CN Reports Strong Second Quarter Results
On July 20, 2021, CN (CNI) reported strong financial performance for Q2 2021, highlighting a 13% increase in revenue ton miles year-over-year and a 76% rise in operating income to C$1,382 million. Revenues reached C$3,598 million, up 12%, while diluted EPS increased 90% to C$1.46. The company's ongoing merger proposal with Kansas City Southern aims to boost competition in North America. CN reaffirmed its 2021 outlook, targeting double-digit adjusted EPS growth and free cash flow of C$3.0 billion to C$3.3 billion.
- 76% increase in operating income to C$1,382 million.
- Revenues at C$3,598 million, up 12% year-over-year.
- Diluted EPS rose 90% to C$1.46.
- Confident in merger approval with Kansas City Southern.
- Negative translation impact of a stronger Canadian dollar.
- Lower export volumes of Canadian grain.
Broad economic recovery and solid operating performance reinforce confidence heading into the second half of 2021
MONTREAL, July 20, 2021 (GLOBE NEWSWIRE) -- CN (TSX: CNR, NYSE: CNI) today reported its financial and operating results for the second quarter ended June 30, 2021, highlighting a 13 per cent increase in revenue ton miles (RTMs) year-over-year and volume growth in virtually every business unit, with notable strength in industrial products, international and domestic intermodal, and propane.
"CN continued to deliver strong operating and financial performance in the second quarter, driven in large part by the dedication of our people and the ongoing long-term investments we are making in our network, equipment, technology and talent. We enter the second half of 2021 focused on executing for our customers and leveraging our strong network performance to safely and sustainably drive long-term value creation for all of our stakeholders. Our proposed combination with Kansas City Southern has received overwhelming support from a broad base of stakeholders because it will enhance competition and drive economic growth in North America. We are confident in our ability to obtain the necessary approvals and successfully close this pro-competitive combination and look forward to delivering the many compelling benefits to customers, employees, labor partners and the communities in which we operate.”
— JJ Ruest, President and Chief Executive Officer of CN
Financial results highlights
Second-quarter 2021 compared to second-quarter 2020
- Operating income of C
$1,382 million , an increase of 76 per cent, or nine per cent on an adjusted basis. (1) - Revenues of C
$3,598 million , an increase of C$389 million or 12 per cent. - Diluted earnings per share (EPS) of C
$1.46 , an increase of 90 per cent, and adjusted diluted EPS of C$1.49 , an increase of 16 per cent. (1) - Operating ratio of 61.6 per cent, an improvement of 13.9 points, or an increase of 1.2 points on an adjusted basis. (1)
- Free cash flow for the first six months of 2021 was C
$1,280 million . (1)
Operating Performance
Second-quarter 2021 compared to second-quarter 2020
Operating performance improved in the second quarter of 2021 when compared to the same period in 2020. In 2020, CN took exceptional measures and made changes to its operating plan (i.e. building longer and heavier trains) due to the sharp retreat in volumes and the unknown duration and effects of the pandemic. As the economy rebounded from the COVID-19 pandemic, CN reverted to its standard operating plan, which focuses on car velocity and through dwell.
- Federal Railroad Association (FRA) injury frequency rate and accident rate improved by 31 per cent and 16 per cent, respectively.
- Fuel efficiency improved by two per cent to 0.86 US gallons of locomotive fuel consumed per 1,000 gross ton miles.
- Train length (in feet) decreased by two per cent.
- Through dwell (entire railroad, hours) improved by eight per cent.
- Car velocity (car miles per day) improved by four per cent.
- Through network train speed (mph) decreased by two per cent.
Reaffirmed 2021 financial outlook (2)
CN is still targeting double-digit adjusted diluted EPS growth, versus 2020 adjusted diluted EPS of C
Second-quarter 2021 revenues, traffic volumes and expenses
Revenues for the second quarter of 2021 were C
RTMs, measuring the weight and distance of freight transported by CN, increased by 13 per cent from the year-earlier period. Freight revenue per RTM increased by one per cent over the year-earlier period, mainly driven by freight rate increases; partly offset by the negative translation impact of a stronger Canadian dollar.
