Both of Canada’s major railways announced third quarter results for the period ended September 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 8.0 per cent to $2.698 billion, compared to the third quarter of 2012. Operating expenses as a percentage of revenues declined from 60.55 per cent to 59.82 per cent, resulting in a 10.0 per cent increase in operating income. Cash flow from operations increased to $1.066 billion from $1.0 billion. “Free” cash flow, the amount remaining from operating cash flow after subtracting net investments made during the quarter and dividends paid to investors, rose to $468 million from $448 million.
CP’s revenues rose to $1.534 billion during the quarter, up 5.7 per cent compared to the third quarter of 2012. Operating expenses declined dramatically from 74.09 per cent during the third quarter of 2012 to 65.84 per cent during the third quarter of 2013. As a result of higher revenues and lower expense levels, operating income increased to $524 million, up significantly from $376 million during the third quarter of 2012. Cash flow from operations rose sharply from $332 million during the third quarter of 2012 to $504 million during the quarter just ended.
For CN, the bright spot continued to be petroleum and chemicals, which produced the largest revenue gains during the quarter (17 per cent). Although freight revenue per revenue tonne mile and the number of carloads for that category remained unchanged compared to the third quarter of 2012, revenue tonne miles for that category increased by 17 per cent. At $3,191 per carload, revenues per carload from carrying petroleum and chemical products were the highest of any category. CN’s most important revenue generator continues to be Intermodal, with third quarter revenues of $577 million, up 13 per cent from 2012. Overall carloads were up by three per cent, and freight revenues per carload were up by six per cent.
For CP, the bright spots were industrial and consumer products (particularly crude oil), and fertilizers and sulphur, with quarterly revenues rising by 17 and 16 per cent respectively. Industrial and consumer products revenue tonne miles rose by 11 per cent, while freight revenue per revenue tonne mile for that category increased by five per cent. Freight revenue per revenue tonne mile grew strongly for forest products (14 per cent), grain (12 per cent) and fertilizers and sulphur (11 per cent). Overall, revenue tonne miles rose by a very modest two per cent, while freight revenue per revenue tonne mile rose by four per cent. Total carloads were down by two per cent, but freight revenues per carload were up by eight per cent.
During the quarter, CP continued to make efficiency improvements, particularly in locomotive productivity, average train weight and length, and the size of its workforce. During the past quarter, CP achieved significant 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 revenues per carload while maintaining strict cost control led to record operating results at CP.
For its part, CN’s unit operating expenses were under pressure. Notwithstanding, aided by an increase in rail freight revenue per RTM from $4.47 to $4.65, CN managed to lower its operating ratio by 0.73 percentage points to 59.8 per cent.
During the quarter, CP’s operating ratio, defined as a company’s operating expenses as a percentage of its net sales, improved dramatically by 8.25 percentage points to 65.84 per cent. As a result of achieving significant operating cost reductions, CP’s net income and cash flow from operations increased to record levels.