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
highlightsFirst-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 MeasuresCN 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
StatementsCertain 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 assumptionsCN 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$70 per barrel). In
2022, CN plans to invest approximately 17% of revenues in its
capital program.
This earnings news release, as well as
additional information, including the Financial Statements, Notes
thereto and MD&A, is contained in CN’s Quarterly Review
available on the Company's website at
www.cn.ca/financial-results and on SEDAR at
www.sedar.com as well as on the U.S. Securities and Exchange
Commission's website at www.sec.gov through EDGAR.
About CNCN is a world-class
transportation leader and trade-enabler. Essential to the economy,
to the customers, and to the communities it serves, CN safely
transports more than 300 million tons of natural resources,
manufactured products, and finished goods throughout North America
every year. As the only railroad connecting Canada’s Eastern and
Western coasts with the U.S. South through a 18,600-mile rail
network, CN and its affiliates have been contributing to community
prosperity and sustainable trade since 1919. CN is committed to
programs supporting social responsibility and environmental
stewardship.
Contacts: |
|
Media |
Investment
Community |
Jonathan Abecassis |
Paul Butcher |
Senior Manager |
Vice-President |
Media Relations |
Investor Relations |
(438) 455-3692 |
(514) 399-0052 |
media@cn.ca |
investor.relations@cn.ca |
Selected Railroad Statistics – unaudited
|
Three months ended March 31 |
|
2022 |
2021 |
Financial measures |
|
|
Key financial
performance indicators (1) |
|
|
Total revenues ($
millions) |
3,708 |
3,535 |
Freight revenues ($
millions) |
3,608 |
3,423 |
Operating income ($
millions) |
1,227 |
1,327 |
Adjusted operating income ($
millions) (2)(3) |
1,237 |
1,190 |
Net income ($ millions)
(4) |
918 |
976 |
Adjusted net income ($
millions) (2)(3)(4) |
925 |
874 |
Diluted earnings per share
($) |
1.31 |
1.37 |
Adjusted diluted earnings per
share ($) (2)(3) |
1.32 |
1.23 |
Free cash flow ($ millions)
(2)(5) |
571 |
539 |
Gross property additions ($
millions) |
379 |
412 |
Share repurchases ($
millions) |
1,293 |
291 |
Dividends per share ($) |
0.7325 |
0.6150 |
Financial ratio |
|
|
Operating ratio (%) (6) |
66.9 |
62.5 |
Adjusted operating ratio (%) (2)(3) |
66.6 |
66.3 |
Operational measures (7) |
|
|
Statistical operating
data |
|
|
Gross ton miles (GTMs)
(millions) |
111,066 |
120,780 |
Revenue ton miles (RTMs)
(millions) |
56,554 |
61,454 |
Carloads (thousands) |
1,346 |
1,431 |
Route miles (includes Canada
and the U.S.) |
18,600 |
19,500 |
Employees (end of period) |
22,953 |
24,577 |
Employees (average for the period) |
22,720 |
24,508 |
Key operating measures |
|
|
Freight revenue per RTM
(cents) |
6.38 |
5.57 |
Freight revenue per carload
($) |
2,681 |
2,392 |
GTMs per average number of
employees (thousands) |
4,888 |
4,928 |
Operating expenses per GTM
(cents) |
2.23 |
1.83 |
Labor and fringe benefits
expense per GTM (cents) |
0.68 |
0.65 |
Diesel fuel consumed (US
gallons in millions) |
101.1 |
110.4 |
Average fuel price ($ per US
gallon) |
4.42 |
2.90 |
Fuel efficiency (US gallons of
locomotive fuel consumed per 1,000 GTMs) |
0.910 |
0.914 |
Train weight (tons) |
9,442 |
9,421 |
Train length (feet) |
8,205 |
8,340 |
Car velocity (car miles per
day) |
164 |
187 |
Through dwell (entire
railroad, hours) |
9.1 |
8.3 |
Through network train speed
(miles per hour) |
16.7 |
18.1 |
Locomotive utilization (trailing GTMs per total horsepower) |
187 |
198 |
Safety indicators (8) |
|
|
Injury frequency rate (per
