By THEO VAN DE KLETERSTEEG
Both of Canada’s major railways announced first quarter results for the period ended March 31, and both were able to produce revenue growth that was considerably in excess of the growth rate of the economy.
During the quarter, CN’s revenues rose 5.1 per cent to $2.5 billion, compared to the first quarter of 2012. However, with operating expenses increasing by 8.5 per cent, operating income declined by 1.6 per cent. Because the company’s revenues from asset disposals in Q1 of 2013 were considerably less than in the comparable period of 2012, overall net income before income taxes declined from $1 billion to $733 million. Cash flow from operations rose to $321 million during the period, from $125 million during the same period of 2012. “Free” cash flow, the amount remaining from operating cash flow after subtracting net investments made during the quarter and dividends paid to investors, was negative by $38 million, compared to a positive number of $47 million during the first quarter of 2012.
CP’s revenues rose to $1.5 billion during the quarter, up 8.6 per cent compared to the first quarter of 2012. Operating expenses rose by 2.8 per cent. Operating income increased to $362 million, up from $274 million during the first quarter of 2012. Net income of $289 million was recorded during the quarter, up from $192 million during the comparable period of 2012. Cash flow from operations rose from $201 million during the first quarter of 2012 to $267 million during the quarter just ended.
For CN, the bright spot continued to be petroleum and chemicals, with quarterly revenues rising by 17 per cent. Revenue tonne miles for that category rose by 19 per cent but revenue per revenue tonne mile for that category dropped by 2 per cent. Overall carloads were up by 2 per cent, and freight revenues per carload were up by 3 per cent.
For CP, the bright spots were industrial and consumer products (particularly crude oil), fertilizers and grain, with quarterly revenues rising by 74, 26 and 26 per cent respectively. Industrial and consumer products revenue tonne miles rose by an impressive 36 per cent, although freight revenue per revenue tonne mile for that category declined by eight per cent. Sulphur and fertilizer revenue tonne miles increased by 23 per cent, while revenues per revenue tonne miles declined by only 2 per cent. Overall, revenue tonne miles rose by 10 per cent, while freight revenue per revenue tonne mile declined by 1 per cent. Total carloads were flat, but freight revenues per carload were up by 8 per cent.
During the quarter, CP continued to make great strides in increasing train lengths, train speed and car miles per day, and decreasing terminal dwell time. In addition, during the past quarter CP was able to achieve significant reductions in its employee count as a result of which, together with considerable operational improvements, employee productivity rose significantly. Increased productivity, coupled with considerable increases in revenues per carload while maintaining strict cost control led to record operating results at CP.
During the quarter, CN’s “operating ratio”, defined as a company’s operating expenses as a percentage of net sales, rose to 68.4 per cent, while CP’s declined to 75.8 per cent. Although CP’s operating ratio remained well above CN’s, CP noted that this operating ratio represented a quarterly record.
For 2013, CN announced revised capital expenditures of $2 billion, whereas CP announced revised capital expenditures of up to $1.2 billion.
Both carriers continue to be cautiously optimistic about the immediate future, and are guiding for high single-digit revenue growth rates in 2013.