CN (TSX: CNR) (NYSE: CNI) today 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$100 per barrel. In 2022, CN plans to invest
approximately 17% of revenues in its capital program.
This earnings news release, as well as
additional information, including the Financial Statements, Notes
thereto and MD&A, is contained in CN’s Quarterly Review
available on the Company's website at
www.cn.ca/financial-results and on SEDAR at
www.sedar.com as well as on the U.S. Securities and Exchange
Commission's website at www.sec.gov through EDGAR.
About CN CN is a world-class
transportation leader and trade-enabler. Essential to the economy,
to the customers, and to the communities it serves, CN safely
transports more than 300 million tons of natural resources,
manufactured products, and finished goods throughout North America
every year. As the only railroad connecting Canada’s Eastern and
Western coasts with the U.S. South through a 18,600-mile rail
network, CN and its affiliates have been contributing to community
prosperity and sustainable trade since 1919. CN is committed to
programs supporting social responsibility and environmental
stewardship.
Contacts: |
|
Media |
Investment Community |
Jonathan
Abecassis |
Paul
Butcher |
Senior
Manager |
Vice-President |
Media
Relations |
Investor
Relations |
(438)
455-3692 |
(514)
399-0052 |
media@cn.ca |
investor.relations@cn.ca |
Selected Railroad Statistics –
unaudited
|
Three months ended June 30 |
|
Six months ended June 30 |
|
2022 |
2021 |
|
2022 |
2021 |
Financial measures |
|
|
|
|
|
Key
financial performance indicators (1) |
|
|
|
|
|
Total
revenues ($ millions) |
4,344 |
3,598 |
|
8,052 |
7,133 |
Freight
revenues ($ millions) |
4,195 |
3,452 |
|
7,803 |
6,875 |
Operating
income ($ millions) |
1,769 |
1,382 |
|
2,996 |
2,709 |
Adjusted
operating income ($ millions) (2)(3) |
1,781 |
1,382 |
|
3,018 |
2,572 |
Net income
($ millions) (4) |
1,325 |
1,036 |
|
2,243 |
2,012 |
Adjusted net
income ($ millions) (2)(3)(4) |
1,334 |
1,060 |
|
2,259 |
1,934 |
Diluted
earnings per share ($) (4) |
1.92 |
1.46 |
|
3.22 |
2.83 |
Adjusted
diluted earnings per share ($) (2)(3)(4) |
1.93 |
1.49 |
|
3.25 |
2.72 |
Free cash
flow ($ millions) (2)(5) |
997 |
741 |
|
1,568 |
1,280 |
Gross
property additions ($ millions) |
707 |
729 |
|
1,086 |
1,141 |
Share
repurchases ($ millions) |
1,173 |
123 |
|
2,466 |
414 |
Dividends
per share ($) |
0.7325 |
0.6150 |
|
1.4650 |
1.2300 |
Financial ratio |
|
|
|
|
|
Operating
ratio (%) (6) |
59.3 |
61.6 |
|
62.8 |
62.0 |
Adjusted operating ratio (%) (2)(3) |
59.0 |
61.6 |
|
62.5 |
63.9 |
Operational measures (7) |
|
|
|
|
|
Statistical operating data |
|
|
|
|
|
Gross ton
miles (GTMs) (millions) |
120,742 |
116,735 |
|
231,808 |
237,515 |
Revenue ton
miles (RTMs) (millions) |
60,551 |
59,246 |
|
117,105 |
120,700 |
Carloads
(thousands) |
1,474 |
1,469 |
|
2,820 |
2,900 |
Route miles
(includes Canada and the U.S.) |
18,600 |
19,500 |
|
18,600 |
19,500 |
Employees
(end of period) |
22,783 |
24,376 |
|
22,783 |
24,376 |
Employees (average for the period) |
23,137 |
24,410 |
|
22,928 |
24,459 |
Key operating measures |
|
|
|
|
|
Freight
revenue per RTM (cents) |
6.93 |
5.83 |
|
6.66 |
5.70 |
Freight
revenue per carload ($) |
2,846 |
2,350 |
|
2,767 |
2,371 |
GTMs per
average number of employees (thousands) |
