CN today reported its financial and operating results for the second quarter and six-month period ended June 30, 2005.
Financial highlights, and increased full-year 2005 earnings forecast
- Diluted earnings per share of $1.47 for the second quarter of 2005, up 30 per cent from $1.13 reported for second-quarter 2004;
- Second-quarter 2005 net income of $416 million, an increase of 28 per cent from second-quarter 2004 net income of $326 million;
- Second-quarter 2005 operating income of $713 million, an increase of 24 per cent;
- Record second-quarter operating ratio of 61.2 per cent, a 4.3-percentage point improvement over second-quarter 2004 performance;
- Free cash flow of $787 million for the first half of 2005, compared with $587 million for the comparable period of 2004; (1)
- Strong results and solid outlook prompt management to increase full-year 2005 earnings guidance – diluted earnings per share for the year now expected to rise in the range of 20 to 25 per cent, compared with previous guidance of 10-15 per cent increase over 2004 EPS of $4.34.
E. Hunter Harrison, president and chief executive officer of CN, said: “CN had a terrific quarter and first half of the year, demonstrating once again the power of the company’s business model – precision railroading and the pursuit of profitable, sustainable growth – along with the strength of our freight franchise. A key measure of our success was a record second-quarter operating ratio of 61.2 per cent.
“On the revenue side, CN’s core merchandise businesses – including forest products, metals and minerals, and petroleum and chemicals – continued to register solid gains during the quarter. CN’s intermodal business also performed well, benefiting from strong container imports via the Port of Vancouver, as did our coal business, which saw shipments from new metallurgical-coal mines in Western Canada. Grain and fertilizers revenues were affected by decreased availability of high-quality grain in Canada, while our automotive business experienced lower production at some of the southern Ontario production facilities we serve.
“Our free cash flow performance was outstanding and will permit us to reward shareholders with a new share buy-back program effective July 25, 2005. (See accompanying press release.) Under this program, CN plans to purchase for cancellation up to 16 million, or about six per cent, of the issued and outstanding shares of the company.”
Second-quarter revenues increased by 10 per cent to $1,838 million, largely owing to freight rate increases, which included a higher fuel surcharge as a result of increases in crude oil prices, and the inclusion of revenues from the rail and related holdings of Great Lakes Transportation LLC (GLT) and BC Rail. Partly offsetting these gains was the unfavourable $80-million translation impact of the stronger Canadian dollar on U.S.-dollar denominated revenues.
CN consolidated the operations of GLT and BC Rail on May 10, 2004, and July 14, 2004, respectively.
Operating expenses for the second quarter of 2005 increased by three per cent to $1,125 million, largely as a result of increased fuel costs and the inclusion of GLT and BC Rail expenses. These expense increases were partly offset by the favourable $50-million translation impact of the stronger Canadian dollar on U.S.-dollar denominated expenses, and lower labour and fringe benefits expenses.
The continued appreciation of the Canadian dollar reduced the company’s second-quarter 2005 net income by approximately $15 million.