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 4.8 per cent to $2.666 billion, compared to the second quarter of 2012. Operating expenses as a percentage of revenues declined from 61.27 per cent to 60.92 per cent, resulting in a 5.8 per cent increase in operating income. Cash flow from operations declined to $1.063 billion from $1.211 billion. “Free” cash flow, the amount remaining from operating cash flow after subtracting net investments made during the quarter and dividends paid to investors, declined to $463 million from $659 million.
CP’s revenues rose to $1.5 billion during the quarter, up 9.6 per cent compared to the second quarter of 2012, and operating expenses declined dramatically from 82.50 per cent to 71.94 per cent. As a result of higher revenues and lower expense levels, operating income increased to $420 million, up significantly from $239 million during the second quarter of 2012. Cash flow from operations rose sharply from $326 million during the second quarter of 2012 to $520 million during the quarter just ended. The improved results were achieved despite network interruptions caused by extensive flooding in Calgary and Southern Alberta during the period.
For CN, the bright spot continued to be petroleum and chemicals, with quarterly revenues rising by 18 per cent. Although freight revenue per revenue tonne mile for that category dropped by two per cent, revenue tonne miles for that category increased by 21 per cent, and carloads increased by two per cent. At $3,208 per carload, revenues per carload from carrying petroleum and chemical products were the highest of any category. Overall carloads were up by two per cent, and freight revenues per carload were up by three per cent.
For CP, the bright spots were industrial and consumer products (particularly crude oil), and grains, with quarterly revenues rising by 24 and 21 per cent respectively. Industrial and consumer products revenue tonne miles rose by 34 per cent, although freight revenue per revenue tonne mile for that category declined by eight per cent. Overall, revenue tonne miles rose by 11 per cent, while freight revenue per revenue tonne mile declined by one per cent. Total carloads were up by three per cent, and freight revenues per carload were up by six per cent.
During the quarter, CP continued to make efficiency improvements, particularly in locomotive productivity and fuel efficiency. 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 increases in carloads and increases in revenues per carload while maintaining strict cost control led to record operating results at CP.
For its part, CN continued to improve its labour productivity, and managed to increase rail freight revenue per RTM from $4.52 to $4.56.
During the quarter, CN’s “operating ratio”, defined as a company’s operating expenses as a percentage of its net sales, declined to 60.9 per cent, while CP’s declined to 71.9 per cent. Both carriers continue to be cautiously optimistic about the immediate future, and are guiding for high single digit revenue growth rates in 2013.