Both of Canada’s major railways felt the effects of a poor weather and cold temperatures, and produced similar financial results. As is evident from the table, net income as a percentage of revenues tumbled dramatically from 34 per cent in the first quarter of 2016 to 21 per cent in 2018 at CP, but recovered to 24.6 per cent in the first quarter of 2019. At CN, net income as a percentage of revenues dropped from 26.7 per cent in 2016 to 23.2 per cent in 2018, and further declined to 22.2 per cent in Q1 of 2019. Both carriers eased up on their share repurchasing activities. Stock repurchases increase earnings per share numbers, as earnings are divided by a reduced number of outstanding shares.
Whereas at CP rail freight revenues rose 6.2 per cent during the quarter, they jumped by 11.3 per cent at CN. CN managed to increase revenue tonne miles by 3 per cent, and increase rail freight revenues per RTM (by 7.8 per cent). At CP, revenue tonne miles rose by 6 per cent, and freight revenues per RTM were up by 7.2 per cent. While CN squeezed $2,407 of revenue out of each carload (up 11.1 per cent over Q1 of 2018), CP managed to collect $2,716 out of each carload, up 8.5 per cent over Q1 of 2018. Given their relative product mixes and relative yields, CP’s net income as a percentage of revenues topped that of CN.
At both carriers, the operating ratio (defined as operating expenses as a percentage of revenues) took a hit, rising from 58-59 per cent in each of 2016 and 2017 to just over 69 per cent in 2019. Put another way, gross margins declined from around 41 per cent in 2016 to around 30.5 per cent today, at both carriers. All in all, the first quarter of 2019 could perhaps be described as a “steady as she goes” quarter, with good numbers compared to Q1, 2018, but numbers that are uninspiring compared to same-quarter results of the past few years.
CN’s brightest spot was petroleum and chemicals, which generated a 20 per cent increase in RTMs, and a 30 per cent increase in revenues.
CN’s average number of employees rose from 24,467 in Q1 of 2018 to 26,024 during the period. Terminal dwell time decreased significantly from 9.9 hours to 8.7. Given that during the quarter, CN had 6.4 per cent more employees than a year earlier, gross tonne miles per employee dropped 3.6 per cent.
For CP, the bright spot was energy, chemicals and plastics, which generated a 19 per cent increase in RTMs, and a 22.5 per cent increase in revenues.
CP’s average number of employees rose from 12,173 during Q1 of 2018 to 12,844. Gross tonne miles per employee fell by 4.4 per cent.