Oil and container traffic push CN Rail to record revenues of nearly $4B
About 45% of the windfall came from CN Rail's two biggest lines of business – containers, and petroleum and chemicals
MONTREAL – Crude-by-rail and container traffic drove Canadian National Railway Co. to its highest ever quarterly revenue and adjusted earnings per share, shoring up confidence in its EPS forecast of low double-digit growth for 2019.
The country’s largest railroad operator saw revenues rise nine per cent year over year to a record $3.96 billion last quarter.
About 45 per cent of the windfall came from containers, and petroleum and chemicals – CN Rail’s two biggest lines of business – which rose 15 per cent and 26 per cent, respectively, to hit $1.77 billion.
TransX, a Winnipeg-based trucking and transport company that CN acquired in March, was responsible for roughly one-tenth of the company’s $992 million in container revenue, chief executive Jean-Jacques Ruest said on a conference call after markets closed Tuesday.
The railway ramped up crude traffic each month in the quarter, hitting 200,000 barrels a day in June versus 150,000 barrels a day in April.
“We’re optimistic that the Alberta government will enable that momentum to continue for the balance of the year,” said chief financial officer Ghislain Houle.
Alberta Premier Jason Kenney has extended the 3.71-million barrel-a-day June production limit into July, and his United Conservative government hopes to offload crude-by-rail contracts signed by the previous NDP government to private companies by this fall.
Meanwhile, grain revenue rose 11 per cent, Ruest said, explaining the Chinese ban on Canadian canola could result in higher volumes next year.
CN Rail’s operating ratio, a measure of the railway’s efficiency that divides operating expenses by net sales, improved 70 basis points to 57.5 per cent, which CN called the lowest in the industry. A smaller ratio means better performance.
The company has about 200 train crews on temporary layoff in Western Canada “waiting for the crude-by-rail volume opportunity to pick up higher,” Ruest said.
CN is also slimming down its upper ranks, reducing 6,900 management jobs last October to about 6,000 now, with the goal of ending the year at 5,700.
During the quarter, CN failed to realize some potential deals.
In May, competitor Canadian Pacific Railway Ltd. signed a three-year deal with Taiwan-based Yang Ming Marine Transport Corp. for CP to serve as the shipping giant’s rail carrier out of the Port of Vancouver. The agreement boosted CP’s market share at Deltaport terminal to about 70 per cent from 20 per cent.
“We were sitting at the negotiating table, and it got to the point where we said no,” executive Keith Reardon said on the conference call.
In May, the company’s joint bid for the largest container terminal in Eastern Canada hit a snag after Singapore-based port operator PSA International Pte Ltd. snapped up the Halterm terminal at the Port of Halifax, rattling Ruest’s plans to create “a Prince Rupert of the east” and pick up more non-rail assets.
Last month, however, the Quebec Port Authority announced it had inked a deal with Hong Kong port giant Hutchison Ports and CN Rail to build and run the new container terminal at Quebec City.
CN Rail said net income rose four per cent year over year to $1.36 billion in the quarter ended June 30.
On an adjusted basis, diluted earnings per share climbed 15 per cent to $1.73 – a record for the second quarter – compared to $1.51 during the same period in 2018.
Analysts had expected adjusted diluted earnings of $1.65 per share, according to the financial markets data firm Refinitiv.
The Montreal-based company said its board approved a third-quarter dividend of 53.75 cents on common shares outstanding, to be paid on Sept. 30.