Operating expenses for the second quarter decreased by nine per cent to C
CN Proposal to Combine with KCS
On May 21, 2021, CN and KCS (NYSE: KSU) announced that they have entered into a definitive merger agreement to combine in a transaction valued at US
CN is proposing to use a voting trust structure, which requires the approval of the Surface Transportation Board (“STB”). Under the terms of the merger agreement, KCS shareholders will receive US
The proposed combination will establish seamless, single-line service from Canada, through the United States and into Mexico. The end-to-end CN-KCS combination will expand North American trade and power economic prosperity, provide numerous new connections and service options for customers, enhance competition, and deliver many compelling and innovative benefits for ports, employees, communities and the environment.
(1) Non-GAAP Measures
CN reports its financial results in accordance with United States generally accepted accounting principles (GAAP). CN also uses non-GAAP measures in this news release that do not have any standardized meaning prescribed by GAAP, such as adjusted performance measures. These non-GAAP measures may not be comparable to similar measures presented by other companies. For further details of these non-GAAP measures, including a reconciliation to the most directly comparable GAAP financial measures, refer to the attached supplementary schedule, Non-GAAP Measures.
CN's full-year adjusted diluted EPS outlook (2) excludes the expected impact of certain income and expense items. However, management cannot individually quantify on a forward-looking basis the impact of these items on its EPS because these items, which could be significant, are difficult to predict and may be highly variable. As a result, CN does not provide a corresponding GAAP measure for, or reconciliation to, its adjusted diluted EPS outlook.
(2) Forward-Looking Statements
Certain statements included in this news release constitute "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995 and under Canadian securities laws, including statements based on management’s assessment and assumptions and publicly available information with respect to CN and KCS, regarding the proposed transaction between CN and KCS, the expected benefits of the proposed transaction and future opportunities for the combined company. By their nature, forward-looking statements involve risks, uncertainties and assumptions. CN cautions that its assumptions may not materialize and that current economic conditions render such assumptions, although reasonable at the time they were made, subject to greater uncertainty. Forward-looking statements may be identified by the use of terminology such as "believes," "expects," "anticipates," "assumes," "outlook," "plans," "targets", or other similar words.
Forward-looking statements are not guarantees of future performance and involve risks, uncertainties and other factors which may cause actual results, performance or achievements of CN, or the combined company, to be materially different from the outlook or any future results, performance or achievements implied by such statements. Accordingly, readers are advised not to place undue reliance on forward-looking statements. Important risk factors that could affect the forward-looking statements in this news release include, but are not limited to: the outcome of the proposed transaction between CN and KCS; the parties’ ability to consummate the proposed transaction; the conditions to the completion of the proposed transaction; that the regulatory approvals required for the proposed transaction may not be obtained on the terms expected or on the anticipated schedule or at all; CN’s indebtedness, including the substantial indebtedness CN expects to incur and assume in connection with the proposed transaction and the need to generate sufficient cash flows to service and repay such debt; CN’s ability to meet expectations regarding the timing, completion and accounting and tax treatments of the proposed transaction; the possibility that CN may be unable to achieve expected synergies and operating efficiencies within the expected time-frames or at all and to successfully integrate KCS’ operations with those of CN; that such integration may be more difficult, time-consuming or costly than expected; that operating costs, customer loss and business disruption (including, without limitation, difficulties in maintaining relationships with employees, customers or suppliers) may be greater than expected following the proposed transaction or the public announcement of the proposed transaction; the retention of certain key employees of KCS may be difficult; the duration and effects of the COVID-19 pandemic, general economic and business conditions, particularly in the context of the COVID-19 pandemic; industry competition; inflation, currency and interest rate fluctuations; changes in fuel prices; legislative and/or regulatory developments; compliance with environmental laws and regulations; actions by regulators; the adverse impact of any termination or revocation by the Mexican government of KCS de México, S.A. de C.V.’s Concession; increases in maintenance and operating costs; security threats; reliance on technology and related cybersecurity risk; trade restrictions or other changes to international trade arrangements; transportation of hazardous materials; various events which could disrupt operations, including illegal blockades of rail networks, and natural events such as severe weather, droughts, fires, floods and earthquakes; climate change; labor negotiations and disruptions; environmental claims; uncertainties of investigations, proceedings or other types of claims and litigation; risks and liabilities arising from derailments; timing and completion of capital programs; and other risks detailed from time to time in reports filed by CN with securities regulators in Canada and the United States. Reference should also be made to Management’s Discussion and Analysis (MD&A) in CN’s annual and interim reports, Annual Information Form and Form 40-F, filed with Canadian and U.S. securities regulators and available on CN’s website, for a description of major risk factors relating to CN.
