CN: “Our Next Driver of Value is Well Underway”

Andrew Corselli Jan 29, 2020

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    “We remain focused on executing our strategy of long-term sustainable growth at low incremental cost,” said JJ Ruest, CN President and CEO, and Railway Age’s 2019 Railroader of the Year. “Our strategic deployment of technology, the next step in our Precision Scheduled Railroading model and our next driver of value, is well underway. At the same time, we continue to closely monitor the freight volume environment and rightsize our resources and costs to demand.

    “Over the past two years, CN invested C$7.4 billion in capital expenditures to increase capacity, efficiency and resiliency of the network. In 2020, our capital program will decrease to C$3 billion, generating higher free cash flow. CN’s strong balance sheet provides us with the financial flexibility and resiliency required in the current turbulent economic environment.”

    4Q19 compared to 4Q18

    • Results impacted by eight-day labor strike and weak freight demand.
    • Diluted earnings per share (EPS) of C$1.22, a decrease of 22%, and adjusted diluted EPS of C$1.25, a decrease of 16%.
    • Operating ratio of 66%, an increase of 4.1 points, and adjusted operating ratio of 65.2%, an increase of 4 points.
    • Operating income of C$1.218 billion, a decrease of 16%, and adjusted operating income of C$1.249 billion, a decrease of 16%.
    • RTMs, measuring the weight and distance of freight transported by CN, declined by 13%. Freight revenue per RTM increased by 9%.
    • Operating expenses for the quarter remained flat, when compared to the same period in 2018. The increases in purchased services and material expense, due to the inclusion of TransX, and depreciation expense, were offset by lower costs from decreased volumes of traffic and lower incentive compensation.
    Full-year 2019 compared to full-year 2018

    • Diluted EPS of C$5.83, a decrease of 1% and adjusted diluted EPS of C$5.80, an increase of 5%.
    • Operating ratio of 62.5%, an increase of 0.9 points, and adjusted operating ratio of 61.7%, an increase of 0.2 points.
    • Operating income of C$5.593 billion, an increase of 2%, and adjusted operating income of C$5.708 billion, an increase of 3%.
    • Adjusted return on invested capital (adjusted ROIC) of 15.1%, a decrease of 0.6 points.
    • RTMs declined by 3%.
    • Freight revenue per RTM increased by 8%, mainly driven by freight rate increases, the inclusion of TransX in the intermodal commodity group and the positive translation impact of a weaker Canadian dollar.

    The 4% increase to C$14.917 billion in annual revenues was mainly attributable to freight rate increases, the inclusion of TransX in the intermodal commodity group within the domestic market, the positive translation impact of a weaker Canadian dollar and higher volumes of petroleum crude, natural gas liquids and refined petroleum products in the first nine months. These factors were partly offset by lower volumes of a broad range of forest products, reduced U.S. thermal coal exports via the Gulf Coast and lower shipments of frac sand.

    2020 outlook and shareholder distribution


    “We have growth opportunities that we anticipate will translate into low single-digit volume growth in 2020 in terms of revenue ton miles (RTMs), despite continued weakness in the broad freight environment,” said Ruest.

    CN is targeting to deliver EPS growth in the mid single-digit range this year compared to adjusted diluted EPS of C$5.80 in 2019.

    CN is also targeting free cash flow in the range of C$3 billion to C$3.3 billion in 2020 compared to C$2 billion in 2019.

    The Company’s Board of Directors approved a 7% increase to CN’s 2020 quarterly cash dividend, effective for 1Q20. This is the 24th consecutive year of dividend increase, “demonstrating our confidence in the long-term financial health of the Company.” In addition, the Company’s Board of Directors also approved a new normal course issuer bid that permits CN to purchase, for cancellation, over a 12-month period up to 16 million common shares, starting on Feb. 1, 2020, and ending no later than Jan. 31, 2021.

    The post CN: “Our Next Driver of Value is Well Underway” appeared first on Railway Age.

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