5,219 |
4,782 |
|
10,110 |
9,711 |
Operating
expenses per GTM (cents) |
2.13 |
1.90 |
|
2.18 |
1.86 |
Labor and
fringe benefits expense per GTM (cents) |
0.56 |
0.59 |
|
0.62 |
0.62 |
Diesel fuel
consumed (US gallons in millions) |
101.2 |
101.4 |
|
202.3 |
211.8 |
Average fuel
price ($ per US gallon) |
5.82 |
3.24 |
|
5.12 |
3.06 |
Fuel
efficiency (US gallons of locomotive fuel consumed per 1,000
GTMs) |
0.838 |
0.869 |
|
0.873 |
0.892 |
Train weight
(tons) |
9,512 |
9,840 |
|
9,478 |
9,623 |
Train length
(feet) |
8,427 |
8,749 |
|
8,320 |
8,536 |
Car velocity
(car miles per day) |
209 |
205 |
|
185 |
195 |
Through
dwell (entire railroad, hours) |
7.2 |
7.7 |
|
8.1 |
8.0 |
Through
network train speed (miles per hour) |
19.3 |
19.5 |
|
18.0 |
18.8 |
Locomotive utilization (trailing GTMs per total horsepower) |
203 |
204 |
|
195 |
201 |
Safety indicators (8) |
|
|
|
|
|
Injury
frequency rate (per 200,000 person hours) |
1.39 |
0.97 |
|
1.36 |
1.30 |
Accident rate (per million train miles) |
1.52 |
1.99 |
|
2.03 |
1.68 |
(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 restated 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 June 30 |
|
Six months ended June 30 |
|
2022 |
2021 |
% Change Fav (Unfav) |
% Change at constant currency Fav (Unfav) (1) |
|
2022 |
2021 |
% Change Fav (Unfav) |
% Change at constant currency Fav (Unfav) (1) |
Revenues ($ millions) (2) |
|
|
|
|
|
|
|
|
|
Petroleum and chemicals |
829 |
685 |
21 |
% |
18 |
% |
|
1,585 |
1,346 |
18 |
% |
16 |
% |
Metals and
minerals |
466 |
377 |
24 |
% |
20 |
% |
|
872 |
745 |
17 |
% |
15 |
% |
Forest
products |
513 |
451 |
14 |
% |
11 |
% |
|
939 |
880 |
7 |
% |
5 |
% |
Coal |
249 |
158 |
58 |
% |
56 |
% |
|
444 |
284 |
56 |
% |
55 |
% |
Grain and
fertilizers |
604 |
609 |
(1 |
%) |
(3 |
%) |
|
1,208 |
1,322 |
(9 |
%) |
(10 |
%) |
Intermodal |
1,326 |
1,037 |
28 |
% |
26 |
% |
|
2,382 |
2,005 |
19 |
% |
18 |
% |
Automotive |
208 |
135 |
54 |
% |
50 |
% |
|
373 |
293 |
27 |
% |
25 |
% |
Total freight revenues |
4,195 |
3,452 |
22 |
% |
19 |
% |
|
7,803 |
6,875 |
13 |
% |
12 |
% |
Other revenues |
149 |
146 |
2 |
% |
— |
% |
|
249 |
258 |
(3 |
%) |
(5 |
%) |
Total revenues |
4,344 |
3,598 |
21 |
% |
18 |
% |
|
8,052 |
7,133 |
13 |
% |
12 |
% |
Revenue ton miles (RTMs)
(millions) (3) |
|
|
|
|
|
|
|
|
|
Petroleum
and chemicals |
12,330 |
10,054 |
23 |
% |
23 |
% |
|
23,889 |
20,786 |
15 |
% |
15 |
% |
Metals and
minerals |
7,149 |
6,652 |
7 |
% |
7 |
% |
|
13,412 |
12,945 |
4 |
% |
4 |
% |
Forest
products |
6,650 |
6,957 |
(4 |
%) |
(4 |
%) |
|
12,469 |
13,627 |
(8 |
%) |
(8 |
%) |
Coal |
6,127 |
4,648 |
32 |
% |
32 |
% |
|
11,495 |
8,674 |
33 |
% |
33 |
% |
Grain and
fertilizers |
12,453 |
14,922 |
(17 |
%) |
(17 |
%) |
|
25,804 |
32,763 |
(21 |
%) |
(21 |
%) |
Intermodal |
15,070 |
15,409 |
(2 |
%) |
(2 |
%) |
|
28,626 |
30,642 |
(7 |
%) |
(7 |
%) |
Automotive |
772 |
604 |
28 |
% |
28 |
% |
|
1,410 |
1,263 |
12 |
% |
12 |
% |
Total RTMs |
60,551 |
59,246 |
2 |
% |
2 |
% |
|
117,105 |
120,700 |
(3 |
%) |
(3 |
%) |
Freight revenue / RTM (cents)
(2)(3) |
|
|
|
|
|
|
|
|
|
Petroleum
and chemicals |
6.72 |
6.81 |
(1 |
%) |
(4 |
%) |
|
6.63 |
6.48 |
2 |
% |
1 |
% |
Metals and
minerals |
6.52 |
5.67 |
15 |
% |
12 |
% |
|
6.50 |
5.76 |
13 |
% |
11 |
% |
Forest
products |
7.71 |
6.48 |
19 |
% |
16 |