Forward-looking statements reflect information as of the date on which they are made. CN assumes no obligation to update or revise forward-looking statements to reflect future events, changes in circumstances, or changes in beliefs, unless required by applicable securities laws. In the event CN does update any forward-looking statement, no inference should be made that CN will make additional updates with respect to that statement, related matters, or any other forward-looking statement.
(3) Based on CN closing share price on the NYSE of US
2021 key assumptions
CN has made a number of economic and market assumptions in preparing its 2021 outlook. The Company assumes that North American industrial production for the year will increase in the high single-digit range, and assumes U.S. housing starts of approximately 1.45 million units and U.S. motor vehicle sales of approximately 16 million units. For the 2020/2021 crop year, the grain crop in Canada was above its three-year average and the U.S. grain crop was in line with its three-year average. The Company assumes that the 2021/2022 grain crops in both Canada and the U.S. will be in line with their respective three-year averages. CN assumes total RTMs in 2021 will increase in the high single-digit range versus 2020. CN assumes continued pricing above rail inflation. CN assumes that in 2021, the value of the Canadian dollar in U.S. currency will be approximately
No Offer or Solicitation
This news release does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended.
Additional Information and Where to Find It
In connection with the proposed transaction, CN has filed with the U.S. Securities and Exchange Commission (“SEC”) a registration statement on Form F-4 to register the shares to be issued in connection with the proposed transaction, and the registration statement has been declared effective. CN has filed with the SEC its prospectus and KCS has filed with the SEC its definitive proxy statement in connection with the proposed transaction, and the KCS proxy statement is being sent to the stockholders of KCS seeking their approval of the merger-related proposals. This news release is not a substitute for the registration statement, the prospectus, the proxy statement or other documents CN and/or KCS may file with the SEC or applicable securities regulators in Canada in connection with the proposed transaction.
INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE REGISTRATION STATEMENT, THE PROSPECTUS, THE PROXY STATEMENT AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC OR APPLICABLE SECURITIES REGULATORS IN CANADA CAREFULLY IN THEIR ENTIRETY IF AND WHEN THEY BECOME AVAILABLE (INCLUDING ALL AMENDMENTS AND SUPPLEMENTS THERETO) BECAUSE THEY CONTAIN AND WILL CONTAIN IMPORTANT INFORMATION ABOUT CN, KCS AND THE PROPOSED TRANSACTION. Investors and security holders may obtain copies of these documents (if and when available) and other documents filed with the SEC and applicable securities regulators in Canada by CN free of charge through at www.sec.gov and www.sedar.com. Copies of the documents filed by CN (if and when available) will also be made available free of charge by accessing CN’s website at www.CN.ca. Copies of the documents filed by KCS (if and when available) will also be made available free of charge at www.investors.kcsouthern.com, upon written request delivered to KCS at 427 West 12th Street, Kansas City, Missouri 64105, Attention: Corporate Secretary, or by calling KCS’ Corporate Secretary’s Office by telephone at 1-888-800-3690 or by email at corpsec@kcsouthern.com.
Participants
This news release is neither a solicitation of a proxy nor a substitute for any proxy statement or other filings that may be made with the SEC and applicable securities regulators in Canada. Nonetheless, CN and its directors and executive officers and other members of management and employees may be deemed to be participants in the solicitation of proxies in respect of the proposed transaction. Information about CN’s executive officers and directors is available in its 2021 Management Information Circular, dated March 9, 2021, as well as its 2020 Annual Report on Form 40-F filed with the SEC on February 1, 2021, in each case available on its website at www.CN.ca/investors/ and at www.sec.gov and www.sedar.com. Additional information regarding the interests of such potential participants will be included in one or more registration statements, proxy statements, tender offer statements or other documents filed with the SEC and applicable securities regulators in Canada if and when they become available. These documents (if and when available) may be obtained free of charge from the SEC’s website at www.sec.gov and www.sedar.com, as applicable.
This earnings news release, as well as additional information, including the Financial Statements, Notes thereto and MD&A, is contained in CN’s Quarterly Review available on the Company's website at www.cn.ca/financial-results and on SEDAR at www.sedar.com as well as on the U.S. Securities and Exchange Commission's website at www.sec.gov through EDGAR.
