By THEO VAN DE KLETERSTEEG
Both of Canada’s major railways announced third quarter results, and both performed significantly better than the economy as a whole.
During the quarter, CN’s revenues rose 8.2 per cent to $2.5 billion, compared to the third quarter of 2011. However, its operating income rose by only 5 per cent, restrained by operating expenses that rose faster than revenues. Its operating income as a per cent of revenues dropped a notch to just below 40 per cent. Net income of $664 million was slightly below comparable 2011 results. Cash flow from operations of $1 billion continued to be very strong.
CP’s revenues rose to $1.451 billion, also up 8.2 per cent compared to the third quarter of 2011. Its operating income rose by more than 16 per cent, aided by operating expenses that rose at a lower rate than revenues (5.7 per cent). Net income rose by almost 20 per cent to $224 million. Cash flow from operations was steady at $332 million.
For CN, the bright spots were petroleum and coal, with revenues rising by 15 and 13 per cent respectively. For CP, the bright spots were automotive, as well and industrial and consumer goods, which showed revenue increases of 24 and 31 per cent respectively. Revenue per revenue tonne mile at CP increased by 5 per cent, whereas at CN it rose by 2 per cent. On the other hand, CN managed to increase revenue tonne miles by 7 per cent, while CP increased its revenue tonne miles by 3 per cent.
Although CP made great strides in increasing train lengths, train speed and car miles per day, and decreasing terminal dwell time, its employee productivity declined by 2.6 per cent because of an increase in its number of employees of 4.3 per cent, compared to a year ago. Meanwhile, employee productivity at CN rose by 6.5 per cent because CN managed to increase its revenue tonne miles through only a marginal increase in its employee count.
Both carriers are cautiously optimistic about the immediate future. However, much will depend on continued demand growth from Asia, and a continuing recovery in the U.S. The latter will likely depend on whether or not compromises can be made with respect to future expenditure cuts and tax increases before the end of the year, failing which deep spending cuts and substantial tax increases will automatically be triggered which, economist assert, will almost certainly trigger another recession.