% |
|
7.53 |
6.46 |
17 |
% |
15 |
% |
Coal |
4.06 |
3.40 |
19 |
% |
18 |
% |
|
3.86 |
3.27 |
18 |
% |
17 |
% |
Grain and
fertilizers |
4.85 |
4.08 |
19 |
% |
16 |
% |
|
4.68 |
4.04 |
16 |
% |
15 |
% |
Intermodal |
8.80 |
6.73 |
31 |
% |
29 |
% |
|
8.32 |
6.54 |
27 |
% |
26 |
% |
Automotive |
26.94 |
22.35 |
21 |
% |
17 |
% |
|
26.45 |
23.20 |
14 |
% |
12 |
% |
Total freight revenue / RTM |
6.93 |
5.83 |
19 |
% |
16 |
% |
|
6.66 |
5.70 |
17 |
% |
16 |
% |
Carloads (thousands) (3) |
|
|
|
|
|
|
|
|
|
Petroleum
and chemicals |
162 |
143 |
13 |
% |
13 |
% |
|
321 |
293 |
10 |
% |
10 |
% |
Metals and
minerals |
236 |
241 |
(2 |
%) |
(2 |
%) |
|
445 |
464 |
(4 |
%) |
(4 |
%) |
Forest
products |
86 |
90 |
(4 |
%) |
(4 |
%) |
|
164 |
176 |
(7 |
%) |
(7 |
%) |
Coal |
129 |
100 |
29 |
% |
29 |
% |
|
247 |
169 |
46 |
% |
46 |
% |
Grain and
fertilizers |
142 |
162 |
(12 |
%) |
(12 |
%) |
|
287 |
338 |
(15 |
%) |
(15 |
%) |
Intermodal |
664 |
691 |
(4 |
%) |
(4 |
%) |
|
1,253 |
1,367 |
(8 |
%) |
(8 |
%) |
Automotive |
55 |
42 |
31 |
% |
31 |
% |
|
103 |
93 |
11 |
% |
11 |
% |
Total carloads |
1,474 |
1,469 |
— |
% |
— |
% |
|
2,820 |
2,900 |
(3 |
%) |
(3 |
%) |
Freight revenue / carload ($)
(2)(3) |
|
|
|
|
|
|
|
|
|
Petroleum
and chemicals |
5,117 |
4,790 |
7 |
% |
4 |
% |
|
4,938 |
4,594 |
7 |
% |
6 |
% |
Metals and
minerals |
1,975 |
1,564 |
26 |
% |
23 |
% |
|
1,960 |
1,606 |
22 |
% |
20 |
% |
Forest
products |
5,965 |
5,011 |
19 |
% |
16 |
% |
|
5,726 |
5,000 |
15 |
% |
13 |
% |
Coal |
1,930 |
1,580 |
22 |
% |
21 |
% |
|
1,798 |
1,680 |
7 |
% |
6 |
% |
Grain and
fertilizers |
4,254 |
3,759 |
13 |
% |
11 |
% |
|
4,209 |
3,911 |
8 |
% |
6 |
% |
Intermodal |
1,997 |
1,501 |
33 |
% |
32 |
% |
|
1,901 |
1,467 |
30 |
% |
29 |
% |
Automotive |
3,782 |
3,214 |
18 |
% |
14 |
% |
|
3,621 |
3,151 |
15 |
% |
13 |
% |
Total freight revenue / carload |
2,846 |
2,350 |
21 |
% |
19 |
% |
|
2,767 |
2,371 |
17 |
% |
15 |
% |
(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 and six months ended June 30, 2022, the Company's adjusted
net income was $1,334 million, or $1.93 per diluted share, and
$2,259 million, or $3.25 per diluted share, respectively. The
adjusted figures for the three and six months ended June 30, 2022
exclude advisory fees related to shareholder matters of $12
million, or $9 million after-tax ($0.01 per diluted share), and $22
million, or $16 million after-tax ($0.03 per diluted share),
respectively, recorded in Casualty and other within the
Consolidated Statements of Income.For the three and six months
ended June 30, 2021, the Company's adjusted net income was $1,060
million, or $1.49 per diluted share, and $1,934 million, or $2.72
per diluted share, respectively. (1) The adjusted figures for the
three and six months ended June 30, 2021 exclude amortization of
bridge financing and other fees of $32 million, or $24 million
after-tax ($0.03 per diluted share) recorded in the second quarter,
resulting from the Kansas City Southern ("KCS") transaction,
recorded in Interest expense within the Consolidated Statements of
Income. The adjusted figures for the six months ended June 30, 2021
also exclude the recovery of $137 million, or $102 million
after-tax ($0.14 per diluted share) recorded in the first quarter
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.
