Both of Canada’s major railways announced second quarter results for the period ended June 30, and both produced great “comeback” results, particularly CP. At CP, quarterly revenues rose 14.6 per cent, while CN’s revenues rose 12 per cent. However, while CN’s operating income rose 76 per cent, CP’s rose by 6.5 per cent. Still, because it received a whopping merger termination fee of $845 million, CP’s net income was up by 96 per cent over that of the same period a year ago. CN’s net income was up 90 per cent over that of the same period of a year ago.
At CN, operating expenses as a percentage of revenues recovered dramatically from 75.5 to 61.6 per cent. Cash flow from operations was down to $1.48 billion from $1.76 billion, and “free” cash flow, the amount remaining from operating cash flow after subtracting net investments, dividends and share repurchases during the quarter, fell sharply from $600 million to minus $740 million. As of June 30, the company’s equity stood at $20.3 billion (as compared to $19.7 billion as at December 31, 2020). Total debt increased to $25.9 billion from $25.2 billion (Dec 31, 2020).
At CP, operating expenses as a percentage of revenues increased, from 57 to 60. Net income rose strongly to $1.25 billion from $635 million. However, included in “operating income” was a merger termination fee of $845 million received from Kansas City Southern Railway. Cash flow from operations, increased from $835 million to $1.96 billion, while “free” cash flow skyrocketed from $211 million to $1.42 billion. As at June 30, the company’s equity increased to $9.0 billion (from $7.3 billion as at December 31, 2020), while total debt decreased to $15.7 billion (from $16.3 billion).
For CN, revenue tonne miles increased by 13 per cent, but freight revenues per revenue tonne mile (RTM) rose only 0.9 per cent. Revenues from the carriage of petroleum and chemicals were up by 17 per cent while intermodal revenues, CN’s most important revenue category, were up by 18.6 per cent. Revenues from the carriage of grains and fertilizers declined by 6.2 per cent to $609 million. Total carloads increased by 14 per cent, but freight revenue per carload remained unchanged from the same quarter a year earlier.
For CP, carriage of coal, forest products, metals and minerals, automotive and intermodal all enjoyed increases in revenues; however, revenues from transporting potash declined, and revenues from CP’s all-important grain business remained flat. Total RTMs were up by 9 per cent during the quarter, and revenues per RTM were up by 5 per cent. Intermodal revenue per RTM was up by 13 per cent. Energy, chemicals and plastics revenue per RTMs decreased by 17 per cent. Total carloads increased by 15 per cent, but freight revenue per carload declined 2 per cent from the same quarter a year earlier.
On May 21 CN and Kansas City Southern Railway announced that they had entered into a US33.6 billion merger agreement, subject to approval by KCS shareholders, the US Surface Transportation Board, and other regulatory bodies. The merger, if approved and completed, will be transformational to CN which will benefit from seamless, single-line service from Canada to Mexico, through the United States. CN believes the business combination will expand North American trade, and will enhance service options for customers. On August 31, the US Surface Transportation Board rejected the voting trust arrangement proposed by CN and, on the same day, a UK-based investment group, TCI Fund Management Ltd launched an attack against the company, citing declining financial performance, called for a change in management, and called on CN to drop its bid to acquire KCS. TCI Fund Management Ltd owns minority financial interests in both CN and CP.