About CN
CN is a world-class transportation leader and trade-enabler. Essential to the economy, to the customers, and to the communities it serves, CN safely transports more than 300 million tons of natural resources, manufactured products, and finished goods throughout North America every year. As the only railroad connecting Canada’s Eastern and Western coasts with the U.S. South through a 19,500-mile rail network, CN and its affiliates have been contributing to community prosperity and sustainable trade since 1919. CN is committed to programs supporting social responsibility and environmental stewardship.
| Contacts: | |
| Media | Investment Community |
| Mathieu Gaudreault | Paul Butcher |
| Senior Advisor | Vice-President |
| Media Relations | Investor Relations |
| 1 (833) 946-3342 | (514) 399-0052 |
| media@cn.ca | investor.relations@cn.ca |
Selected Railroad Statistics – unaudited
| Three months ended June 30 | Six months ended June 30 | |||
| 2021 | 2020 | 2021 | 2020 | |
| Financial measures | ||||
| Key financial performance indicators (1) | ||||
| Total revenues ($ millions) | 3,598 | 3,209 | 7,133 | 6,754 |
| Freight revenues ($ millions) | 3,452 | 3,038 | 6,875 | 6,462 |
| Operating income ($ millions) | 1,382 | 785 | 2,709 | 2,000 |
| Adjusted operating income ($ millions) (2) | 1,382 | 1,271 | 2,572 | 2,486 |
| Net income ($ millions) | 1,034 | 545 | 2,008 | 1,556 |
| Adjusted net income ($ millions) (2) | 1,058 | 908 | 1,930 | 1,778 |
| Diluted earnings per share ($) | 1.46 | 0.77 | 2.82 | 2.18 |
| Adjusted diluted earnings per share ($) (2) | 1.49 | 1.28 | 2.71 | 2.49 |
| Free cash flow ($ millions) (2) | 741 | 1,008 | 1,280 | 1,581 |
| Gross property additions ($ millions) | 729 | 714 | 1,141 | 1,317 |
| Share repurchases ($ millions) | 123 | — | 414 | 379 |
| Dividends per share ($) | 0.615 | 0.575 | 1.230 | 1.150 |
| Financial position (1) | ||||
| Total assets ($ millions) | 46,256 | 45,199 | 46,256 | 45,199 |
| Total liabilities ($ millions) | 25,918 | 26,424 | 25,918 | 26,424 |
| Shareholders' equity ($ millions) | 20,338 | 18,775 | 20,338 | 18,775 |
| Financial ratio | ||||
| Operating ratio (%) | 61.6 | 75.5 | 62.0 | 70.4 |
| Adjusted operating ratio (%) (2) | 61.6 | 60.4 | 63.9 | 63.2 |
| Operational measures (3) | ||||
| Statistical operating data | ||||
| Gross ton miles (GTMs) (millions) | 116,735 | 102,386 | 237,515 | 216,365 |
| Revenue ton miles (RTMs) (millions) | 59,246 | 52,517 | 120,700 | 110,887 |
| Carloads (thousands) | 1,469 | 1,294 | 2,900 | 2,629 |
| Route miles (includes Canada and the U.S.) | 19,500 | 19,500 | 19,500 | 19,500 |
| Employees (end of period) | 24,376 | 22,112 | 24,376 | 22,112 |
| Employees (average for the period) | 24,410 | 22,431 | 24,459 | 23,848 |
| Key operating measures | ||||
| Freight revenue per RTM (cents) | 5.83 | 5.78 | 5.70 | 5.83 |
| Freight revenue per carload ($) | 2,350 | 2,348 | 2,371 | 2,458 |
| GTMs per average number of employees (thousands) | 4,782 | 4,564 | 9,711 | 9,073 |
| Operating expenses per GTM (cents) | 1.90 | 2.37 | 1.86 | 2.20 |
| Labor and fringe benefits expense per GTM (cents) | 0.59 | 0.55 | 0.62 | 0.60 |
| Diesel fuel consumed (US gallons in millions) | 100.4 | 90.2 | 211.7 | 199.1 |
