CN (TSX: CNR) (NYSE: CNI) today reported its financial and
operating results for the third quarter ended September 30, 2020.
"CN's people never stopped working since the
beginning of the pandemic and I am proud of the essential
transportation service they have provided. As we look at the fourth
quarter and beyond, we continue to see sequential improvements and
momentum leading us to have a cautious optimism about the future.
We remain confident in our ability to continue delivering long-term
shareholder value."- JJ Ruest, President and Chief Executive
Officer of CN
Financial results
highlightsThird-quarter 2020 compared to
third-quarter 2019
- Volumes, in terms of revenue ton
miles (RTMs), improved sequentially in each month of the third
quarter of 2020 and September volumes increased on a year-over-year
basis, reflecting demand for certain commodities in-line with 2019
levels.
- Revenues of C$3,409 million, a
decrease of C$421 million or 11 per cent.
- Diluted earnings per share of
C$1.38, a decrease of 17 per cent.
- Operating ratio of 59.9 per cent,
an increase of 2.0 points.
- Operating income of C$1,366
million, a decrease of 15 per cent.
- Free cash flow for the first nine
months of 2020 was C$2,087 million, an increase of C$588 from the
prior period. (1)
Third-quarter 2020 revenues, traffic
volumes and expensesRevenues for the third quarter of 2020
were C$3,409 million, a decrease of C$421 million or 11 per cent,
when compared to the same period in 2019. The decrease in revenues
was mainly due to lower volumes across most commodity groups caused
by the ongoing effects of the COVID-19 pandemic and lower
applicable fuel surcharge rates, partly offset by freight rate
increases as well as increased shipments of Canadian grain. RTMs,
measuring the relative weight and distance of freight transported
by CN, declined by seven per cent from the year-earlier period.
Freight revenue per RTM decreased by three per cent over the
year-earlier period.
Operating expenses for the third quarter
decreased by eight per cent to C$2,043 million, mainly driven by
lower fuel and labor costs, as well as decreased purchased services
and material expense. The decrease in the first nine months was
partly offset by a loss on assets held for sale in the second
quarter, resulting from the Company's decision to market for sale
for on-going rail operations, certain non-core lines.
(1) Non-GAAP MeasuresCN
reports its financial results in accordance with United States
generally accepted accounting principles (GAAP). CN also uses
non-GAAP measures in this news release that do not have any
standardized meaning prescribed by GAAP, such as adjusted
performance measures. 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.
(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. By their nature, forward-looking
statements involve risks, uncertainties and assumptions. The
Company 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 by their nature address
matters that are, to different degrees, uncertain, such as
statements about the impacts of the COVID-19 pandemic on the
business operations, financial results and financial position and
on the global supply chain, and statements about the economic
recovery and its future impact on CN. 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 the actual results or performance of the
Company to be materially different from the outlook or any future
results or performance 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 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 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.
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.
