Both of Canada’s major railways reported first quarter results for the period ended March 31. CN was 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 9.2 per cent to $2.7 billion, well above the growth rate of the economy. However, with operating expenses increasing by 11.1 per cent, operating income rose by a more modest 5.1 per cent. Overall net income before income taxes rose from $733 million to $822 million. Cash flow from operations increased to $645 million during the period, up from $321 million during the same period of 2013, 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, increased from negative $38 million during the first quarter of 2013 to positive $288 million, mostly because of improved cash management.
CP’s revenues remained unchanged at $1.5 billion during the quarter, compared to the first quarter of 2013. Operating expenses were reduced by 4.2 per cent. Operating income increased to $423 million, up from $362 million during the first quarter of 2013. Net income of $254 million was recorded during the quarter, up from $217 million during the comparable period of 2013. Cash flow from operations rose from $267 million during the first quarter of 2013 to $287 million during the quarter just ended.
CN’s revenue tonne miles rose by 5 per cent during the quarter, and freight revenues per revenue tonne mile were up by 4 per cent, producing a total revenue gain of 9 per cent. CN’s bright spot continued to be petroleum and chemicals, with quarterly revenues rising by 23 per cent. Revenue tonne miles for that category rose by 22 per cent but revenue per revenue tonne mile for that category increased only nominally by 1 per cent. Overall carloads were up by 1 per cent, but freight revenues per carload were up by 9 per cent.
Despite labour charges that increased only nominally, overall operating expenses rose by 11.1 per cent, which CN attributed to the negative translation of a weaker Canadian dollar, operational challenges due to an unusually harsh winter and higher fuel costs.
For CP, the bright spot was industrial and consumer products (including crude oil), with quarterly revenues rising by 11 per cent. All other freight categories generated lower revenues during the quarter, as compared with the first quarter of 2013. Fewer revenue tonne miles were generated in all freight categories, with total revenue tonne miles declining by 5 per cent. Higher freight revenues per revenue tonne mile for industrial and consumer products (up 14 per cent) and for forest products (up 20 per cent) allowed the carrier to increase overall freight revenues per revenue tonne mile of 6 per cent. Total carloads were down by 6 per cent, but freight revenues per carload were up by 8 per cent.
Although CP’s volumes declined during the quarter, it managed to show good results by generating higher revenues per revenue tonne mile, by careful management of its operating expenses, and by a continued focus on increasing productivity, although it is evident from its results that, like CN, it suffered the negative impacts of poor weather. Increases in average train weight and length allowed it to carry its reduced volumes at lower cost.
During the quarter, CN’s “operating ratio”, defined as a company’s operating expenses as a percentage of its net sales, rose to 69.6 per cent, while CP’s declined to 72.0 per cent. CP noted that this operating ratio represented a quarterly record.