200,000 person hours) |
1.31 |
1.60 |
Accident rate (per million train miles) |
2.57 |
1.33 |
(1) |
|
Amounts expressed in Canadian dollars and prepared in accordance
with United States generally accepted accounting principles (GAAP),
unless otherwise noted. |
(2) |
|
These Non-GAAP measures do not
have any standardized meaning prescribed by GAAP and therefore, may
not be comparable to similar measures presented by other
companies. |
(3) |
|
See the supplementary schedule
entitled Non-GAAP Measures – Adjusted performance measures for an
explanation of these non-GAAP measures. |
(4) |
|
In the first quarter of 2022, the
Company changed its method of calculating market-related values of
pension assets for its defined benefit plans using a retrospective
approach. Comparative figures have been adjusted to conform to the
change in methodology. See Note 2 – Change in accounting policy to
CN's unaudited Interim Consolidated Financial Statements for
additional information. |
(5) |
|
See the supplementary schedule
entitled Non-GAAP Measures – Free cash flow for an explanation of
this non-GAAP measure. |
(6) |
|
Operating ratio is defined as
operating expenses as a percentage of revenues. |
(7) |
|
Statistical operating data, key
operating measures and safety indicators are unaudited and based on
estimated data available at such time and are subject to change as
more complete information becomes available. Definitions of gross
ton miles, fuel efficiency, train weight, train length, car
velocity, through dwell and through network train speed are
included within the Company’s Management’s Discussion and Analysis.
Definitions of all other indicators are provided on CN's website,
www.cn.ca/glossary. |
(8) |
|
Based on Federal Railroad
Administration (FRA) reporting criteria. |
Supplementary Information – unaudited
|
Three months ended March 31 |
|
2022 |
2021 |
% ChangeFav (Unfav) |
% Change atconstantcurrencyFav (Unfav) (1) |
Revenues ($ millions) (2) |
|
|
|
|
Petroleum and chemicals |
756 |
661 |
14 |
% |
14 |
% |
Metals and minerals |
406 |
368 |
10 |
% |
10 |
% |
Forest products |
426 |
429 |
(1 |
%) |
(1 |
%) |
Coal |
195 |
126 |
55 |
% |
55 |
% |
Grain and fertilizers |
604 |
713 |
(15 |
%) |
(15 |
%) |
Intermodal |
1,056 |
968 |
9 |
% |
9 |
% |
Automotive |
165 |
158 |
4 |
% |
4 |
% |
Total freight revenues |
3,608 |
3,423 |
5 |
% |
5 |
% |
Other
revenues |
100 |
112 |
(11 |
%) |
(11 |
%) |
Total revenues |
3,708 |
3,535 |
5 |
% |
5 |
% |
Revenue ton miles (RTMs)
(millions) (3) |
|
|
|
|
Petroleum and chemicals |
11,559 |
10,732 |
8 |
% |
8 |
% |
Metals and minerals |
6,263 |
6,293 |
— |
% |
— |
% |
Forest products |
5,819 |
6,670 |
(13 |
%) |
(13 |
%) |
Coal |
5,368 |
4,026 |
33 |
% |
33 |
% |
Grain and fertilizers |
13,351 |
17,841 |
(25 |
%) |
(25 |
%) |
Intermodal |
13,556 |
15,233 |
(11 |
%) |
(11 |
%) |
Automotive |
638 |
659 |
(3 |
%) |
(3 |
%) |
Total RTMs |
56,554 |
61,454 |
(8 |
%) |
(8 |
%) |
Freight revenue / RTM (cents) (2)
(3) |
|
|
|
|
Petroleum and chemicals |
6.54 |
6.16 |
6 |
% |
6 |
% |
Metals and minerals |
6.48 |
5.85 |
11 |
% |
11 |
% |
Forest products |
7.32 |
6.43 |
14 |
% |
14 |
% |
Coal |
3.63 |
3.13 |
16 |
% |
16 |
% |
Grain and fertilizers |
4.52 |
4.00 |
13 |
% |
13 |
% |
Intermodal |
7.79 |
6.35 |
23 |
% |
23 |
% |
Automotive |
25.86 |
23.98 |
8 |
% |
8 |
% |
Total freight revenue / RTM |
6.38 |
5.57 |
15 |
% |
15 |
% |
Carloads (thousands) (3) |
|
|
|
|
Petroleum and chemicals |
159 |
150 |
6 |
% |
6 |
% |
Metals and minerals |
209 |
223 |
(6 |
%) |
(6 |
%) |
Forest products |
78 |
86 |
(9 |
%) |
(9 |
%) |
Coal |
118 |
69 |
71 |
% |
71 |
% |
Grain and fertilizers |
145 |
176 |
(18 |
%) |
(18 |
%) |
Intermodal |
589 |
676 |
(13 |
%) |
(13 |
%) |
Automotive |
48 |
51 |
(6 |
%) |
(6 |
%) |
