CN bested revenue record, notched sub-60 operating ratio in 3Q

Higher volume partly propelled by strong energy markets, market share gains and some growth in the North American economy in the third quarter added up to record revenue and a sub-60 operating ratio for CN.

Yesterday, the Class I reported 3Q results, which included quarterly record revenue of $2.7 billion, up 8 percent; net income of $705 million, up 6 percent; adjusted diluted earnings per share of $1.72, up 13 percent; and operating income of $1.1 billion, up 10 percent compared with third-quarter 2012 results (all figures are in Canadian dollars). In addition, carloads totaling 1.3 million units rose 3 percent and CN's operating ratio improved 0.8 points to 59.8.

Most key operating metrics were "all green" in the quarter, meaning solid operating performance, said CN President and Chief Executive Officer Claude Mongeau during the Class I's earnings conference yesterday afternoon.

"We are balancing operational and service excellence the way we are aiming for," he said.

Five commodity groups posted revenue gains: petroleum and chemicals, 17 percent to $485 million; intermodal, 13 percent to $577 million; metals and minerals, 11 percent to $324 million; forest products, 8 percent to $362 million; and automotive, 7 percent to $136 million. Grain and fertilizers revenue declined 3 percent to $357 million, and coal revenue decreased 1 percent to $186 million.

"During the quarter, we had a slow start in June and July from a revenue standpoint, but all revenues rebounded nicely in September," said Mongeau. "And more important than that, we were able to continue to outpace base market conditions [in the quarter].

Operating expenses increased 7 percent in the third quarter to $1.6 billion primarily due to a negative translation impact of the weaker Canadian dollar on U.S.-dollar-denominated expenses, higher labor and fringe benefits costs (up 9 percent to $521 million) higher depreciation and amortization (up 6 percent to $241 million), and increased purchased services and material expenses (up 5 percent to $318 million), CN officials said. Fuel costs rose 6 percent to $390 million.

"Clearly, the solid third-quarter results show that we are gaining momentum, and we're entering the fourth quarter with the hope to finish the year strongly," said Mongeau.

CN also announced yesterday that members of the Canadian National Railways Police Association ratified a new four-year agreement. Effective from Jan. 1, 2014, to Dec. 31, 2017, the pact provides wage increases and improved benefits for 74 active CN police officers across Canada.