CN posts mixed results in Q1 2022

CN yesterday announced "sound operating and financial performance" in first-quarter 2022, including CA$3.7 billion in revenue, up 5%, and adjusted diluted earnings per share (EPS) of CA$1.32, up 7%, compared with first-quarter results in 2021.

The Class I posted operating income of CA$1.2 billion, down 8%, and adjusted operating income of CA$1.2 billion, up 4%. Net income came in at CA$918 million, down from CA$976 million a year ago.

"Our team of experienced railroaders demonstrated resilience in the first quarter, managing through severe winter weather conditions and supply chain disruptions to deliver solid results," said President and CEO Tracy Robinson in a press release. "I am encouraged by the cadence that we developed at the end of the quarter as we lifted out of winter operations."

CN reported diluted EPS of CA$1.31, down 4%. The company posted an operating ratio — defined as operating expenses as a percentage of revenue — of 66.9%, an increase of 4.4 points, and adjusted operating ratio of 66.6%, an increase of 0.3 points.

Also during the quarter, CN's velocity, or car miles per day, decreased by 12%. Fuel efficiency remained flat at 0.910 US gallons of locomotive fuel consumed per 1,000 gross ton miles.

The 5% revenue increase reflected strong demand, despite reduced revenue ton miles that resulted from a significantly smaller Canadian grain crop, CN officials said.

CN attributed the revenue increase mainly to higher applicable fuel surcharge rates, freight rate increases, higher Canadian export volumes of coal via West Coast ports and higher export volumes of U.S. grain. Revenue was partly offset by significantly lower export volumes of Canadian grain and lower international container traffic volumes via the ports of Vancouver and Prince Rupert.

Operating expenses for the quarter climbed 12% to CA$2.481 million, mainly due to higher fuel costs as well as the recovery of a loss on assets held for sale recorded in Q1 2021.

Due to challenging operating conditions in the quarter as well as worldwide economic uncertainty, CN now expects to deliver a 15% to 20% adjusted diluted EPS growth, compared to its Jan. 25 target of 20%. The company is now targeting an OR below 60% for 2022, compared to its Jan. 25 target of about 57%.

"Looking ahead, our immediate focus is on restoring CN's network to its full capacity and running a scheduled railroad with an emphasis on velocity," said Robinson. "I am confident that we will have a strong year and deliver on our 2022 financial outlook.”