Total carloads |
1,346 |
1,431 |
(6 |
%) |
(6 |
%) |
Freight revenue / carload ($) (2)
(3) |
|
|
|
|
Petroleum and chemicals |
4,755 |
4,407 |
8 |
% |
8 |
% |
Metals and minerals |
1,943 |
1,650 |
18 |
% |
18 |
% |
Forest products |
5,462 |
4,988 |
10 |
% |
10 |
% |
Coal |
1,653 |
1,826 |
(9 |
%) |
(9 |
%) |
Grain and fertilizers |
4,166 |
4,051 |
3 |
% |
3 |
% |
Intermodal |
1,793 |
1,432 |
25 |
% |
25 |
% |
Automotive |
3,438 |
3,098 |
11 |
% |
11 |
% |
Total freight revenue / carload |
2,681 |
2,392 |
12 |
% |
12 |
% |
(1) |
|
This Non-GAAP measure does not have any standardized meaning
prescribed by GAAP and therefore, may not be comparable to similar
measures presented by other companies. See the supplementary
schedule entitled Non-GAAP Measures – Constant currency for an
explanation of this non-GAAP measure. |
(2) |
|
Amounts expressed in Canadian
dollars. |
(3) |
|
Statistical operating data and
related key operating measures are unaudited and based on estimated
data available at such time and are subject to change as more
complete information becomes available. |
Non-GAAP Measures – unaudited
In this supplementary schedule, the "Company" or
"CN" refers to Canadian National Railway Company, together with its
wholly-owned subsidiaries. Financial information included in this
schedule is expressed in Canadian dollars, unless otherwise
noted.
CN reports its financial results in accordance
with United States generally accepted accounting principles (GAAP).
The Company also uses non-GAAP measures that do not have any
standardized meaning prescribed by GAAP, including adjusted
performance measures, constant currency, free cash flow and
adjusted debt-to-adjusted EBITDA multiple. These non-GAAP measures
may not be comparable to similar measures presented by other
companies. From management's perspective, these non-GAAP measures
are useful measures of performance and provide investors with
supplementary information to assess the Company's results of
operations and liquidity. These non-GAAP measures should not be
considered in isolation or as a substitute for financial measures
prepared in accordance with GAAP.
Adjusted performance measures
Adjusted net income, adjusted earnings per
share, adjusted operating income, adjusted operating expenses and
adjusted operating ratio are non-GAAP measures that are used to set
performance goals and to measure CN's performance. Management
believes that these adjusted performance measures provide
additional insight to management and investors into the Company's
operations and underlying business trends as well as facilitate
period-to-period comparisons, as they exclude certain significant
items that are not reflective of CN's underlying business
operations and could distort the analysis of trends in business
performance. These items may include:
- operating expense adjustments:
workforce reduction program, depreciation expense on the deployment
of replacement system, advisory fees related to shareholder
matters, losses and recoveries from assets held for sale, business
acquisition-related costs;
- non-operating expense adjustments:
business acquisition-related financing fees, merger termination
income, gains and losses on disposal of property; and
- the effect of tax law changes and
rate enactments.
These non-GAAP measures do not have any
standardized meaning prescribed by GAAP and therefore, may not be
comparable to similar measures presented by other companies.
For the three months ended March 31, 2022, the
Company's adjusted net income was $925 million, or $1.32 per
diluted share, which excludes advisory fees related to shareholder
matters of $10 million, or $7 million after-tax ($0.01 per diluted
share) recorded in Casualty and other within the Consolidated
Statements of Income.
