CN's Q1 profit jumps 13 percent, but revenue falls due to commodity slump

CN posted a 13 percent jump in net income in first-quarter 2016 compared with a year ago, but slumping commodity shipments led to a 4 percent decline in revenue for the period.

The Class I yesterday reported first-quarter net earnings of $792 million (in Canadian dollars), or $1 per diluted share, compared with $704 million, or 86 cents per diluted share compared with first-quarter earnings a year ago.

Revenue came in at $2.964 billion for the quarter, down from $3.098 billion last year. Carloadings declined 7 percent and revenue ton-miles declined 9 percent compared with first-quarter 2015, company officials said in a press release.

The decline in revenue was attributed primarily to decreases in shipments of energy-related commodities including crude oil, frac sand, drilling pipe and semi-finished steel products; reduced shipments of coal and grain; and lower applicable fuel surcharge rates.

Revenue declined 2 percent for grain and fertilizers, 10 percent for petroleum and chemicals, 18 percent for metals and minerals, and 42 percent for coal.

Revenue increased 18 percent for automotive, 11 percent for forest products and 1 percent for intermodal.

CN's operating income for the quarter rose 14 percent to $1.217 billion, while operating expenses fell 14 percent to $1.747 billion. The operating ratio of 58.9 percent was a 6.8-point improvement over the prior-year quarter.

CN President and Chief Executive Officer Claude Mongeau said the railroad delivered a "very solid" performance during the quarter.

"We successfully aligned our resources with the reduced volume level to achieve strong efficiency gains, while continuing to offer superior customer service and significantly improving our safety performance," he said. "These achievements allowed the CN team to deliver record first-quarter financial results."

A weaker-than-expected freight demand in certain commodities and the strengthening of the Canadian dollar relative to the U.S. dollar prompted CN to revise downward its financial outlook for the second quarter.

Under its revised outlook, the company now aims to deliver 2016 earnings per share that are in line with last year's adjusted diluted earnings per share of $4.44. On Jan. 26, the company's financial outlook called for mid-single digit growth in earnings per share.