| Average fuel price ($ per US gallon) | 3.24 | 2.08 | 3.05 | 2.53 |
| Fuel efficiency (US gallons of locomotive fuel consumed per 1,000 GTMs) | 0.86 | 0.88 | 0.89 | 0.92 |
| Train weight (tons) | 9,840 | 9,922 | 9,623 | 9,491 |
| Train length (feet) | 8,749 | 8,886 | 8,536 | 8,389 |
| Car velocity (car miles per day) | 205 | 197 | 195 | 186 |
| Through dwell (entire railroad, hours) | 7.7 | 8.4 | 8.0 | 8.4 |
| Through network train speed (miles per hour) | 19.5 | 19.9 | 18.8 | 18.9 |
| Locomotive utilization (trailing GTMs per total horsepower) | 204 | 204 | 201 | 192 |
| Safety indicators (4) | ||||
| Injury frequency rate (per 200,000 person hours) | 0.95 | 1.38 | 1.29 | 1.85 |
| Accident rate (per million train miles) | 1.79 | 2.13 | 1.49 | 2.05 |
| (1) | Amounts expressed in Canadian dollars and prepared in accordance with United States generally accepted accounting principles (GAAP), unless otherwise noted. |
| (2) | See supplementary schedule entitled Non-GAAP Measures for an explanation of these non-GAAP measures. |
| (3) | Statistical operating data, key operating measures and safety indicators are unaudited and based on estimated data available at such time and are subject to change as more complete information becomes available. Definitions of gross ton miles, fuel efficiency, train weight, train length, car velocity, through dwell and through network train speed are included within the Company’s Management’s Discussion and Analysis. Definitions of all other indicators are provided on CN's website, www.cn.ca/glossary. |
| (4) | Based on Federal Railroad Administration (FRA) reporting criteria. |
Supplementary Information – unaudited
| Three months ended June 30 | Six months ended June 30 | ||||||||||||
| 2021 | 2020 | % Change Fav (Unfav) | % Change at constant currency Fav (Unfav) (1) | 2021 | 2020 | % Change Fav (Unfav) | % Change at constant currency Fav (Unfav) (1) | ||||||
| Revenues ($ millions) (2) | |||||||||||||
| Petroleum and chemicals | 685 | 585 | 17 | % | 28 | % | 1,346 | 1,376 | (2 | %) | 4 | % | |
| Metals and minerals | 377 | 308 | 22 | % | 34 | % | 745 | 713 | 4 | % | 12 | % | |
| Forest products | 451 | 413 | 9 | % | 20 | % | 880 | 846 | 4 | % | 11 | % | |
| Coal | 158 | 140 | 13 | % | 19 | % | 284 | 283 | — | % | 4 | % | |
| Grain and fertilizers | 609 | 649 | (6 | %) | — | % | 1,322 | 1,259 | 5 | % | 9 | % | |
| Intermodal | 1,037 | 874 | 19 | % | 23 | % | 2,005 | 1,723 | 16 | % | 20 | % | |
| Automotive | 135 | 69 | 96 | % | 114 | % | 293 | 262 | 12 | % | 20 | % | |
| Total freight revenues | 3,452 | 3,038 | 14 | % | 22 | % | 6,875 | 6,462 | 6 | % | 12 | % | |
| Other revenues | 146 | 171 | (15 | %) | (7 | %) | 258 | 292 | (12 | %) | (6 | %) | |
| Total revenues | 3,598 | 3,209 | 12 | % | 20 | % | 7,133 | 6,754 | 6 | % | 11 | % | |
| Revenue ton miles (RTMs) (millions) (3) | |||||||||||||
| Petroleum and chemicals | 10,054 | 8,832 | 14 | % | 14 | % | 20,786 | 22,520 | (8 | %) | (8 | %) | |
| Metals and minerals | 6,652 | 3,881 | 71 | % | 71 | % | 12,945 | 10,357 | 25 | % | 25 | % | |
| Forest products | 6,957 | 6,029 | 15 | % | 15 | % | 13,627 | 12,351 | 10 | % | 10 | % | |
| Coal | 4,648 | 4,242 | 10 | % | 10 | % | 8,674 | 8,320 | 4 | % | 4 | % | |