For the three months ended March 31, 2021, the
Company's adjusted net income was $874 million, or $1.23 per
diluted share, which excludes the recovery of $137 million, or $102
million after-tax ($0.14 per diluted share) related to the loss on
assets held for sale in the second quarter of 2020, to reflect an
agreement for the sale of on-going rail operations, certain
non-core rail lines in Wisconsin, Michigan and Ontario to a short
line operator.
Adjusted net income is defined as Net income in
accordance with GAAP adjusted for certain significant items.
Adjusted diluted earnings per share is defined as adjusted net
income divided by the weighted-average diluted shares outstanding.
The following table provides a reconciliation of Net income and
Earnings per share in accordance with GAAP, as reported for the
three months ended March 31, 2022 and 2021, to the non-GAAP
adjusted performance measures presented herein:
|
Three months ended March 31 |
In millions, except per share data |
|
2022 |
|
|
|
2021 |
|
Net income (1) |
$ |
918 |
|
|
$ |
976 |
|
Adjustments: |
|
|
|
Operating expense
adjustments: |
|
|
|
Advisory fees related to shareholder matters |
|
10 |
|
|
|
— |
|
Recovery of loss on assets held for sale |
|
— |
|
|
|
(137 |
) |
Tax adjustments: |
|
|
|
Tax effect of adjustments (2) |
|
(3 |
) |
|
|
35 |
|
Total adjustments |
|
7 |
|
|
|
(102 |
) |
Adjusted net income (1) |
$ |
925 |
|
|
$ |
874 |
|
Diluted earnings per share |
$ |
1.31 |
|
|
$ |
1.37 |
|
Impact
of adjustments, per share |
|
0.01 |
|
|
|
(0.14 |
) |
Adjusted diluted earnings per share |
$ |
1.32 |
|
|
$ |
1.23 |
|
(1) |
|
In
the first quarter of 2022, the Company changed its method of
calculating market-related values of pension assets for its defined
benefit plans using a retrospective approach. Comparative figures
have been adjusted to conform to the change in methodology. See
Note 2 – Change in accounting policy to CN's unaudited Interim
Consolidated Financial Statements for additional information. |
(2) |
|
The tax impact of adjustments is
based on the nature of the item for tax purposes and related tax
rates in the applicable jurisdiction. |
Adjusted operating income is defined as
Operating income in accordance with GAAP adjusted for certain
significant operating expense items. Adjusted operating expenses is
defined as Operating expenses in accordance with GAAP adjusted for
certain significant operating expense items. Adjusted operating
ratio is defined as adjusted operating expenses as a percentage of
revenues. The following table provides a reconciliation of
Operating income, Operating expenses and operating ratio, as
reported for the three months ended March 31, 2022 and 2021, to the
non-GAAP adjusted performance measures presented herein:
|
Three months ended March 31 |
In millions, except percentages |
|
2022 |
|
|
|
2021 |
|
Operating income |
$ |
1,227 |
|
|
$ |
1,327 |
|
Operating expense
adjustments: |
|
|
|
Advisory fees related to shareholder matters |
|
10 |
|
|
|
— |
|
Recovery of loss on assets held for sale |
|
— |
|
|
|
(137 |
) |
Total operating expense adjustments |
|
10 |
|
|
|
(137 |
) |
Adjusted operating income |
$ |
1,237 |
|
|
$ |
1,190 |
|
Operating expenses |
$ |
2,481 |
|
|
$ |
2,208 |
|
Total
operating expense adjustments |
|
(10 |
) |
|
|
137 |
|
Adjusted operating expenses |
$ |
2,471 |
|
|
$ |
2,345 |
|
Operating ratio |
|
66.9 |
% |
|
|
62.5 |
% |
Impact
of adjustments |
|
(0.3 |
)% |
|
|
3.8 |
% |
Adjusted operating ratio |
|
66.6 |
% |
|
|
66.3 |
% |
Constant currency
Financial results at constant currency allow
results to be viewed without the impact of fluctuations in foreign
currency exchange rates, thereby facilitating period-to-period
comparisons in the analysis of trends in business performance.