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 Southern tip of the U.S. through a
19,500-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 |
(514) 399-7956 |
(514) 399-0052 |
media@cn.ca |
investor.relations@cn.ca |
|
|
Selected Railroad Statistics – unaudited
|
Three months
ended September 30 |
|
Nine months
ended September 30 |
|
2020 |
2019 |
|
2020 |
2019 |
Financial measures |
|
|
|
|
|
|
|
|
|
|
|
Key
financial performance indicators (1) |
|
|
|
|
|
Total
revenues ($ millions) |
3,409 |
3,830 |
|
10,163 |
11,333 |
Freight
revenues ($ millions) |
3,249 |
3,618 |
|
9,711 |
10,790 |
Operating
income ($ millions) |
1,366 |
1,613 |
|
3,366 |
4,375 |
Adjusted
operating income ($ millions) (2) |
1,366 |
1,613 |
|
3,852 |
4,459 |
Net income
($ millions) |
985 |
1,195 |
|
2,541 |
3,343 |
Adjusted net
income ($ millions) (2) |
985 |
1,195 |
|
2,763 |
3,293 |
Diluted
earnings per share ($) |
1.38 |
1.66 |
|
3.56 |
4.62 |
Adjusted
diluted earnings per share ($) (2) |
1.38 |
1.66 |
|
3.87 |
4.56 |
Free cash
flow ($ millions) (2) |
506 |
700 |
|
2,087 |
1,499 |
Gross
property additions ($ millions) |
691 |
961 |
|
2,008 |
3,061 |
Share
repurchases ($ millions) |
— |
394 |
|
379 |
1,271 |
Dividends per share ($) |
0.5750 |
0.5375 |
|
1.7250 |
1.6125 |
Financial position (1) |
|
|
|
|
|
Total assets
($ millions) |
45,158 |
44,096 |
|
45,158 |
44,096 |
Total
liabilities ($ millions) |
25,845 |
25,596 |
|
25,845 |
25,596 |
Shareholders' equity ($ millions) |
19,313 |
18,500 |
|
19,313 |
18,500 |
Financial ratio |
|
|
|
|
|
Operating
ratio (%) |
59.9 |
57.9 |
|
66.9 |
61.4 |
Adjusted operating ratio (%) (2) |
59.9 |
57.9 |
|
62.1 |
60.7 |
Operational measures (3) |
|
|
|
|
|
|
|
|
|
|
|
Statistical operating data |
|
|
|
|
|
Gross ton
miles (GTMs) (millions) |
113,693 |
124,410 |
|
330,058 |
367,875 |
Revenue ton
miles (RTMs) (millions) |
56,296 |
60,849 |
|
167,183 |
184,245 |
Carloads
(thousands) |
1,440 |
1,531 |
|
4,069 |
4,487 |
Route miles
(includes Canada and the U.S.) |
19,500 |
19,500 |
|
19,500 |
19,500 |
Employees
(end of period) |
24,008 |
27,290 |
|
24,008 |
27,290 |
Employees (average for the period) |
23,177 |
27,269 |
|
23,624 |
26,803 |
Key operating measures |
|
|
|
|
|
Freight
revenue per RTM (cents) |
5.77 |
5.95 |
|
5.81 |
5.86 |
Freight
revenue per carload ($) |
2,256 |
2,363 |
|
2,387 |
2,405 |
GTMs per
average number of employees (thousands) |
4,905 |
4,562 |
|
13,971 |
13,725 |
Operating
expenses per GTM (cents) |
1.80 |
1.78 |
|
2.06 |
1.89 |
Labor and
fringe benefits expense per GTM (cents) |
0.58 |
0.56 |
|
0.60 |
0.59 |
Diesel fuel
consumed (US gallons in millions) |
97.2 |
110.1 |
|
296.3 |
342.5 |
Average fuel
price ($ per US gallon) |
2.27 |
3.05 |
|
2.44 |
3.13 |
Fuel
efficiency (US gallons of locomotive fuel consumed per 1,000
GTMs) |
0.85 |
0.88 |
|
0.90 |
0.93 |
Train weight
(tons) |
9,635 |
9,259 |
|
9,543 |
9,088 |
Train length
(feet) |
8,987 |
8,462 |
|
8,596 |
8,189 |
Car velocity
(car miles per day) |
175 |
209 |
|
184 |
198 |
Through
dwell (entire railroad, hours) |
9.6 |
7.7 |
|
8.8 |
7.9 |
Through
network train speed (miles per hour) |
17.8 |
18.7 |
|
18.5 |
18.2 |
Locomotive utilization (trailing GTMs per total horsepower) |
199 |
201 |
|
194 |
200 |
Safety indicators (4) |
|
|
|
|
|
Injury
frequency rate (per 200,000 person hours) |
1.70 |
2.09 |
|
1.82 |
2.03 |
