CN: Extreme winter weather put chill on Q1 income, operating ratio

Yesterday, CN reported first-quarter revenue of $2.5 billion and adjusted diluted earnings per share of $1.22, up 5 percent and 3 percent, respectively, compared with the year-ago period (all figures are in Canadian dollars). In addition, carloads increased 2 percent year over year to 1.23 million units.

But net income fell 29 percent to $555 million, operating income dropped 2 percent to $780 million, operating expenses climbed 9 percent to $1.69 billion — primarily because of higher labor/fringe benefits, purchased services and materials, and fuel costs — and CN's operating ratio worsened 2.2 points to 68.4. The primary culprit: a very chilly and snowy winter.

"CN faced a number of operational challenges in the first quarter, including extreme cold and heavy snow in Western Canada, which hampered operations, congested the network and constrained volume growth," said President and Chief Executive Officer Claude Mongeau in a prepared statement. "We've turned the corner since then, improving train velocity and reducing freight car dwell times in yards across the network to restore the service level expected by our customers. CN will emerge stronger from this first-quarter experience."

The 5 percent revenue gain was attributed mainly to rate increases and higher freight volumes, due in part to growth in the North American and Asian economies, partly offset by the operational challenges that constrained volumes, CN officials said.

Petroleum and chemicals revenue climbed 17 percent to $457 million; intermodal revenue rose 7 percent to $492 million; metals and minerals revenue ratcheted up 3 percent to $282 million; forest products and automotive revenue each grew 2 percent to $336 million and $132 million, respectively; and grain and fertilizers revenue inched up 1 percent to $401 million. Coal revenue declined 1 percent to $165 million.

CN also announced plans to maintain its 2013 financial outlook issued in January and increase 2013 capital spending by $100 million to $2 billion. The additional capital will be targeted at track infrastructure improvements and projects that support a number of productivity and growth initiatives.

"To improve network resilience, particularly given our expectation of continued strong volume growth, CN is undertaking several capacity enhancement projects in its Edmonton-Winnipeg corridor," said Mongeau.

In addition, CN announced the appointment of Robert Pace as vice chairman. He is expected to become chairman next year after David McLean retires at the age of 75.

Pace, who joined CN's board in 1994, is president and CEO of The Pace Group Ltd., a radio broadcasting, real estate and environmental services firm.