| Grain and fertilizers | 14,922 | 15,062 | (1 | %) | (1 | %) | 32,763 | 29,261 | 12 | % | 12 | % | |
| Intermodal | 15,409 | 14,157 | 9 | % | 9 | % | 30,642 | 26,919 | 14 | % | 14 | % | |
| Automotive | 604 | 314 | 92 | % | 92 | % | 1,263 | 1,159 | 9 | % | 9 | % | |
| Total RTMs | 59,246 | 52,517 | 13 | % | 13 | % | 120,700 | 110,887 | 9 | % | 9 | % | |
| Freight revenue / RTM (cents) (2) (3) | |||||||||||||
| Petroleum and chemicals | 6.81 | 6.62 | 3 | % | 12 | % | 6.48 | 6.11 | 6 | % | 13 | % | |
| Metals and minerals | 5.67 | 7.94 | (29 | %) | (22 | %) | 5.76 | 6.88 | (16 | %) | (10 | %) | |
| Forest products | 6.48 | 6.85 | (5 | %) | 4 | % | 6.46 | 6.85 | (6 | %) | 1 | % | |
| Coal | 3.40 | 3.30 | 3 | % | 8 | % | 3.27 | 3.40 | (4 | %) | — | % | |
| Grain and fertilizers | 4.08 | 4.31 | (5 | %) | — | % | 4.04 | 4.30 | (6 | %) | (2 | %) | |
| Intermodal | 6.73 | 6.17 | 9 | % | 13 | % | 6.54 | 6.40 | 2 | % | 5 | % | |
| Automotive | 22.35 | 21.97 | 2 | % | 12 | % | 23.20 | 22.61 | 3 | % | 10 | % | |
| Total freight revenue / RTM | 5.83 | 5.78 | 1 | % | 8 | % | 5.70 | 5.83 | (2 | %) | 3 | % | |
| Carloads (thousands) (3) | |||||||||||||
| Petroleum and chemicals | 143 | 131 | 9 | % | 9 | % | 293 | 304 | (4 | %) | (4 | %) | |
| Metals and minerals | 241 | 217 | 11 | % | 11 | % | 464 | 458 | 1 | % | 1 | % | |
| Forest products | 90 | 83 | 8 | % | 8 | % | 176 | 171 | 3 | % | 3 | % | |
| Coal | 100 | 71 | 41 | % | 41 | % | 169 | 148 | 14 | % | 14 | % | |
| Grain and fertilizers | 162 | 162 | — | % | — | % | 338 | 312 | 8 | % | 8 | % | |
| Intermodal | 691 | 609 | 13 | % | 13 | % | 1,367 | 1,157 | 18 | % | 18 | % | |
| Automotive | 42 | 21 | 100 | % | 100 | % | 93 | 79 | 18 | % | 18 | % | |
| Total carloads | 1,469 | 1,294 | 14 | % | 14 | % | 2,900 | 2,629 | 10 | % | 10 | % | |
| Freight revenue / carload ($) (2) (3) | |||||||||||||
| Petroleum and chemicals | 4,790 | 4,466 | 7 | % | 17 | % | 4,594 | 4,526 | 2 | % | 8 | % | |
| Metals and minerals | 1,564 | 1,419 | 10 | % | 21 | % | 1,606 | 1,557 | 3 | % | 10 | % | |
| Forest products | 5,011 | 4,976 | 1 | % | 10 | % | 5,000 | 4,947 | 1 | % | 8 | % | |
| Coal | 1,580 | 1,972 | (20 | %) | (16 | %) | 1,680 | 1,912 | (12 | %) | (9 | %) | |
| Grain and fertilizers | 3,759 | 4,006 | (6 | %) | — | % | 3,911 | 4,035 | (3 | %) | 1 | % | |
| Intermodal | 1,501 | 1,435 | 5 | % | 9 | % | 1,467 | 1,489 | (1 | %) | 1 | % | |
| Automotive | 3,214 | 3,286 | (2 | %) | 7 | % | 3,151 | 3,316 | (5 | %) | 2 | % | |
| Total freight revenue / carload | 2,350 | 2,348 | — | % | 7 | % | 2,371 | 2,458 | (4 | %) | 1 | % | |
| (1) | See supplementary schedule entitled Non-GAAP Measures for an explanation of this non-GAAP measure. |
| (2) | Amounts expressed in Canadian dollars. |
| (3) | Statistical operating data and related key operating measures are unaudited and based on estimated data available at such time and are subject to change as more complete information becomes available. |
Non-GAAP Measures – unaudited
In this supplementary schedule, the "Company" or "CN" refers to Canadian National Railway Company, together with its wholly-owned subsidiaries. Financial information included in this schedule is expressed in Canadian dollars, unless otherwise noted.
