CN profits decline in Q3 as volumes, revenues dip

Montreal, Canada-based Class I railway Canadian National saw net income for the third quarter of 2016 fall 2.9 percent to C$972 million (U.S. $727.6 million) on revenues that slid 6 percent to C$3.01 billion compared with the same 2015 period.    Canadian National Railway Co. (CN) saw net income decrease 2.9 percent year-over-year in the third quarter of 2016 to C$972 million (U.S. $727.6 million), according to the company’s most recent financial statements.
   The Montreal, Canada-based Class I railway reported earnings per diluted share (EPS) of C$1.25 compared with C$1.26 in the third quarter of 2015.
   Revenues for the quarter dropped 6 percent to C$3.01 billion as carload volumes and revenue ton miles slid 4 percent and 3 percent, respectively, from the same 2015 period.
   The company attributed the revenues decline primarily to lower volumes of crude oil, coal and frac sand, as well as lower applicable fuel surcharge rates.
   By commodity category, third quarter revenues were up 4 percent for grain and fertilizers, 3 percent for automotive, and 2 percent for forest products, but those increases were more than offset by a drop in revenues by 32 percent for coal, 20 percent for metals and minerals, 13 percent for petroleum and chemicals, and 4 percent for intermodal containers.
   Operating expenses, on the other hand, were down 7 percent to C$1.61 billion thanks to those lower volumes and internal cost cutting measures. The company set a new record for quarterly operating ratio at 53.3 percent, a 0.5 percentage point improvement from the previous year.
   Luc Jobin, CN president and chief executive officer, said the company was pleased with the results given the “sluggish” economic environment in North America and globally.
   “Despite shifting traffic demands, including a delayed Canadian grain harvest, we remained flexible and service-focused,” said Jobin. “We also continued to reinvest in our business and infrastructure, investments that are driving ongoing safety, service and productivity improvements, while we maintained our commitment to providing the long-term value that helps CN and its customers succeed.”
   Looking ahead to the remainder of the year, CN raised its financial outlook to reflect an adjusted diluted EPS of C$4.44 per share, a C$0.01 per share increase from 2015, compared with a July estimate of flat earnings growth.
   In addition, the company’s board of directors approved a new share repurchase program and a C$0.375 fourth quarter cash dividend, payable Dec. 30, 2016 to stock owners of record as of the close of trading on Dec. 9.
   The new “normal-course-issuer bid” permits CN to purchase, for cancellation, up to 33 million common shares, representing 5.1 percent of the 649,072,911 common shares issued and outstanding of the company not held by insiders on Oct. 17, 2016. A total of 768,109,539 CN common shares were issued and outstanding as of Oct. 17.
   Starting on Oct. 30, 2016, and ending no later than Oct. 29, 2017, the bid will be conducted through a combination of discretionary transactions and automatic repurchase plans through the facilities of the Toronto and New York stock exchanges, or alternative trading systems, if eligible, and will conform to their regulations, according to CN.
   Under the rules of the Toronto Stock Exchange (TSX), CN is permitted to purchase a maximum of 280,418 common shares through TSX facilities on a daily basis.
   CN said it will pay the market price at the time of acquisition, plus brokerage fees, for any open market purchases of common shares under the bid. Purchases made under issuer bid exemption orders will be at a discount to the prevailing market price as per the terms of the order.
   As of Oct. 24, 2016, CN had repurchased 28.3 million common shares under a share repurchase program that was announced in October 2015 and runs until Oct. 28, 2016, at a weighted-average price of C$73.67 per share, excluding brokerage fees, for a total value of around C$2.08 billion.
   “CN has proven resilient in challenging market conditions by continuing to deliver solid financial results and free cash flow,” CN EVP and Chief Financial Officer Ghislain Houle said in a statement. “Over the past five years, CN has repurchased 135 million shares, returning approximately C$8 billion to its shareholders. I am pleased that CN continues its track record of rewarding shareholders with this new program.”