(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 restated 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. |
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 and six months ended June 30, 2022 and 2021, to the non-GAAP
adjusted performance measures presented herein:
|
Three months ended June 30 |
Six months ended June 30 |
In millions, except per share data |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Net income (1) |
$ |
1,325 |
|
$ |
1,036 |
|
$ |
2,243 |
|
$ |
2,012 |
|
Adjustments: |
|
|
|
|
Operating
expense adjustments: |
|
|
|
|
Advisory fees related to shareholder matters |
|
12 |
|
|
— |
|
|
22 |
|
|
— |
|
Recovery of loss on assets held for sale |
|
— |
|
|
— |
|
|
— |
|
|
(137 |
) |
Non-operating expense adjustments: |
|
|
|
|
Amortization of bridge financing and other fees |
|
— |
|
|
32 |
|
|
— |
|
|
32 |
|
Tax
adjustments: |
|
|
|
|
Tax effect of adjustments (2) |
|
(3 |
) |
|
(8 |
) |
|
(6 |
) |
|
27 |
|
Total adjustments |
|
9 |
|
|
24 |
|
|
16 |
|
|
(78 |
) |
Adjusted net income (1) |
$ |
1,334 |
|
$ |
1,060 |
|
$ |
2,259 |
|
$ |
1,934 |
|
Diluted earnings per share (1) |
$ |
1.92 |
|
$ |
1.46 |
|
$ |
3.22 |
|
$ |
2.83 |
|
Impact of adjustments, per share |
|
0.01 |
|
|
0.03 |
|
|
0.03 |
|
|
(0.11 |
) |
Adjusted diluted earnings per share (1) |
$ |
1.93 |
|
$ |
1.49 |
|
$ |
3.25 |
|
$ |
2.72 |
|
(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 restated 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 and six months ended June 30, 2022 and 2021,
to the non-GAAP adjusted performance measures presented herein:
|
Three months ended June 30 |
Six months ended June 30 |
In millions, except percentages |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Operating
income |
$ |
1,769 |
|
$ |
1,382 |
|
$ |
2,996 |
|
$ |
2,709 |
|
Operating
expense adjustments: |
|
|
|
|
Advisory fees related to shareholder matters |
|
12 |
|
|
— |
|
|
22 |
|
|
— |
|
Recovery of loss on assets held for sale |
|
— |
|
|
— |
|
|
— |
|
|
(137 |
) |
Total operating expense adjustments |
|
12 |
|
|
— |
|
|
22 |
|
|
(137 |
) |
Adjusted operating income |
$ |
1,781 |
|
$ |
1,382 |
|
$ |
3,018 |
|
$ |
2,572 |
|
Operating
expenses |
$ |
2,575 |
|
$ |
2,216 |
|
$ |
5,056 |
|
$ |
4,424 |
|
Total operating expense adjustments |
|
(12 |
) |
|
— |
|
|
(22 |
) |
|
137 |
|
Adjusted operating expenses |
$ |
2,563 |
|
$ |
2,216 |
|
$ |
5,034 |
|
$ |
4,561 |
|
Operating
ratio |
|
59.3 |
% |
|
61.6 |
% |
|
62.8 |
% |
|
62.0 |
% |
Impact of adjustments |
|
(0.3 |
%) |
|
— |
% |
|
(0.3 |
%) |
|
1.9 |
% |
Adjusted operating ratio |
|
59.0 |
% |
|
61.6 |
% |
|
62.5 |
% |
|
63.9 |
% |
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 rates were
$1.28 and $1.27 per US$1.00 for the three and six months ended June
30, 2022, respectively, and $1.23 and $1.25 per US$1.00 for the
three and six months ended June 30, 2021, respectively.On a
constant currency basis, the Company's Net income would have been
lower by $20 million ($0.03 per diluted share) for both the
three and six months ended June 30, 2022.The following table
provides a reconciliation of the impact of constant currency and
