Both of Canada’s major railways announced results for the period ended December 31, and for the second year in a row, the effects of a sputtering economy were well in evidence.
Although fourth quarter revenues were up 1.6 per cent, CN’s revenues for the year declined by 4.5 per cent to $12.03 billion. However, because of tight control over expenses, operating income for both the quarter and the year were up. In fact, operating expenses as a percentage of revenues declined steeply from 58.2 per cent to 55.8 per cent during the year, a new record, as far as we can tell. Net income for the year rose 2.9 per cent to $3.64 billion. Cash flow from operations increased by 1.2 per cent to $5.20 billion. “Free” cash flow, the amount remaining from operating cash flow after subtracting net investments made during the year and dividends paid to investors, declined slightly to $1.43 billion.
During the year, CN repurchased 27.1 million shares at a cash cost of $2.05 billion. Shareholders’ equity declined from $14.95 billion as at the end of 2015 to $14.84 billion as at the end of 2016. As at the end of 2016, 60.0 per cent of CN’s total assets were financed by short-term and long-term debt, a slight deterioration over the year-end 2015 ratio of 58.9 per cent.
CP’s revenues declined 7.2 per cent during the year, to $6.23 billion. At 58.6 per cent, operating expenses, as a percentage of revenues, were significantly reduced from 60.0 per cent recorded in 2015, and represented a new record. As a result of tight cost control, net income during the year increased from $1.35 to $1.60 billion. Cash flow from operations declined from $2.46 billion in 2015 to$2.1 billion in 2016. “Free” cash flow declined from $1.1 billion in 2015 to $768 million in 2016.
During the year, CP repurchased shares at a cash cost of just over $1.2 billion. CP’s balance sheet as of December 31, 2016 shows that 75.9 per cent of its total assets were been financed by short and long term debt. By way of comparison, as at the end of 2015 this number stood at 75 per cent, while the number as at the end of 2014 was 66.1 per cent.
For CN, the bright spots in 2016 were forest products and automotive, which produced the largest revenue gains (4 and 6 per cent respectively). Revenue tonne miles declined by 5 per cent during the year, while freight revenue per revenue tonne mile declined slightly from 5.3 cents in 2015 to 5.28 cents in 2016. Carloads fell by 5 per cent during the year, but increased by 3 per cent during the fourth quarter. Freight revenues per carload during the year were up slightly from $2,170 to $2,176.
During the year, CP recorded 135.9 billion revenue tonne miles, representing a drop of about 6 per cent compared to 2015. Freight revenues declined in all categories, except fertilizers and sulphur, forest products and chemicals, which were up, respectively, by 4, 10 and 1 per cent. CP suffered its steepest decline in revenues from the carriage of crude oil, which was down by 66 per cent from 2015.
However, train miles decreased by 11 per cent to 8.4 million. And average train weights, train lengths and train speed all rose, indicating that CP managed to make the best of declining traffic volumes.