Accident rate (per million train miles) |
1.57 |
2.01 |
|
1.78 |
2.22 |
(1) |
Amounts expressed in Canadian dollars and prepared in accordance
with United States generally accepted accounting principles (GAAP),
unless otherwise noted. |
(2) |
See supplementary schedule
entitled Non-GAAP Measures for an explanation of these non-GAAP
measures. |
(3) |
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. |
(4) |
Based on Federal Railroad
Administration (FRA) reporting criteria. |
Supplementary Information – unaudited
|
Three months
ended September 30 |
|
Nine months
ended September 30 |
|
2020 |
2019 |
% Change Fav (Unfav) |
|
% Change at constant currency Fav (Unfav) (1) |
|
|
2020 |
2019 |
% Change Fav (Unfav) |
|
% Change at constant currency Fav (Unfav) (1) |
|
Revenues ($ millions) (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Petroleum
and chemicals |
591 |
788 |
(25 |
%) |
(26 |
%) |
|
1,967 |
2,298 |
(14 |
%) |
(15 |
%) |
Metals and
minerals |
342 |
425 |
(20 |
%) |
(20 |
%) |
|
1,055 |
1,286 |
(18 |
%) |
(19 |
%) |
Forest
products |
421 |
450 |
(6 |
%) |
(7 |
%) |
|
1,267 |
1,393 |
(9 |
%) |
(10 |
%) |
Coal |
118 |
168 |
(30 |
%) |
(30 |
%) |
|
401 |
508 |
(21 |
%) |
(21 |
%) |
Grain and
fertilizers |
608 |
552 |
10 |
% |
10 |
% |
|
1,867 |
1,770 |
5 |
% |
5 |
% |
Intermodal |
992 |
1,018 |
(3 |
%) |
(3 |
%) |
|
2,715 |
2,860 |
(5 |
%) |
(6 |
%) |
Automotive |
177 |
217 |
(18 |
%) |
(19 |
%) |
|
439 |
675 |
(35 |
%) |
(36 |
%) |
Total freight revenues |
3,249 |
3,618 |
(10 |
%) |
(11 |
%) |
|
9,711 |
10,790 |
(10 |
%) |
(11 |
%) |
Other revenues |
160 |
212 |
(25 |
%) |
(25 |
%) |
|
452 |
543 |
(17 |
%) |
(18 |
%) |
Total revenues |
3,409 |
3,830 |
(11 |
%) |
(11 |
%) |
|
10,163 |
11,333 |
(10 |
%) |
(11 |
%) |
Revenue ton miles (RTMs)
(millions) (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Petroleum
and chemicals |
9,398 |
14,042 |
(33 |
%) |
(33 |
%) |
|
31,918 |
41,148 |
(22 |
%) |
(22 |
%) |
Metals and
minerals |
5,419 |
6,458 |
(16 |
%) |
(16 |
%) |
|
15,776 |
19,860 |
(21 |
%) |
(21 |
%) |
Forest
products |
6,552 |
6,813 |
(4 |
%) |
(4 |
%) |
|
18,903 |
20,902 |
(10 |
%) |
(10 |
%) |
Coal |
3,667 |
4,563 |
(20 |
%) |
(20 |
%) |
|
11,987 |
13,556 |
(12 |
%) |
(12 |
%) |
Grain and
fertilizers |
14,565 |
12,722 |
14 |
% |
14 |
% |
|
43,826 |
41,634 |
5 |
% |
5 |
% |
Intermodal |
15,916 |
15,294 |
4 |
% |
4 |
% |
|
42,835 |
44,176 |
(3 |
%) |
(3 |
%) |
Automotive |
779 |
957 |
(19 |
%) |
(19 |
%) |
|
1,938 |
2,969 |
(35 |
%) |
(35 |
%) |
Total RTMs |
56,296 |
60,849 |
(7 |
%) |
(7 |
%) |
|
167,183 |
184,245 |
(9 |
%) |
(9 |
%) |
Freight revenue / RTM (cents) (2)
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Petroleum
and chemicals |
6.29 |
5.61 |
12 |
% |
11 |
% |
|
6.16 |
5.58 |
10 |
% |
9 |
% |
Metals and
minerals |
6.31 |
6.58 |
(4 |
%) |
(5 |
%) |
|
6.69 |
6.48 |
3 |
% |
2 |
% |
Forest
products |
6.43 |
6.61 |
(3 |
%) |
(3 |
%) |
|
6.70 |
6.66 |
1 |
% |
(1 |
%) |
Coal |
3.22 |
3.68 |
(13 |
%) |
(13 |
%) |
|
3.35 |
3.75 |
(11 |
%) |
(11 |
%) |
Grain and
fertilizers |
4.17 |
4.34 |
(4 |
%) |
(4 |
%) |
|
4.26 |
4.25 |
— |
% |
— |
% |
Intermodal |
6.23 |
6.66 |
(6 |
%) |
(7 |
%) |
|
6.34 |
6.47 |
(2 |
%) |
(3 |
%) |
Automotive |
22.72 |
22.68 |
— |
% |
(1 |
%) |
|
22.65 |
22.73 |
— |
% |
(1 |
%) |
Total freight revenue / RTM |
5.77 |
5.95 |
(3 |
%) |
(4 |
%) |
|
5.81 |
5.86 |
(1 |