related percentage change at constant currency on the financial
results, as reported for the three and six months ended June 30,
2022:
|
Three months
ended June 30 |
Six months ended June 30 |
In millions, except per share data |
|
2022 |
Constant currency impact |
|
2021 |
|
% Change at constant currency Fav (Unfav) |
|
2022 |
Constant currency impact |
|
2021 |
|
% Change at constant currency Fav (Unfav) |
Revenues |
|
|
|
|
|
|
|
|
Petroleum and chemicals |
$ |
829 |
$ |
(19 |
) |
$ |
685 |
|
18 |
% |
$ |
1,585 |
$ |
(19 |
) |
$ |
1,346 |
|
16 |
% |
Metals and
minerals |
|
466 |
|
(13 |
) |
|
377 |
|
20 |
% |
|
872 |
|
(13 |
) |
|
745 |
|
15 |
% |
Forest
products |
|
513 |
|
(14 |
) |
|
451 |
|
11 |
% |
|
939 |
|
(14 |
) |
|
880 |
|
5 |
% |
Coal |
|
249 |
|
(3 |
) |
|
158 |
|
56 |
% |
|
444 |
|
(3 |
) |
|
284 |
|
55 |
% |
Grain and
fertilizers |
|
604 |
|
(13 |
) |
|
609 |
|
(3 |
%) |
|
1,208 |
|
(13 |
) |
|
1,322 |
|
(10 |
%) |
Intermodal |
|
1,326 |
|
(15 |
) |
|
1,037 |
|
26 |
% |
|
2,382 |
|
(15 |
) |
|
2,005 |
|
18 |
% |
Automotive |
|
208 |
|
(6 |
) |
|
135 |
|
50 |
% |
|
373 |
|
(6 |
) |
|
293 |
|
25 |
% |
Total freight revenues |
|
4,195 |
|
(83 |
) |
|
3,452 |
|
19 |
% |
|
7,803 |
|
(83 |
) |
|
6,875 |
|
12 |
% |
Other revenues |
|
149 |
|
(3 |
) |
|
146 |
|
— |
% |
|
249 |
|
(3 |
) |
|
258 |
|
(5 |
%) |
Total revenues |
|
4,344 |
|
(86 |
) |
|
3,598 |
|
18 |
% |
|
8,052 |
|
(86 |
) |
|
7,133 |
|
12 |
% |
Operating expenses |
|
|
|
|
|
|
|
|
Labor and
fringe benefits |
|
681 |
|
(10 |
) |
|
692 |
|
3 |
% |
|
1,434 |
|
(10 |
) |
|
1,477 |
|
4 |
% |
Purchased
services and material |
|
557 |
|
(8 |
) |
|
527 |
|
(4 |
%) |
|
1,095 |
|
(8 |
) |
|
1,076 |
|
(1 |
%) |
Fuel |
|
672 |
|
(23 |
) |
|
380 |
|
(71 |
%) |
|
1,197 |
|
(23 |
) |
|
744 |
|
(58 |
%) |
Depreciation
and amortization |
|
423 |
|
(6 |
) |
|
406 |
|
(3 |
%) |
|
843 |
|
(6 |
) |
|
810 |
|
(3 |
%) |
Equipment
rents |
|
87 |
|
(3 |
) |
|
83 |
|
(1 |
%) |
|
182 |
|
(3 |
) |
|
172 |
|
(4 |
%) |
Casualty and
other |
|
155 |
|
(5 |
) |
|
128 |
|
(17 |
%) |
|
305 |
|
(5 |
) |
|
282 |
|
(6 |
%) |
Recovery of
loss on assets held for sale |
|
— |
|
— |
|
|
— |
|
— |
% |
|
— |
|
— |
|
|
(137 |
) |
(100 |
%) |
Total operating expenses |
|
2,575 |
|
(55 |
) |
|
2,216 |
|
(14 |
%) |
|
5,056 |
|
(55 |
) |
|
4,424 |
|
(13 |
%) |
Operating
income |
|
1,769 |
|
(31 |
) |
|
1,382 |
|
26 |
% |
|
2,996 |
|
(31 |
) |
|
2,709 |
|
9 |
% |
Interest
expense |
|
(128 |
) |
4 |
|
|
(158 |
) |
22 |
% |
|
(254 |
) |
4 |
|
|
(288 |
) |
13 |
% |
Other
components of net periodic benefit income (1) |
|
124 |
|
— |
|
|
98 |
|
27 |
% |
|
249 |
|
— |
|
|
197 |
|
26 |
% |
Other loss |
|
(10 |
) |
— |
|
|
51 |
|
(120 |
%) |
|
(24 |
) |
— |
|
|
49 |
|
(149 |
%) |
Income
before income taxes (1) |
|
1,755 |
|
(27 |
) |
|
1,373 |
|
26 |
% |
|
2,967 |
|
(27 |
) |
|
2,667 |
|
10 |
% |
Income tax expense (1) |
|
(430 |
) |
7 |
|
|
(337 |
) |
(26 |
%) |
|
(724 |
) |
7 |
|
|
(655 |
) |
(9 |
%) |
Net income (1) |
$ |
1,325 |
$ |
(20 |
) |
$ |
1,036 |
|
26 |
% |
$ |
2,243 |
$ |
(20 |
) |
$ |
2,012 |
|
10 |
% |
Diluted earnings per share (1) |
$ |
1.92 |
$ |
(0.03 |
) |
