Thursday, January 25, 2018

Tax changes lift Canadian National to profit

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Tax changes lift Canadian National to profit Canadian National

Canadian National Railway said net income increased by 156% to C$2.61 billion ($2.12 billion) in the fourth quarter from a year ago while earnings per share soared by 164% to C$3.48 ($2.82) on changes to the U.S. corporate tax rate that saw a deferred income tax recovery of C$1.76 billion, or C$2.35 per share.

The Montreal-based company said that without the tax benefit, adjusted net income decreased by 6% to C$897 million, and adjusted earnings per share by 2% to C$1.20. Operating income fell 7% to C$1.3 billion.

Revenues increased by 2% to C$3.29 billion as revenue ton-miles (RTM) increased by 1% and carloadings rose 7%. Rail freight revenue per RTM also increased by 1%. Operating expenses were 9% higher at C$1.98 billion, and the operating ratio of 60.4% increased by 3.8 points.

Revenues increased for metals and minerals (20%); intermodal (13%); coal (7%), and automotive (1%). Revenues declined for grain and fertilizers (10%); petroleum and chemicals (5%), and forest products (2%).

The company credited improved revenues to international container traffic via the ports of Prince Rupert and Vancouver and increased volumes of frac sand; freight rate increases, and higher fuel surcharges. Gains were partly offset by a stronger Canadian dollar; lower export volumes of U.S. soybeans, and reduced shipments of crude oil.

Operating expenses for the quarter increased by 9% to C$1.98 billion, on higher costs from increased volumes; harsh early winter weather, and higher fuel prices partly offset by currency effects.

For the year, revenues increased by 8% to C$13.04 billion from 2016. Revenues increased 25% for metals and minerals; 23% for coal; 12% for intermodal; 9% for automotive; 6% for grain and fertilizers; 5% for other revenues, and 2% for petrochemicals. Forest products declined 1%.

The carrier said revenues gains came on higher volumes of traffic in overseas intermodal; frac sand, coal and petroleum coke exports, and Canadian grain; freight rate increases, and higher fuel surcharges.

Full-year carloadings increased by 10% while RTMs strengthened by 11%. Rail freight revenue per RTM decreased by 2%, mainly on an increase in the average length of haul and the stronger dollar.

Canadian National plans a C$3.2 billion ($2.5 billion) capital program in 2018, a record for the railroad, and up more than 23% from 2017.

The program, CN said, will focus on key capacity projects to meet growing demand and continue investment in infrastructure maintenance to enhance safety and efficiency.

"CN is investing more than ever before in the safety, efficiency and resiliency of our network," said Luc Jobin, CN President and Chief Executive. "These record investments, a substantial portion of which will go to new capacity and growth projects, will improve our network fluidity, allowing us to deliver superior service to meet our customers' growing freight volumes."

Within the Class 1's planned C$1.6 billion track and railway infrastructure maintenance envelope is the replacement of 2.1 million crossties; more than 600 miles of rail, as well as bridge work and other general track maintenance. The maintenance spending is consistent with what the railroad has spent during the past three years on basic maintenance.

What is driving the bump in the program in 2018 is the planned C$700 million on capacity investments in both infrastructure and equipment.

Michael Cory, chief operating officer and executive vice president, said during CN’s earnings call that the capacity investments are aimed at a simple target: keeping trains moving.

"Our trains will continue to get bigger. With more trains on the network, we must reduce the number of times trains have to stop from meeting and the duration of that stop. That is why a number of our investments are targeted for building double-track sections where our big trains can meet without stopping," said Cory.

Approximately C$400 million is to be spent on equipment, including the acquisition of new high-horsepower locomotives. A further C$800 million is targeted at initiatives to increase capacity and enable growth, such as track infrastructure expansion; investments in yards and in intermodal terminals, and on information technology to improve safety, performance, operational efficiency and customer service.

Major capacity and equipment investments include:

  • Sixty new General Electric locomotives, the first deliveries from a three-year order of 200 new units
  • Double track and siding extensions in the West Coast to Chicago corridors
  • Intermodal equipment and infrastructure in Toronto, Memphis, Tenn., Joliet, Ill., and other terminals

The company plans to invest approximately C$400 million in 2018 on the implementation of Positive Train Control along 3,500 route miles of its U.S. network. CN plans to invest a total of US$1.4 billion on PTC capital expenditures by 2020.

"CN's growth continues to outpace the economy," Jobin said. "With our 2018 capital program and ongoing hiring, we are focused on meeting the needs of our customers. We have confidence in the North American economy and in our ability to help our customers grow their businesses."

 

– with reporting by Mischa Wanek-Libman, Railway Track & Structures

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