CN reports its financial results in accordance with United States generally accepted accounting principles (GAAP). The Company also uses non-GAAP measures that do not have any standardized meaning prescribed by GAAP, including adjusted performance measures, constant currency, free cash flow and adjusted debt-to-adjusted earnings before interest, income taxes, depreciation and amortization (EBITDA) multiple. These non-GAAP measures may not be comparable to similar measures presented by other companies. From management's perspective, these non-GAAP measures are useful measures of performance and provide investors with supplementary information to assess the Company's results of operations and liquidity. These non-GAAP measures should not be considered in isolation or as a substitute for financial measures prepared in accordance with GAAP.
Adjusted performance measures
Management believes that adjusted net income, adjusted earnings per share, adjusted operating income and adjusted operating ratio are useful measures of performance that can facilitate period-to-period comparisons, as they exclude items that do not necessarily arise as part of CN's normal day-to-day operations and could distort the analysis of trends in business performance. Management uses adjusted performance measures, which exclude certain income and expense items in its results that management believes are not reflective of CN's underlying business operations, to set performance goals and as a means to measure CN's performance. The exclusion of such income and expense items in these measures does not, however, imply that these items are necessarily non-recurring. These measures do not have any standardized meaning prescribed by GAAP and therefore, may not be comparable to similar measures presented by other companies.
For the three and six months ended June 30, 2021, the Company's adjusted net income was
For the three and six months ended June 30, 2020, the Company's adjusted net income was
The following table provides a reconciliation of net income and earnings per share in accordance with GAAP, as reported for the three and six months ended June 30, 2021 and 2020, to the non-GAAP adjusted performance measures presented herein:
| Three months ended June 30 | Six months ended June 30 | ||||||||||||||
| In millions, except per share data | 2021 | 2020 | 2021 | 2020 | |||||||||||
| Net income | $ | 1,034 | $ | 545 | $ | 2,008 | $ | 1,556 | |||||||
| Adjustments: | |||||||||||||||
| Amortization of bridge financing fees | 32 | — | 32 | — | |||||||||||
| Loss (recovery) on assets held for sale | — | 486 | (137 | ) | 486 | ||||||||||
| Income tax expense (recovery) (1) | (8 | ) | (123 | ) | 27 | (264 | ) | ||||||||
| Adjusted net income | $ | 1,058 | $ | 908 | $ | 1,930 | $ | 1,778 | |||||||
| Basic earnings per share | $ | 1.46 | $ | 0.77 | $ | 2.83 | $ | 2.19 | |||||||
| Impact of adjustments, per share | 0.03 | 0.51 | (0.11 | ) | 0.31 | ||||||||||
| Adjusted basic earnings per share | $ | 1.49 | $ | 1.28 | $ | 2.72 | $ | 2.50 | |||||||
| Diluted earnings per share | $ | 1.46 | $ | 0.77 | $ | 2.82 | $ | 2.18 | |||||||
| Impact of adjustments, per share | 0.03 | 0.51 | (0.11 | ) | 0.31 | ||||||||||
| Adjusted diluted earnings per share | $ | 1.49 | $ | 1.28 | $ | 2.71 | $ | 2.49 | |||||||
| (1) | Includes the tax impact of: (i) adjustments based on the nature of the item for tax purposes and related tax rates in the applicable jurisdiction; or (ii) tax law changes and rate enactments. |
The following table provides a reconciliation of operating income and operating ratio in accordance with GAAP, as reported for the three and six months ended June 30, 2021 and 2020, to the non-GAAP adjusted performance measures presented herein:
| Three months ended June 30 | Six months ended June 30 | |||||||||||||||
| In millions, except percentage | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Operating income | $ | 1,382 | $ | 785 | $ | 2,709 | $ | 2,000 | ||||||||
| Adjustment: Loss (recovery) on assets held for sale | — | 486 | (137 | ) | 486 | |||||||||||
| Adjusted operating income | $ | 1,382 | $ | 1,271 | $ | 2,572 | $ | 2,486 | ||||||||
| Operating ratio (1) | 61.6 | % | 75.5 | % | 62.0 | % | 70.4 | % | ||||||||
| Impact of adjustment | — | (15.1 | )-pts | 1.9 | -pts | (7.2 | )-pts | |||||||||
| Adjusted operating ratio | 61.6 | % | 60.4 | % | 63.9 | % | 63.2 | % | ||||||||
| (1) | The operating ratio is defined as operating expenses as a percentage of revenues. |
Constant currency
Financial results at constant currency allow results to be viewed without the impact of fluctuations in foreign currency exchange rates, thereby facilitating period-to-period comparisons in the analysis of trends in business performance. Measures at constant currency are considered non-GAAP measures and do not have any standardized meaning prescribed by GAAP and therefore, may not be comparable to similar measures presented by other companies. Financial results at constant currency are obtained by translating the current period results denominated in US dollars at the foreign exchange rates of the comparable period in the prior year. The average foreign exchange rates were
On a constant currency basis, the Company's net income for the three and six months ended June 30, 2021 would have been higher by
Free cash flow
Management believes that free cash flow is a useful measure of liquidity as it demonstrates the Company's ability to generate cash for debt obligations and for discretionary uses such as payment of dividends, share repurchases, and strategic opportunities. The Company defines its free cash flow measure as the difference between net cash provided by operating activities and net cash used in investing activities, adjusted for the impact of business acquisitions and related transaction costs paid in cash, if any. Free cash flow does not have any standardized meaning prescribed by GAAP and therefore, may not be comparable to similar measures presented by other companies.
