Both of Canada’s major railways reported stellar first quarter results for the period ended March 31, and both were once again able to produce revenue growth that was considerably in excess of the growth rate of the economy.
During the quarter, CN’s revenues rose 15 per cent to $3.1 billion, well above the growth rate of the economy. Operating expenses increased by 8.6 per cent, and operating income rose by 29.6 per cent to $1.06 billion. Overall net income before income taxes rose from $623 million to $704 million. Cash flow from operations increased to $992 million during the period, up from $645 million during the same period of 2014, mostly because of improved cash management. “Free” cash flow, the amount remaining from operating cash flow after subtracting net investments made during the quarter and dividends paid to investors, decreased slightly from $288 million during the first quarter of 2014 to $272 million.
CP’s revenues increased by 10.3 per cent during the quarter to $1.665 billion. Operating expenses were reduced by 3.0 per cent. Operating income increased to $612 million, up from $423 million during the first quarter of 2014. Net income of $320 million was recorded during the quarter, up from $254 million during the comparable period of 2014. Cash flow from operations rose dramatically from $287 million during the first quarter of 2014 to $555 million during the quarter just ended.
CN’s revenue tonne miles rose by 7.1 per cent during the quarter, and freight revenues per revenue tonne mile were up by 8 per cent, producing a total revenue gain of 15 per cent. CN’s brightest spots were grains and fertilizers, with quarterly revenues rising by 24 per cent. Revenue tonne miles for that category rose by 14 per cent and revenue per revenue tonne mile for that category increased by 8 per cent. Other bright spots included automotive and forest products, with revenues in each category up by 23 per cent. Overall carloads were up by 9 per cent, and freight revenues per carload were up by 6 per cent.
Although CN’s average number of employees rose by 1,479 during the period, compared to Q1 of 2014, gross tonne miles rose by 9.8 per cent, resulting in an increase of gross tonne miles per employee of 3.3 per cent. CN’s operating ratio (equivalent to “cost of goods sold” in other industries) declined to 65.7 per cent from 69.6 per cent.
For CP, the bright spot were fertilizers and sulphur (revenues up by 31 per cent), and U.S. grain (revenues up by 29 per cent). Carriage of crude oil produced 6 per cent lower revenues than in Q1 of 2014. Overall revenue tonne miles increased by 5 per cent, and freight rates per revenue tonne mile also increased by 5 per cent. Total carloads were up by 4 per cent, and freight revenues per carload were up by 7 per cent.
During the quarter, CP’s “operating ratio”, defined as a company’s operating expenses as a percentage of its net sales, declined steeply from 72.0 per cent in Q1 of 2014 to a record-setting 63.2 per cent during the current quarter. With that accomplishment, CP CEO Hunter Harrison’s 2012 vow to achieve an operating ratio of less than 65 per cent by the summer of 2016 was fulfilled. CPR’s operating cost ratio had been 90.6 per cent during the first quarter of 2011, which was 21.55 points higher than the comparable number for CN (66.2 per cent), during the same quarter. By all accounts, CP’s transformation to during the past four years has been remarkable.