CN (NYSE:CNI) (TSX:CNR) today reported its financial results for the fourth quarter and 12-month period ended Dec. 31, 2004.
Highlights:
- Fourth-quarter net income of $376 million, or $1.29 per diluted share. Net income for the fourth quarter of 2003 was $224 million, or 78 cents per diluted share, including a deferred income tax (DIT) expense of $79 million, or 27 cents per diluted share. Excluding the 2003 DIT, net income for the fourth quarter of 2004 rose 24 per cent, and diluted earnings per share increased 23 per cent (1);
- Quarterly revenues of $1,736 million, an increase of 15 per cent;
- Fourth-quarter operating income of $607 million, up 19 per cent year-over-year;
- Quarterly operating ratio of 65.0 per cent, a 1.1-percentage point improvement over the fourth-quarter 2003 performance;
- Full-year 2004 free cash flow of $1,025 million, compared with $578 million for 2003. (1)
E. Hunter Harrison, president and chief executive officer of CN, said: "I am delighted to report these record results. Our railroaders delivered the best quarterly and full-year operating ratio in company history, along with record annual operating income, net income and free cash flow.
"CN's outstanding performance resulted from strong core business growth at low incremental cost, the early benefits of two acquisitions, and the discipline of precision railroading.
"This winning combination allowed CN to generate free cash flow of more than $1 billion, an exceptional achievement that underscores the quality of our earnings. CN's proven ability to produce strong free cash flow gives management the flexibility to reward investors: it will support a 28 per cent increase in our 2005 dividend - the ninth consecutive increase since CN's privatization in 1995."
Business levels benefited from the acquisitions of BC Rail and the railroad and related holdings of Great Lakes Transportation LLC (GLT), which added $145 million to CN's fourth-quarter 2004 revenues. Central to CN's performance was strong demand for lumber, chemicals, iron ore, coal, consumer goods from Asia, and Canadian wheat and barley.
Six of CN's seven commodity groups registered revenue gains during the fourth quarter: metals and minerals (37 per cent); forest products (22 per cent); coal (20 per cent); intermodal (12 per cent); petroleum and chemicals (nine per cent); and grain and fertilizers (five per cent). Automotive revenues declined eight per cent, largely due to the impact of the stronger Canadian dollar on the conversion of U.S.-dollar denominated revenues.
Operating expenses for the fourth quarter of 2004 increased 13 per cent to $1,129 million, largely as a result of the inclusion of $92 million of expenses of GLT and BC Rail, whose operations CN consolidated on May 10, 2004, and July 14, 2004, respectively. This increase was partially offset by the positive impact on expenses of the stronger Canadian dollar. During the latest three-month period, casualty and other expenses grew by 31 per cent, fuel by 29 per cent, and labour and fringe benefits expenses by 13 per cent. Equipment rents declined 25 per cent.
The stronger Canadian dollar affected the conversion of CN's U.S.-dollar denominated revenues and expenses, and, accordingly, reduced the company's fourth-quarter revenues, operating income and net income by approximately $60 million, $15 million and $7 million, respectively.
Full-year 2004 financial results:
Net income for 2004 was $1,258 million, or $4.34 per diluted share, compared
with net income of $1,014 million, or $3.49 per diluted share, for 2003.
Net income for 2003 included a fourth-quarter deferred income tax expense of $79 million, or 27 cents per diluted share, and a cumulative benefit of $48 million after tax (16 cents per diluted share) resulting from a change in the accounting for removal costs for certain track structure assets. Excluding these items, adjusted net income for 2003 was $1,045 million, or $3.60 per diluted share. (1)
Operating income for 2004 increased 22 per cent to $2,168 million. Revenues rose by 11 per cent to $6,548 million, while operating expenses grew by seven per cent to $4,380 million. For 2004, BC Rail and GLT added $351 million to CN's revenues and $228 million to its operating expenses.
CN's 2004 operating ratio was 66.9 per cent, a 2.9-percentage point improvement over the year-earlier performance.
The translation impact of the stronger Canadian dollar reduced 2004 revenues, operating income and net income by approximately $255 million, $85 million, and $45 million, respectively.
The financial results in this press release are reported in Canadian dollars and were determined on the basis of U.S. generally accepted accounting principles (U.S. GAAP).
(1) Please see discussion and reconciliation of these non-GAAP adjusted performance measures in the attached supplementary schedule, Non-GAAP Measures.
This news release contains forward-looking statements. CN cautions that, by their nature, forward-looking statements involve risk and uncertainties and that its results could differ materially from those expressed or implied in such statements. Reference should be made to CN's most recent Form 40-F filed with the United States Securities and Exchange Commission, and the Annual Information Form filed with the Canadian securities regulators, for a summary of major risks.
Canadian National Railway Company spans Canada and mid-America, from the Atlantic and Pacific oceans to the Gulf of Mexico, serving the ports of Vancouver, Prince Rupert, B.C., Montreal, Halifax, New Orleans, and Mobile, Ala., and the key cities of Toronto, Buffalo, Chicago, Detroit, Duluth, Minn./Superior, Wis., Green Bay, Wis., Minneapolis/St. Paul, Memphis, St. Louis, and Jackson, Miss., with connections to all points in North America.