By Theo van de Kletersteeg
Both of Canada’s major railways announced fourth quarter results and 2012 year-end results, and both performed significantly better than the economy as a whole.
During the quarter, CN’s revenues rose 6.6 per cent to $2.5 billion, compared to the fourth quarter of 2011. Its operating income rose by 9.9 per cent. Its net income as a per cent of revenues dropped slightly to 24.1 per cent. Comprehensive income, which adjusts net income for net actuarial gains or losses during the year to fund pension fund obligations, was positive at $156 million, compared with a loss of $600 million during the same quarter of 2011. Cash flow from operations rose to $724 during the period, from $591 million during the fourth quarter of 2011. “Free” cash flow, the amount remaining from operating cash flow after accounting for investments made during the quarter, and dividends paid to investors, was negative by $31 million, compared to a negative number of $162 million during the fourth quarter of 2011.
CP’s revenues rose to $1.502 billion during the quarter, up 6.6 per cent compared to the fourth quarter of 2011. Its operating income declined to $60 million, down from $303 million during the fourth quarter of 2011. Net income also suffered, and was down to $15 million, compared to $221 million a year earlier. The cash flow numbers, however, were more positive: Cash flow from operations rose from a deficit of $161 million during the fourth quarter of 2011 to $469 million during the quarter just ended. During the quarter just ended, CP took special charges of $185 to write off investments made to extend the reach of its DM&E railway into the Powder River Basin, $80 million as a terminal loss to dispose of a number of inefficient locomotives, and $50 million in connection with a reduction in the number of its employees.
For CN, the bright spots continued to be petroleum and coal, with quarterly revenues rising by 13 and 15 per cent respectively. In terms of petroleum and chemical products, while revenue per revenue tonne mile dropped by 5 percent to 4.21 cents, revenue tonne miles rose by 19 per cent, thus resulting in revenue gains of 13 per cent. Similarly, a 23 per cent rise in coal revenue tonne miles more than made up for a 7 per cent drop in revenue per revenue tonne mile, and resulted in a coal revenue gain of 15 per cent. On the minus side, revenues and revenue tonne miles dropped nominally for the carriage of metals, minerals and forest products. For CP, the bright spots were automotive, as well and industrial and consumer goods, which showed revenue increases of 24 and 31 per cent respectively. Revenue per revenue tonne mile at CP increased by 5 per cent, whereas at CN it rose by 2 per cent. On the other hand, CN managed to increase revenue tonne miles by 7 per cent, while CP increased its revenue tonne miles by 3 per cent.
For 2012 as a whole, CN managed to lower its all-important operating ratio from 63.5 per cent to 62.9 per cent, controlled its operating expenses, and managed to increase its freight revenues per car load by 6.2 per cent.
For CP, the bright spots were industrial and consumer products (particularly crude oil), and grain, with revenues for the quarter rising by 16 and 10 per cent respectively. Industrial and consumer products revenue tonne miles rose by a very impressive 29 per cent, although freight revenue per revenue tonne mile dropped by 10 per cent. By contrast, sulphur and fertilizer revenue tonne miles dropped by an astounding 22 per cent, but revenues per revenue tonne miles rose by an equally astounding 28 per cent. Overall, revenue tonne miles rose by 4 per cent, and freight revenue per revenue tonne mile rose by 2 per cent. Total carloads were up 1 per cent, and freight revenues per carload were up by 6 per cent.
Jane O’Hagan, Executive VP and Chief Marketing Officer, identified crude oil as the single most important opportunity, and reported that CP could potentially haul as much as twice or three times the current haul rate of 70,000 car loads annually.
For the fourth quarter, CP reduced its operating ratio to 74.8 per cent, compared to a ratio of 78.5 per cent for the year 2011 as a whole.
Although CP continued to make great strides in increasing train lengths, train speed and car miles per day, and decreasing terminal dwell time, its employee productivity declined by 1.0 per cent during the year as a whole, because it did not start reducing its work force until late in the year. However, with employee counts down during the fourth quarter, productivity increased by 4 per cent during that period. Meanwhile, employee productivity at CN rose by 5.7 per cent during the fourth quarter, and by 5.4 per cent for 2012 as a whole.
Both carriers are cautiously optimistic about the immediate future, and are guiding for high single digit revenue growth rates in 2013.