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Canadian National's Fourth-Quarter Net Income Falls 23.6%

"Weak freight demand" and the eight-day labor strike in November contributed to net profits for Canadian National (NYSE: CNI) falling nearly 24% in the fourth quarter of 2019, the company said Tuesday.

Benzinga · 01/29/2020 14:02

"Weak freight demand" and the eight-day labor strike in November contributed to net profits for Canadian National (NYSE: CNI) falling nearly 24% in the fourth quarter of 2019, the company said Tuesday.

Net income for the quarter totaled C$873 million, or $1.22 diluted earnings/share, compared with C$1.14 billion, or $1.25 diluted earnings/share, in the fourth quarter of 2018.

Operating income was C$1.2 billion in the fourth quarter of 2019, compared with nearly C$1.5 billion for the same period in 2018.

Source: Canadian National

Fourth-quarter revenue was nearly C$3.6 billion, compared with C$3.8 billion in the prior-year period. Operating expenses in the fourth quarter were relatively flat at nearly C$2.4 billion.

Operating ratio (OR) rose to 66% compared with 61.9% in the fourth quarter of 2018. OR can be a measure of a company's profitability, with a lower percentage implying increased profitability. Canadian National (CN) defines OR as operating expenses as a percentage of revenues.

Service metrics were mixed in the fourth quarter. Although train velocity increased 3.2% to 19.2 mph from 18.6 mph, terminal dwell — the amount of time a train spends at a terminal — rose 8%, from 7.5 hours to 8.1 hours.

Source: Canadian National

CN expects its capital expenditures budget in 2020 to fall to C$3 billion, which will generate higher free cash flow, the railway said. Its capital expenditures budget for 2018 and 2019 combined totaled C$7.4 billion as the railway sought to expand network capacity, particularly in its western network.

"Our strategic deployment of technology, the next step in our precision scheduled railroading model and our next driver of value, is well underway. At the same time, we continue to closely monitor the freight volume environment and rightsize our resources and costs to demand," said JJ Ruest, president and CEO of CN.

Looking ahead, CN is aiming for an earnings-per-share growth "in the mid-single-digit range" in 2020 compared with adjusted diluted EPS of C$5.80 in 2019.

"We have growth opportunities that we anticipate will translate into low-single-digit volume growth in 2020 in terms of revenue ton-miles (RTMs), despite continued weakness in the broad freight environment," Ruest said.

Rail ($ in Canadian dollars)2019 Value2018 ValueY/Y Gross ChangeY/Y % Change
Freight revenue (in millions)$3,408.0$3,601.0($193.0)-5.4%
Carloads (000s)1,4251,537($112.0)-7.3%
Revenue per carload$2,392$2,343$49.002.1%
Intermodal shipments638668-30.00-4.5%
Intermodal revenue per carload$1,453$1,334$119.08.9%
Revenue per ton mile (in millions)$57,709$66,535($8,826.0)-13.3%
Employee counts (quarterly average)2652426047477.001.8%
Train velocity (mph)19.218.60.603.2%
Dwell time (hours)8.17.50.608.0%
OR%66.0%61.9%4.10%6.6%
EPS$1.22$1.25($0.0)-2.4%

Image by Jiří Rotrekl from Pixabay