%) |
(2 |
%) |
Carloads (thousands) (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Petroleum
and chemicals |
138 |
177 |
(22 |
%) |
(22 |
%) |
|
442 |
519 |
(15 |
%) |
(15 |
%) |
Metals and
minerals |
236 |
270 |
(13 |
%) |
(13 |
%) |
|
694 |
774 |
(10 |
%) |
(10 |
%) |
Forest
products |
84 |
93 |
(10 |
%) |
(10 |
%) |
|
255 |
289 |
(12 |
%) |
(12 |
%) |
Coal |
68 |
86 |
(21 |
%) |
(21 |
%) |
|
216 |
256 |
(16 |
%) |
(16 |
%) |
Grain and
fertilizers |
162 |
145 |
12 |
% |
12 |
% |
|
474 |
461 |
3 |
% |
3 |
% |
Intermodal |
694 |
693 |
— |
% |
— |
% |
|
1,851 |
1,980 |
(7 |
%) |
(7 |
%) |
Automotive |
58 |
67 |
(13 |
%) |
(13 |
%) |
|
137 |
208 |
(34 |
%) |
(34 |
%) |
Total carloads |
1,440 |
1,531 |
(6 |
%) |
(6 |
%) |
|
4,069 |
4,487 |
(9 |
%) |
(9 |
%) |
Freight revenue / carload ($) (2)
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Petroleum
and chemicals |
4,283 |
4,452 |
(4 |
%) |
(4 |
%) |
|
4,450 |
4,428 |
— |
% |
(1 |
%) |
Metals and
minerals |
1,449 |
1,574 |
(8 |
%) |
(8 |
%) |
|
1,520 |
1,661 |
(8 |
%) |
(10 |
%) |
Forest
products |
5,012 |
4,839 |
4 |
% |
3 |
% |
|
4,969 |
4,820 |
3 |
% |
2 |
% |
Coal |
1,735 |
1,953 |
(11 |
%) |
(11 |
%) |
|
1,856 |
1,984 |
(6 |
%) |
(7 |
%) |
Grain and
fertilizers |
3,753 |
3,807 |
(1 |
%) |
(2 |
%) |
|
3,939 |
3,839 |
3 |
% |
2 |
% |
Intermodal |
1,429 |
1,469 |
(3 |
%) |
(3 |
%) |
|
1,467 |
1,444 |
2 |
% |
1 |
% |
Automotive |
3,052 |
3,239 |
(6 |
%) |
(7 |
%) |
|
3,204 |
3,245 |
(1 |
%) |
(2 |
%) |
Total freight revenue / carload |
2,256 |
2,363 |
(5 |
%) |
(5 |
%) |
|
2,387 |
2,405 |
(1 |
%) |
(2 |
%) |
(1) |
See supplementary schedule entitled Non-GAAP Measures 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 earnings before interest, income taxes,
depreciation and amortization (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
Management believes that adjusted net income,
adjusted earnings per share, adjusted operating income and adjusted
operating ratio are useful measures of performance that can
facilitate period-to-period comparisons, as they exclude items that
do not necessarily arise as part of CN's normal day-to-day
operations and could distort the analysis of trends in business
performance. Management uses adjusted performance measures, which
exclude certain income and expense items in its results that
management believes are not reflective of CN's underlying business
operations, to set performance goals and as a means to measure CN's
performance. The exclusion of such income and expense items in
these measures does not, however, imply that these items are
necessarily non-recurring. These 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 nine months ended September 30, 2020,
the Company's adjusted net income was $2,763 million, or $3.87 per
diluted share, which excludes a loss of $486 million, or $363
million after-tax ($0.51 per diluted share) in the second quarter,
resulting from the Company's decision to market for sale for
on-going rail operations, certain non-core lines in Wisconsin,
Michigan and Ontario, and a current income tax recovery of $141
million ($0.20 per diluted share) in the first quarter resulting
from the enactment of the Coronavirus Aid, Relief, and Economic
Security (CARES) Act, a U.S. tax-and-spending package aimed at
providing additional stimulus to address the economic impact of the
COVID-19 pandemic.
