Both of Canada’s major railways announced third quarter results for the period ended September 30, and once again both were able to produce revenue growth well in excess of the growth rate of the economy.
During the quarter, CN’s revenues rose 15.6 per cent to $3.118 billion, a new quarterly record, compared to the third quarter of 2013. Operating expenses as a percentage of revenues declined from 59.82 per cent to 58.76 per cent, which set a new quarterly record. Cash flow from operations increased to $1.328 billion from $1.066 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 $706 million from $468 million.
CP’s revenues rose to $1.67 billion during the quarter, up 9 per cent compared to the third quarter of 2013. Operating expenses declined dramatically from 65.84 per cent during the third quarter of 2013 to 62.81 per cent during the third quarter of 2014. As a result of higher revenues and lower expense levels, operating income increased to $621 million, up significantly from $524 million during the third quarter of 2013. Cash flow from operations rose from $504 million during the third quarter of 2013 to $534 million during the quarter just ended.
For CN, the bright spot was grain and fertilizers, which produced the largest revenue gains during the quarter (29 per cent). Revenue from carrying grain and fertilizers amounted to $469 million during the quarter. Petroleum and chemicals came in with revenues of $594 million, up 21 per cent over the same quarter of 2013. Overall, freight revenues were up a strong 16 per cent. Overall revenue tonne miles (RTM) were up by 13 per cent, and revenue per RTM was up by 2.5 per cent. Carloads were up by 11 per cent. At $3,536 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 $731 million, up 14 per cent from 2013.
For CP, the bright spots were industrial and consumer products (particularly crude oil), U.S. and Canadian grains, domestic intermodal and metals, minerals and consumer products. But the truly outstanding spot was crude oil, which generated $136 million of revenues for CP during the quarter, up from $78 million during the third quarter of 2013. At $4,436 per carload, crude oil delivered the highest revenue per carload, some 16 per cent higher than CP’s second highest revenue earner (per carload), namely fertilizers and sulphur. At $375 million, U.S. and Canadian grains remained CP’s strongest revenue generators, representing 23 per cent of total freight revenues, and representing a revenue increase of 24.6 per cent over the third quarter of 2013. Grains were also responsible for the highest number of revenue tonne miles, representing some 26 per cent of CP’s overall revenue tonne miles. Overall, revenue tonne miles rose strongly by 8.3 per cent, while freight revenue per revenue tonne mile rose by just over half a per cent. Total carloads were up by 1.8 per cent, but freight revenues per carload were up by 7.1 per cent.
During the quarter, both CN and CP continued to make efficiency improvements, as a result of which employee productivity rose another notch for both carriers.
During the quarter, CP’s operating ratio, defined as a company’s operating expenses as a percentage of its net sales, improved modestly by 3.03 percentage points to 62.81 per cent, after having been the subject of aggressive improvements during the past two years. As a result of higher volumes, coupled with further cost reductions, CP’s net income and cash flow from operations increased to record levels. CN, benefitting from similar developments, managed to reduce its operating ratio to 58.76 per cent, a new quarterly record.