Both of Canada’s major railways announced second quarter results for the period ended June 30, and both were able to produce revenue growth well in excess of the growth rate of the economy.
During the quarter, CN’s revenues rose 17 per cent to $3.116 billion, compared to the second quarter of 2012. Operating expenses as a percentage of revenues declined from 60.9 per cent to 59.6 per cent, resulting in a 20.7 per cent increase in operating income. Cash flow from operations increased to $1.273 billion from $1.063 billion. “Free” cash flow, the amount remaining from operating cash flow after subtracting net investments made during the quarter and dividends paid to investors, increased to $649 million from $463 million.
CP’s revenues rose to $1.681 billion during the quarter, up 12 per cent compared to the second quarter of 2013. Compared to the second quarter of 2013, operating expenses rose by only 2 per cent. Operating expenses declined dramatically from 72 per cent of revenues during the second quarter of 2013 to 65.1 per cent during the second quarter of 2014. As a result of higher revenues and similar expense levels, operating income increased to $587 million, up significantly from $420 million during the second quarter of 2013. Cash flow from operations rose sharply from $520 million during the second quarter of 2013 to $645 million during the quarter just ended.
For CN, revenue increases were recorded in all of its business sectors as a result of a 14 per cent increase in revenue tonne miles (RTM) and a 4 per cent increase in revenue per RTM. Particularly bright spots included grain and fertilizer (revenues up by 35 per cent), metals and minerals (revenues up by 20 per cent) and petroleum and chemicals (revenues up by 17 per cent). At $3,525 per carload, revenues per carload from carrying petroleum and chemical products were the highest of any category, up by 9 per cent, even though RTMs from this category declined nominally. Overall carloads were up by eleven per cent. Freight revenues per carload, however, advanced by six per cent.
For CP, the really bright spot was Canadian grains (revenues up 32 per cent and revenue-tonne miles up 34 per cent). Other bright spots included U.S. grains, coal, crude oil, metals and minerals, and domestic intermodal. Overall, revenue tonne miles rose by seven per cent, while freight revenue per RTM advanced by five per cent. Total carloads were up by three per cent, but freight revenues per carload were up by nine per cent.
During the quarter, CP continued to make efficiency improvements, particularly by operating longer and heavier trains. In addition, during the past quarter CP continued to achieve further reductions in its employee count as a result of which, together with further operational improvements, employee productivity rose significantly. Increased productivity, coupled with minor increases in carloads and significant increases in revenues per carload while maintaining strict cost control led to record operating results at CP.
For its part, CN managed to increase rail freight revenue per RTM from $4.73 to $4.90 and lowered its operating ratio from 60.9 to 59.6 per cent. CP’s operating ratio declined from 71.9 to 65.1 per cent.
During the quarter, CN repurchased 5.6 million of its own shares at a cost of $365 million. CP repurchased 2.7 million of its own shares at a cost of $478 million.