For the nine months ended September 30, 2019,
the Company's adjusted net income was $3,293 million, or $4.56 per
diluted share, which excludes a deferred income tax recovery of
$112 million ($0.15 per diluted share or $0.16 per basic share) in
the second quarter, resulting from the enactment of a lower
provincial corporate income tax rate, and a depreciation and
amortization expense of $84 million, or $62 million after-tax
($0.09 per diluted share) in the first quarter, related to costs
previously capitalized for a Positive Train Control (PTC) back
office system following the deployment of a replacement system.
The following table provides a reconciliation of
net income and earnings per share, as reported for the three and
nine months ended September 30, 2020 and 2019, to the adjusted
performance measures presented herein:
|
Three months
ended September 30 |
|
|
Nine months
ended September 30 |
In millions, except per share data |
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
Net income |
$ |
985 |
|
|
$ |
1,195 |
|
|
$ |
2,541 |
|
|
$ |
3,343 |
|
Adjustments: |
|
|
|
|
|
|
Depreciation expense |
— |
|
|
— |
|
|
— |
|
|
84 |
|
Loss on assets held for sale |
— |
|
|
— |
|
|
486 |
|
|
— |
|
Income tax recovery (1) |
— |
|
|
— |
|
|
(264 |
) |
|
(134 |
) |
Adjusted net income |
$ |
985 |
|
|
$ |
1,195 |
|
|
$ |
2,763 |
|
|
$ |
3,293 |
|
Basic earnings per share |
$ |
1.39 |
|
|
$ |
1.66 |
|
|
$ |
3.57 |
|
|
$ |
4.63 |
|
Impact of adjustments, per share |
— |
|
|
— |
|
|
0.31 |
|
|
(0.07 |
) |
Adjusted basic earnings per share |
$ |
1.39 |
|
|
$ |
1.66 |
|
|
$ |
3.88 |
|
|
$ |
4.56 |
|
Diluted earnings per share |
$ |
1.38 |
|
|
$ |
1.66 |
|
|
$ |
3.56 |
|
|
$ |
4.62 |
|
Impact of adjustments, per share |
— |
|
|
— |
|
|
0.31 |
|
|
(0.06 |
) |
Adjusted diluted earnings per share |
$ |
1.38 |
|
|
$ |
1.66 |
|
|
$ |
3.87 |
|
|
$ |
4.56 |
|
(1) |
Includes the tax impact of: (i) adjustments based on the nature of
the item for tax purposes and related tax rates in the applicable
jurisdiction; or (ii) tax law changes and rate enactments. |
The following table provides a reconciliation of
operating income and operating ratio, as reported for the three and
nine months ended September 30, 2020 and 2019, to the adjusted
performance measures presented herein:
|
Three months
ended September 30 |
|
Nine months
ended September 30 |
In millions,
except percentage |
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
Operating income |
$ |
1,366 |
|
|
$ |
1,613 |
|
|
$ |
3,366 |
|
|
$ |
4,375 |
|
Adjustments: |
|
|
|
|
|
|
Depreciation expense |
— |
|
|
— |
|
|
— |
|
|
84 |
|
Loss on assets held for sale |
— |
|
|
— |
|
|
486 |
|
|
— |
|
Adjusted
operating income |
$ |
1,366 |
|
|
$ |
1,613 |
|
|
$ |
3,852 |
|
|
$ |
4,459 |
|
Operating ratio (1) |
59.9 |
% |
|
57.9 |
% |
|
66.9 |
% |
|
61.4 |
% |
Impact of adjustment |
— |
|
|
— |
|
|
(4.8 |
)-pts |
|
(0.7 |
)-pts |
Adjusted operating ratio |
59.9 |
% |
|
57.9 |
% |
|
62.1 |
% |
|
60.7 |
% |
(1) |
Operating ratio is defined as operating expenses as a percentage of
revenues. |
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 foreign exchange rates of the comparable period
in the prior year. The average foreign exchange rates were $1.33
and $1.35 per US$1.00 for the three and nine months ended September
30, 2020, respectively, and $1.32 and $1.33 per US$1.00 for the
three and nine months ended September 30, 2019, respectively.
