Both of Canada’s major railways announced results for the period ended December 31, and once again both were able to produce revenue growth well in excess of the growth rate of the economy.
During the quarter, CN’s revenues rose 16.8 per cent to $3.207 billion, compared to the fourth quarter of 2013. Operating expenses as a percentage of revenues declined steeply from 64.8 per cent to 60.7 per cent. Net income rose 32.9 per cent to $844 million. Cash flow from operations increased by 3.4 per cent to $1.135 billion. “Free” cash flow, the amount remaining from operating cash flow after subtracting net investments made during the quarter and dividends paid to investors, was a negative $14 million.
During the year, CN repurchased 22.4 million shares at a cash cost of just over $1.5 billion. As a result of a remeasurement of the company’s pension and post-retirement benefits plan, the value of CN’s pension assets was written down at the end of 2014 to $882 million, from $1.662 billion at the end of 2013. Despite pension plan impairment charges, share repurchases and dividend payments, shareholders’ equity rose from $12.953 billion as at the end of 2013 to $13.47 billion as at the end of 2014.
CP’s revenues rose to $1.76 billion during the quarter, up 9.5 per cent compared to the fourth quarter of 2013. Operating expenses, as a percentage of revenues, declined significantly from 92.9 per cent during the fourth quarter of 2013 to 60.0 per cent during the third quarter of 2014. It must be noted, though, that the higher operating expenses in 2013 resulted from an unusual $435 million asset impairment charge. Therefore, on an adjusted basis, Q4 2013 operating expenses as a percentage of revenues would have been 65.8 per cent. On this “adjusted” basis, the operating ratio during the fourth quarter of 2014 declined to 60.0 per cent from 65.8 per cent during the year-ago period. As a result of higher revenues and lower expense levels, operating income increased dramatically to $708 million from $114 million during the fourth quarter of 2013. Net income rose from $82 million during the fourth quarter of 2013 to $451 million during the fourth quarter of 2014. Cash flow from operations remained about the same during the quarter just ended. However, the 2013 cash flow number included the $435 million asset impairment charge.
During the year, CP repurchased almost 10.5 million shares at a cash cost of almost $2.1 billion. As a result of a remeasurement of the company’s pension and post-retirement benefits plan, the value of CP’s pension assets was written down at the end of 2014 to $304 million, from $1.034 billion at the end of 2013. Pension plan impairment charges, share repurchases and dividend payments exceeded net income by $1.57 billion, as a result of which shareholders’ equity was reduced from $7.097 billion as at the end of 2013 to $5.608 billion as at the end of 2014.
For CN, the bright spots were metal and minerals, which produced the largest revenue gains during the quarter (34 per cent), based on a 31 per cent increase in revenue tonne miles, and a 2 per cent increase in rail freight revenue per RTM. Petroleum and chemicals represented CN’s second highest revenue growth area, with revenues growing 21 per cent, based on increased revenue tonne miles (14 per cent) and higher rail freight revenue per RTM (6 per cent). Freight revenue per revenue tonne mile increased by 7 per cent overall, while revenue tonne miles rose strongly by 9 per cent during the quarter. The number of carloads increased by 11 per cent during the quarter. At $3,783 per carload, revenues per carload from carrying petroleum and chemical products were the highest of any category, and experienced the strongest growth of any category, up by 15 per cent compared to the fourth quarter of 2013. CN’s most important revenue generator continues to be Intermodal, with fourth quarter revenues of $680 million, up 10 per cent from 2013.
For CP, the bright spots were potash and grain, with quarterly revenues rising by 39 and 27 per cent respectively. Potash revenue tonne miles increased by 41 per cent, rising to 9.8 per cent of total RTMs, while revenue per RTM held steady. U.S. and Canadian grain revenue tonne miles increased by 4.5 per cent, rising to 26.5 per cent of total RTMs. Revenues for U.S. grain rose by 15 per cent, while revenues to carry Canadian grain held steady. Overall, revenue tonne miles rose by six per cent, while freight revenue per revenue tonne mile rose by four per cent. Total carloads were up by one per cent, but freight revenues per carload were up by nine per cent.
During the quarter and the year, CP continued to make efficiency improvements, particularly in average train weight, length, and speed, and the size of its workforce. For the year, increased productivity, coupled with increases in revenues per carload while maintaining strict cost control, led to record operating results at CP.
Similarly, CN continued to make steady improvements in RTMs, rail freight revenue per RTM, labour costs per RTM, and other categories.