$ |
1.46 |
|
29 |
% |
$ |
3.22 |
$ |
(0.03 |
) |
$ |
2.83 |
|
13 |
% |
(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 restated 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. |
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 (ii) 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 and six months ended June 30, 2022 and 2021, to the non-GAAP
free cash flow presented herein:
|
Three months ended June 30 |
Six months ended June 30 |
In millions |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Net cash provided by operating activities |
$ |
1,713 |
|
$ |
1,475 |
|
$ |
2,283 |
|
$ |
2,427 |
|
Net cash used in investing activities |
|
(716 |
) |
|
(1,642 |
) |
|
(817 |
) |
|
(2,055 |
) |
Net cash provided before financing activities |
|
997 |
|
|
(167 |
) |
|
1,466 |
|
|
372 |
|
Adjustments: |
|
|
|
|
Cash income taxes for merger transaction-related payments and cash
receipts (1) |
|
— |
|
|
— |
|
|
102 |
|
|
— |
|
Transaction-related costs (2) |
|
— |
|
|
63 |
|
|
— |
|
|
63 |
|
Advance for acquisition (2) |
|
— |
|
|
845 |
|
|
— |
|
|
845 |
|
Total adjustments |
|
— |
|
|
908 |
|
|
102 |
|
|
908 |
|
Free cash flow |
$ |
997 |
|
$ |
741 |
|
$ |
1,568 |
|
$ |
1,280 |
|
(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. |
(2) |
Relates to an advance to KCS and other transaction costs paid. See
Note 4 – Acquisition to the Company's unaudited Interim
Consolidated Financial Statements for further 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 June 30, 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 June 30, |
|
2022 |
|
|
2021 |
|
Debt |
$ |
14,372 |
|
$ |
13,719 |
|
Adjustments: |
|
|
Operating lease liabilities, including current
portion (1) |
|
419 |
|
|
379 |
|
Pension plans in deficiency (2) |
|
443 |
|
|
545 |
|
Adjusted debt |
$ |
15,234 |
|
$ |
14,643 |
|
Net income (3) |
$ |
5,130 |
|
$ |
4,010 |
|
Interest expense |
|
576 |
|
|
559 |
|
Income tax expense (3) |
|
1,512 |
|
|
1,308 |
|
Depreciation and amortization |
|
1,631 |
|
|
1,603 |
|
Operating lease cost (4) |
|
135 |
|
|
135 |
|
Other components of net periodic benefit income (3) |
|
(459 |
) |
|
(343 |
) |
Other loss (income) |
|
30 |
|
|
(48 |
) |
Adjustments: |
|
|
Workforce reduction program (5) |
|
|
39 |
|
|
— |
|
Advisory fees related to shareholder matters (6) |
|
|
42 |
|
|
— |
|
Recovery of loss on assets held for sale (7) |
|
— |
|
|
(137 |
) |
Transaction-related costs (8) |
|
|
84 |
|
|
— |
|
Merger termination fee (9) |
|
(886 |
) |
|
— |
|
Adjusted EBITDA |
$ |
7,834 |
|
$ |
7,087 |
|
Adjusted debt-to-adjusted EBITDA multiple(times) |
|
1.94 |
|
|
2.07 |
|
(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 restated 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 6 – 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 4 –Acquisitions to the
Company's unaudited Interim Consolidated Financial Statements for
further 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 4 –Acquisitions to the Company's unaudited Interim
Consolidated Financial Statements for further information. |
Canadian National Railway (TSX:CNR)
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