The following table provides a reconciliation of net cash provided by operating activities in accordance with GAAP, as reported for the three and six months ended June 30, 2021 and 2020, to the non-GAAP free cash flow presented herein:
| Three months ended June 30 | Six months ended June 30 | ||||||||||||||
| In millions | 2021 | 2020 | 2021 | 2020 | |||||||||||
| Net cash provided by operating activities | $ | 1,475 | $ | 1,757 | $ | 2,427 | $ | 2,937 | |||||||
| Net cash used in investing activities | (1,642 | ) | (749 | ) | (2,055 | ) | (1,356 | ) | |||||||
| Net cash provided before financing activities | (167 | ) | 1,008 | 372 | 1,581 | ||||||||||
| Adjustment: Pending acquisition (1) | 908 | — | 908 | — | |||||||||||
| Free cash flow | $ | 741 | $ | 1,008 | $ | 1,280 | $ | 1,581 | |||||||
| (1) | Relates to an advance to KCS and other transaction costs paid. See Note 3 - Pending KCS acquisition to CN's unaudited Interim Consolidated Financial Statements for additional information. |
Adjusted debt-to-adjusted EBITDA multiple
Management believes that the adjusted debt-to-adjusted EBITDA multiple is a useful credit measure because it reflects the Company's ability to service its debt and other long-term obligations. The Company calculates the adjusted debt-to-adjusted EBITDA multiple as adjusted debt divided by adjusted EBITDA. These measures do not have any standardized meaning prescribed by GAAP and therefore, may not be comparable to similar measures presented by other companies.
The following table provides a reconciliation of debt and net income in accordance with GAAP, reported as at and for the twelve months ended June 30, 2021 and 2020, to the adjusted measures presented herein, which have been used to calculate the non-GAAP adjusted debt-to-adjusted EBITDA multiple:
| In millions, unless otherwise indicated | As at and for the twelve months ended June 30, | 2021 | 2020 | |||||
| Debt | $ | 13,719 | $ | 14,162 | ||||
| Adjustments: | ||||||||
| Operating lease liabilities, including current portion | 379 | 451 | ||||||
| Pension plans in deficiency | 545 | 523 | ||||||
| Adjusted debt | $ | 14,643 | $ | 15,136 | ||||
| Net income | $ | 4,014 | $ | 3,624 | ||||
| Interest expense | 559 | 554 | ||||||
| Income tax expense | 1,310 | 1,004 | ||||||
| Depreciation and amortization | 1,603 | 1,555 | ||||||
| EBITDA | 7,486 | 6,737 | ||||||
| Adjustments: | ||||||||
| Loss (recovery) on assets held for sale | (137 | ) | 486 | |||||
| Other income | (48 | ) | (35 | ) | ||||
| Other components of net periodic benefit income | (349 | ) | (316 | ) | ||||
| Operating lease cost | 135 | 156 | ||||||
| Adjusted EBITDA | $ | 7,087 | $ | 7,028 | ||||
| Adjusted debt-to-adjusted EBITDA multiple (times) | 2.07 | 2.15 | ||||||
FAQ
What were CN's Q2 2021 financial results?
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