CN Announces Second Quarter Results

MONTREAL, July 25, 2023 (GLOBE NEWSWIRE) -- CN (TSX: CNR) (: CNI) today reported its financial and operating results for the second quarter ended June 30, 2023. The Company's focus on scheduled railroading has resulted in year-over-year improvements in car velocity, train speed and through dwell.

"CN’s disciplined approach to scheduled railroading continues to deliver for our customers. As volumes evolve, we will continue to refine our plan to optimize efficiency and drive further improvements to customer service. Our goal to accelerate sustainable, profitable growth through 2026 and beyond remains on track.”
- Tracy Robinson, President and Chief Executive Officer, CN

Second quarter 2023 compared to second quarter 2022
Financial results highlights

• Revenues of C$4,057 million, a decrease of C$287 million, or 7%.
• Operating income of C$1,600 million, a decrease of C$169 million, or 10%.
• Operating ratio, defined as operating expenses as a percentage of revenues, of 60.6%, an increase of 1.3-points, or an increase of 1.6-points on an adjusted basis. ⁽¹⁾
• Diluted EPS of C$1.76, a decrease of 8%, or a decrease of 9% compared to second quarter 2022 adjusted EPS. ⁽¹⁾
• Free cash flow for the second quarter of 2023 was C$1,100 million, an increase of C$103 million, or 10%. ⁽¹⁾
• Free cash flow for the first half of 2023 was C$1,693 million, an increase of C$125 million, or 8%. ⁽¹⁾

Operating performance

• Injury frequency rate of 1.00 (per 200,000 person hours), an improvement of 17% and accident rate of 1.91 (per million train miles), a deterioration of 5%. ⁽³⁾
• Through dwell of 6.8 (entire railroad, hours), an improvement of 6%.
• Car velocity of 216 (car miles per day), an improvement of 3%.
• Through network train speed of 19.9 (mph), an improvement of 3%.
• Fuel efficiency of 0.888 (US gallons of locomotive fuel consumed per 1,000 gross ton miles (GTMs)), 6% less efficient.
• Train length of 7,934 (feet), a decrease of 6%.
• Revenue ton miles (RTMs) of 55,877 (million), a decrease of 8%.

Updated 2023 financial outlook ⁽²⁾
In light of CN's second quarter results and revised expectation of weaker than anticipated volumes in the second half of 2023, CN is updating its full-year outlook and now expects flat to slightly negative year-over-year growth in adjusted diluted EPS in 2023 (compared to the April 24, 2023 expectation of growth in the mid-single digits). CN reiterates its longer-term financial perspective and continues to target compounded annual diluted EPS growth in the range of 10%-15% over the 2024-2026 period driven by growing volumes more than the economy, pricing above rail inflation and incrementally improving efficiency, all of which assumes a supportive economy.⁽²⁾

Second quarter 2023 revenues, traffic volumes and expenses
Revenues for the second quarter of 2023 were C$4,057 million compared to C$4,344 million for the same period in 2022. The decrease of C$287 million, or 7%, was mainly due to lower volumes of intermodal, crude oil, U.S. grain exports and forest products, primarily as a result of lower demand for freight services to move consumer goods and customer outages caused by Canadian wildfires, lower ancillary services including container storage and lower fuel surcharge revenues as a result of lower fuel prices; partly offset by freight rate increases, the positive translation impact of a weaker Canadian dollar and higher export volumes of Canadian grain.

Operating expenses for the second quarter of 2023 were C$2,457 million compared to C$2,575 million for the same period in 2022. The decrease of C$118 million, or 5%, was mainly due to lower fuel prices; partly offset by higher labor and fringe benefits expense mainly driven by higher average headcount and general wage increases and the negative translation impact of a weaker Canadian dollar.

(1) Non-GAAP Measures
CN reports its financial results in accordance with United States generally accepted accounting principles (GAAP). CN uses non-GAAP measures in this news release that do not have any standardized meaning prescribed by GAAP, including adjusted net income, adjusted earnings per share (EPS), adjusted operating income and adjusted operating ratio (referred to as adjusted performance measures) and free cash flow. 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 certain adjustments, which are expected to be comparable to adjustments made in prior years. However, management cannot individually quantify on a forward-looking basis the impact of these adjustments on its adjusted diluted 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. 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.

2023 key assumptions
CN has made a number of economic and market assumptions in preparing its 2023 outlook. The Company continues to assume negative North American industrial production in 2023. The Company now assumes that the 2023/2024 grain crop in Canada will be below its three-year average (excluding the significantly lower 2021/2022 crop year) and the U.S. grain crop will be above its three-year average (compared to the April 24, 2023 assumption that the 2023/2024 grain crops in Canada and the U.S. will be in line with their respective three-year averages (excluding the significantly lower 2021/2022 crop year in Canada)). CN continues to assume pricing above rail inflation upon contract renewals. CN also continues to assume that in 2023, the value of the Canadian dollar in U.S. currency will be approximately $0.75, and now assumes the average price of crude oil (West Texas Intermediate) will be approximately US$75 per barrel (compared to the April 24, 2023 assumption of being approximately US$80 per barrel). Additionally, CN now also assumes that in 2023 there will be no further significant impact from Canadian wildfires.

2024-2026 key assumptions
CN has made a number of economic and market assumptions in preparing its three-year financial perspective. CN assumes that the North American industrial production will increase by at least two percent CAGR over the next three years. CN assumes continued pricing above rail inflation. CN assumes that the value of the Canadian dollar in U.S. currency will be approximately $0.75 and that the average price of crude oil (West Texas Intermediate) will be approximately US$80 per barrel during this period.

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 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, general economic and business conditions, including factors impacting global supply chains such as pandemics and geopolitical conflicts and tensions; 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; 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. Information contained on, or accessible through, our website is not part of this news release.

(3) Based on Federal Railroad Administration (FRA) reporting criteria.

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.sedarplus.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. CN's network connects Canada’s Eastern and Western coasts with the U.S. South through a 18,600-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.

SELECTED RAILROAD STATISTICS – UNAUDITED

SUPPLEMENTARY INFORMATION – UNAUDITED