Measures at constant currency are considered non-GAAP measures and
do not have any standardized meaning prescribed by GAAP and
therefore, may not be comparable to similar measures presented by
other companies. Financial results at constant currency are
obtained by translating the current period results denominated in
US dollars at the weighted average foreign exchange rates used to
translate transactions denominated in US dollars of the comparable
period of the prior year.
The average foreign exchange rate was $1.27 per
US$1.00 for both the three months ended March 31, 2022 and March
31, 2021.
On a constant currency basis, the Company's
Revenues, Total operating expenses, Operating income, Income before
income taxes, Income tax expense, Net income and Diluted earnings
per share for the three months ended March 31, 2022 would have
remained unchanged.
Free cash flow
Free cash flow is a useful measure of liquidity
as it demonstrates the Company's ability to generate cash for debt
obligations and for discretionary uses such as payment of
dividends, share repurchases, and strategic opportunities. The
Company defines its free cash flow measure as the difference
between net cash provided by operating activities and net cash used
in investing activities, adjusted for the impact of (i) business
acquisitions and (i) merger transaction-related payments, cash
receipts and cash income taxes, which are items that are not
indicative of operating trends. Free cash flow does not have any
standardized meaning prescribed by GAAP and therefore, may not be
comparable to similar measures presented by other companies.
The following table provides a reconciliation of
Net cash provided by operating activities in accordance with GAAP,
as reported for the three months ended March 31, 2022 and 2021, to
the non-GAAP free cash flow presented herein:
|
Three months ended March 31 |
In millions |
|
2022 |
|
|
|
2021 |
|
Net cash provided by operating activities |
$ |
570 |
|
|
$ |
952 |
|
Net cash used in investing
activities |
|
(101 |
) |
|
|
(413 |
) |
Net cash provided before financing activities |
$ |
469 |
|
|
$ |
539 |
|
Adjustment: Cash income taxes for merger transaction-related
payments and cash receipts (1) |
|
102 |
|
|
|
- |
|
Free cash flow |
$ |
571 |
|
|
$ |
539 |
|
(1) |
|
Relates to income tax payments of
$102 million for KCS merger transaction-related payments and cash
receipts. See Note 3 – Acquisitions, Terminated CN KCS
merger agreement, to the Company’s 2021 Annual Consolidated
Financial Statements and the section entitled Adjusted performance
measures to the Company's 2021 Annual MD&A filed on
February 1, 2022 which may be found online on SEDAR at
www.sedar.com, on the SEC’s website at www.sec.gov through
EDGAR, and on the Company’s website at www.cn.ca in the
Investors section for additional information |
Adjusted debt-to-adjusted EBITDA multiple
Management believes that the adjusted
debt-to-adjusted EBITDA multiple is a useful credit measure because
it reflects the Company's ability to service its debt and other
long-term obligations. The Company calculates the adjusted
debt-to-adjusted EBITDA multiple as adjusted debt divided by the
last twelve months of adjusted EBITDA. Adjusted debt is defined as
the sum of Long-term debt and Current portion of long-term debt as
reported on the Company’s Consolidated Balance Sheets as well as
Operating lease liabilities, including current portion and pension
plans in deficiency recognized on the Company's Consolidated
Balance Sheets due to the debt-like nature of their contractual and
financial obligations. Adjusted EBITDA is calculated as Net income
excluding Interest expense, Income tax expense, Depreciation and
amortization, operating lease cost, Other components of net
periodic benefit income, Other income (loss), and other significant
items that are not reflective of CN's underlying business
operations and which could distort the analysis of trends in
business performance. Adjusted debt and adjusted EBITDA are
non-GAAP measures used to compute the Adjusted debt-to-adjusted
EBITDA multiple. These measures do not have any standardized
meaning prescribed by GAAP and therefore, may not be comparable to
similar measures presented by other companies.
