This summary is based on the third quarter fiscal 2007 earnings call conducted by Canadian National Railway Company (CNI: chart) on October 22, 2007.
Management:
President and CEO: E. Hunter Harrison
EVP and CFO: Claude Mongeau
VP of IR: Robert Noorigian
EVP, Sales and Marketing: James M. Foote
Key Investors Issues
- EPS were C$0.96, including a C$0.03 per share benefit from favorable tax adjustments, increased two per cent from the year-earlier period.
- Net income was C$485 million, including a C$14-million benefit from favorable tax adjustments, declined two per cent from net income for the same quarter of 2006.
- Revenues remained essentially flat at C$2,023 million, with several commodity groups helping to offset weakness in forest products.
Third Quarter Highlights
EPS came at 96 cents per share, which is 2% higher than the last year.
This included a C$14 million gain from tax benefits from adjustments that made during the quarter. Excluding this C$14 million or 3 cents per share, EPS on an adjusted basis was 93 cents per share, which is down only 1%, good performance given that the revenue picture during the quarter was a tough one from an economic expense standpoint.
Revenues overall were flat, but 3% adjusted for exchange really.
- Expenses came in 6% higher than the last year, 9%, adjusting for the benefit of exchange.
- Labor and fringe costs were up 9%.
- The company had higher headcount, which increased 2.7%.
- Stock-based compensation is up on a year-over-year basis.
- Purchase, services and material is well behaved up 3% on an FX adjusted basis.
Depreciation and amortization are up, driven by investments in the plants and in franchise.
- Fuel, despite volume decline, is up 14%.
- WTI is up, but also crack, the refinery margin is up almost 20% on a year-over-year basis and the third quarter of 2006 was the last quarter when the company had hedging gain to the tune of C$10 million last year. The company does not have that benefit anymore and that explains part of the increase on a year-over-year basis.
Equipment brands are up, the net of expense and income.
- Expense is well behaved.
- Velocity to car suite is improving, but this was more than offset by a reduction in car hire income.
- The cars that the company uses to move forest products, for instance, attract car hire income when they move offline to other railroads, so as the company has less volume and with peers improving in terms of their velocity, the company is collecting less car hire income, and that is why the expense category overall is up on a year-over-year basis.
Four of seven business segments grew, three of which grew at double-digit rates.
- Intermodal was down and declines in forest products and construction material segments reveal the pressure on these markets from housing-related issues.
- Price was the biggest contributor to revenue growth.
- On a per unit basis same-store prices increased over 4% versus the same period last year.
- Average revenue per car increased 5% and cents per RGM increased 3%.
On a mixed basis average length of haul increased by 3% due to the stronger system average growth from western Canadian franchise and that drove revenues up approximately 2%.
- Volume was down revenues declined approximately 2% due to lower volumes.
- As carloadings were down 3%, and revenue ton-mile declined 1%.
- Fuel was down the revenue associated with fuel surcharge were down in the third quarter solely as a result of the lower applicable crude prices this year versus last year.
Merchandise segment was down in total 1%.
However, petroleum and chemicals was up 10%. Strong quarter for petroleum products, low-sulfur diesel fuel oil, gasoline, jet fuel shipments all increased. Diluent shipments to the Oil Sand region of western Canada from both the west coast and from Texas continue to show strong increases although on small base.
