Despite tough winter sledding in Q1, CN posted financial gains

CN mostly overcame tough winter operating conditions in Canada and the United States to register some solid financial results in the first quarter. However, the Class I's operating expenses and operating ratio bore the brunt of the harsh winter's effects.

Revenue rose 9 percent to $2.7 billion, adjusted earnings — excluding gains from rail line sales — climbed 8 percent to 66 cents per share, net income jumped 12 percent to $623 million, operating income increased 5 percent to $820 million and carloads ratcheted up 1 percent to 1.24 million units compared with first-quarter 2013 results (all monetary figures are in Canadian dollars).

By commodity group, petroleum and chemicals revenue soared 23 percent to $568 million, intermodal revenue climbed 12 percent to $621 million, metals and minerals revenue jumped 7 percent to $308 million, coal revenue rose 7 percent to $182 million, and grain and fertilizers revenue increased 6 percent to $431 million. Forest products revenue was flat at $339 million and automotive revenue declined 4 percent to $129 million.

The overall revenue gain primarily was attributable to the positive translation impact of the weaker Canadian dollar on U.S.-dollar-denominated revenues; rate increases; higher volumes due to strong energy markets and market share gains, particularly in intermodal; and the impact of a higher fuel surcharge as a result of greater volume, CN officials said in a press release.

"CN delivered solid first-quarter results thanks to a dedicated team of railroaders who labored long and hard to keep us rolling through the harshest winter in decades," said President and Chief Executive Officer Claude Mongeau. "The winter of a lifetime took its toll on network capacity and affected all of our customers, but I'm pleased that CN's recovery is now well underway, with key safety, operating and service metrics returning to pre-winter levels."

The severe winter in part drove up first-quarter operating expenses 11 percent to $1.9 billion — especially in the form of higher purchased services and material costs — and played a major role in a 1.2-point increase in the operating ratio, which clocked in at 69.6. Expenses also were impacted by the negative translation impact of a weaker Canadian dollar on U.S.-dollar-denominated expenses, increased fuel costs and higher casualty and other expenses, CN officials said.

Despite a difficult first quarter, CN is maintaining a positive financial outlook for the full year, and is projecting double-digit earnings growth versus 2013. In addition, the Class I now is targeting a 2014 capital spending budget of $2.25 billion, up $150 million compared with its previously announced capex budget of $2.1 billion.