On a constant currency basis, the Company's net
income for the three and nine months ended September 30, 2020 would
have been lower by $7 million ($0.01 per diluted share) and
$20 million ($0.03 per diluted share), respectively.
Free cash flow
Management believes that 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 business acquisitions, if any. 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 as reported for the three
and nine months ended September 30, 2020 and 2019, to free cash
flow:
|
Three months
ended September 30 |
|
Nine months
ended September 30 |
In millions |
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
Net cash provided by operating activities |
$ |
1,220 |
|
|
$ |
1,692 |
|
|
$ |
4,157 |
|
|
$ |
4,405 |
|
Net cash used in investing activities |
(722 |
) |
|
(992 |
) |
|
(2,078 |
) |
|
(3,073 |
) |
Net cash provided before financing activities |
498 |
|
|
700 |
|
|
2,079 |
|
|
1,332 |
|
Adjustment: Acquisition, net of cash acquired (1) |
8 |
|
|
— |
|
|
8 |
|
|
167 |
|
Free cash flow |
$ |
506 |
|
|
$ |
700 |
|
|
$ |
2,087 |
|
|
$ |
1,499 |
|
(1) |
Relates to the acquisitions of H&R Transport Limited
("H&R") and the TransX Group of Companies ("TransX"). See Note
3 - Business combinations to CN's unaudited Interim Consolidated
Financial Statements 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
adjusted EBITDA. 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 to the adjusted measures presented below, which
have been used to calculate the adjusted debt-to-adjusted EBITDA
multiple:
In millions, unless otherwise indicated |
As at and for the twelve months ended September 30, |
2020 |
|
|
2019 |
|
Debt |
$ |
13,786 |
|
|
$ |
13,768 |
|
Adjustments: |
|
|
|
Operating lease liabilities, including current portion |
434 |
|
|
536 |
|
Pension plans in deficiency |
521 |
|
|
476 |
|
Adjusted debt |
$ |
14,741 |
|
|
$ |
14,780 |
|
Net income |
$ |
3,414 |
|
|
$ |
4,486 |
|
Interest expense |
556 |
|
|
524 |
|
Income tax expense |
936 |
|
|
1,278 |
|
Depreciation and amortization |
1,574 |
|
|
1,521 |
|
Loss on assets held for sale |
486 |
|
|
— |
|
EBITDA |
6,966 |
|
|
7,809 |
|
Adjustments: |
|
|
|
Other income |
(8 |
) |
|
(144 |
) |
Other components of net periodic benefit income |
(314 |
) |
|
(317 |
) |
Operating lease cost |
152 |
|
|
190 |
|
Adjusted EBITDA |
$ |
6,796 |
|
|
$ |
7,538 |
|
Adjusted debt-to-adjusted EBITDA multiple (times) |
2.17 |
|
|
1.96 |
|
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