%), automotive (23%), metals and minerals (22%), petroleum and chemicals (13%), and intermodal (11%). Coal revenues declined by 13%. “The increase in revenues was mainly attributable to the positive translation impact of the weaker Canadian dollar on U.S.-dollar-denominated revenues; higher volumes of Canadian grain and potash; strong overseas intermodal demand; higher shipments of lumber and panels to U.S. markets; higher volumes of frac sand; and freight rate increases,” the company said. “These factors were partly offset by decreased shipments of coal due to weaker global demand. Overall, revenues were favorably affected by improved operating conditions due to a more normal winter when compared with the same period of 2014, which enhanced our ability to serve our customers.”
Carloadings for the quarter rose by 9% to 1.4 million. Revenue ton-miles increased by 7% over the year-earlier quarter. Rail freight revenue per revenue ton-mile increased by 8%, driven by the positive translation impact of the weaker Canadian dollar and freight rate increases, partly offset by a lower applicable fuel surcharge rate.
Operating expenses for the quarter increased by 9% to C$2.04 billion, mainly as a result of the negative translation impact of a weaker Canadian dollar on U.S.-dollar-denominated expenses, increased casualty and other expense, higher labor and fringe benefits expense, as well as increased purchased services and material expense, partly offset by lower fuel costs. “Overall, expenses were favorably affected by improved operating conditions due to a more normal winter when compared with the same period of 2014,” CN said.
“Although CN reports its earnings in Canadian dollars, a large portion of its revenues and expenses is denominated in U.S. dollars,” the company said. “The fluctuation of the Canadian dollar relative to the U.S. dollar affects the conversion of our U.S.-dollar-denominated revenues and expenses. On a constant currency basis, CN’s net income for the first quarter of 2015 would have been lower by C$56 million, or C$0.07 per diluted share.
“CN turned in a solid first-quarter performance thanks to strong freight demand and continued productivity improvements, helped in part by easier winter conditions compared with last year’s polar vortex,” said CN President and CEO Claude Mongeau, who affirm the company’s outlook for double-digit EPS growth in 2015 vs. last year’s adjusted diluted EPS of C$3.76, “despite weaker than expected energy markets and a mixed economy. As always, we remain committed to growing our business faster than the overall economy and doing so at low incremental cost. We are equally committed to running a safe railway and are increasing our 2015 capital envelope by C$100 million to C$2.7 billion to sustain additional rail infrastructure safety investments.”