The following table provides a reconciliation of debt and Net
income in accordance with GAAP, reported as at and for the twelve
months ended March 31, 2022 and 2021, to the adjusted measures
presented herein, which have been used to calculate the non-GAAP
adjusted debt-to-adjusted EBITDA multiple:
In millions, unless otherwise indicated |
As at and for the twelve months ended March 31, |
|
2022 |
|
|
|
2021 |
|
Debt |
$ |
13,383 |
|
|
$ |
12,928 |
|
Adjustments: |
|
|
|
Operating lease liabilities, including current portion (1) |
|
430 |
|
|
|
387 |
|
Pension plans in deficiency (2) |
|
443 |
|
|
|
548 |
|
Adjusted debt |
$ |
14,256 |
|
|
$ |
13,863 |
|
Net income
(3) |
$ |
4,841 |
|
|
$ |
3,514 |
|
Interest
expense |
|
606 |
|
|
|
545 |
|
Income tax expense
(3) |
|
1,419 |
|
|
|
1,142 |
|
Depreciation and
amortization |
|
1,614 |
|
|
|
1,601 |
|
Operating lease
cost (4) |
|
134 |
|
|
|
138 |
|
Other components
of net periodic benefit income (3) |
|
(433 |
) |
|
|
(319 |
) |
Other income
(loss) |
|
(31 |
) |
|
|
7 |
|
Adjustments: |
|
|
|
Workforce reduction program (5) |
|
39 |
|
|
|
— |
|
Advisory fees related to shareholder matters (6) |
|
30 |
|
|
|
— |
|
Loss on assets held for sale (7) |
|
— |
|
|
|
349 |
|
Transaction-related costs (8) |
|
84 |
|
|
|
— |
|
Merger termination fee (9) |
|
(886 |
) |
|
|
— |
|
Adjusted EBITDA |
$ |
7,417 |
|
|
$ |
6,977 |
|
Adjusted debt-to-adjusted EBITDA multiple (times) |
|
1.92 |
|
|
|
1.99 |
|
(1) |
|
Represents the present value of operating lease payments. |
(2) |
|
Represents the total funded
deficit of all defined benefit pension plans with a projected
benefit obligation in excess of plan assets. |
(3) |
|
In the first quarter of 2022, the
Company changed its method of calculating market-related values of
pension assets for its defined benefit plans using a retrospective
approach. Comparative figures have been adjusted to conform to the
change in methodology. See Note 2 – Change in accounting policy to
CN's unaudited Interim Consolidated Financial Statements for
additional information. |
(4) |
|
Represents the operating lease
costs recorded in Purchased services and material and Equipment
rents within the Consolidated Statements of Income. |
(5) |
|
Relates to employee termination
benefits and severance costs related to a workforce reduction
program, recorded in Labor and fringe benefits within the
Consolidated Statements of Income. |
(6) |
|
Relates to advisory fees related
to shareholder matters recorded in Casualty and other within the
Consolidated Statements of Income. |
(7) |
|
Relates to the recovery of $137
million of the $486 million loss on assets held for sale recorded
in the second quarter of 2020, resulting from the Company entering
into an agreement for the sale of non-core lines. See Note 5 –
Assets held for sale to the Company's unaudited Interim
Consolidated Financial Statements for further information. |
(8) |
|
Relates to transaction costs
incurred as a result of the terminated CN Merger Agreement of $84
million, consisting of $125 million of transaction-related costs,
partially offset by $41 million of income generated as a result of
the applicable foreign exchange rates prevailing at the time of
payment and related receipt of the US$700 million advance to KCS.
See Note 3 - Acquisitions, Terminated CN KCS merger agreement, to
the Company’s 2021 Annual Consolidated Financial Statements filed
on February 1, 2022 which may be found online on SEDAR at
www.sedar.com, on the SEC’s website at www.sec.gov through
EDGAR, and on the Company’s website at www.cn.ca in the
Investors section, for additional information. |
(9) |
|
Relates to the termination fee
resulting from KCS terminating the CN Merger Agreement and entering
into a merger agreement with CP. See Note 3 - Acquisitions,
Terminated CN KCS merger agreement, to the Company’s 2021 Annual
Consolidated Financial Statements filed on February 1, 2022 which
may be found online on SEDAR at www.sedar.com, on the SEC’s website
at www.sec.gov through EDGAR, and on the Company’s website at
www.cn.ca in the Investors section, for additional
information. |
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