Canadian National Reports 12% Jump in 2Q Revenue as Economy Rebounds

Montreal, QB — Canadian National reported on Tuesday, July 20, its financial and operating results for the second quarter ended June 30, 2021, highlighting a 13 percent increase in revenue ton miles (RTMs) year-over-year and volume growth in virtually every business unit, with notable strength in industrial products, international and domestic intermodal, and propane.

"CN continued to deliver strong operating and financial performance in the second quarter, driven in large part by the dedication of our people and the ongoing long-term investments we are making in our network, equipment, technology and talent," said JJ Ruest, president and CEO of CN.

"We enter the second half of 2021 focused on executing for our customers and leveraging our strong network performance to safely and sustainably drive long-term value creation for all of our stakeholders.


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"Our proposed combination with Kansas City Southern has received overwhelming support from a broad base of stakeholders because it will enhance competition and drive economic growth in North America.

"We are confident in our ability to obtain the necessary approvals and successfully close this pro-competitive combination and look forward to delivering the many compelling benefits to customers, employees, labor partners and the communities in which we operate.”

Financial results highlights Second-quarter 2021 compared to second-quarter 2020

  • Operating income of C$1,382 million, an increase of 76 percent, or nine percent on an adjusted basis. (1)
  • Revenues of C$3,598 million, an increase of C$389 million or 12 percent.
  • Diluted earnings per share (EPS) of C$1.46, an increase of 90 per cent, and adjusted diluted EPS of C$1.49, an increase of 16 per cent. (1)
  • Operating ratio of 61.6 per cent, an improvement of 13.9 points, or an increase of 1.2 points on an adjusted basis. (1)
  • Free cash flow for the first six months of 2021 was C$1,280 million. (1)

Operating Performance Second-quarter 2021 compared to second-quarter 2020

Operating performance improved in the second quarter of 2021 when compared to the same period in 2020. In 2020, CN took exceptional measures and made changes to its operating plan (i.e. building longer and heavier trains) due to the sharp retreat in volumes and the unknown duration and effects of the pandemic.

As the economy rebounded from the COVID-19 pandemic, CN reverted to its standard operating plan, which focuses on car velocity and through dwell.

  • Federal Railroad Association (FRA) injury frequency rate and accident rate improved by 31 per cent and 16 per cent, respectively.
  • Fuel efficiency improved by two per cent to 0.86 US gallons of locomotive fuel consumed per 1,000 gross ton miles.
  • Train length (in feet) decreased by two per cent.
  • Through dwell (entire railroad, hours) improved by eight per cent.
  • Car velocity (car miles per day) improved by four per cent.
  • Through network train speed (mph) decreased by two per cent.

Reaffirmed 2021 financial outlook (2) CN is still targeting double-digit adjusted diluted EPS growth, versus 2020 adjusted diluted EPS of C$5.31 (1) and continues to assume high single-digit volume growth in 2021 in terms of RTMs. Furthermore, CN is still targeting free cash flow in the range of C$3.0 billion to C$3.3 billion in 2021 compared to C$3.2 billion in 2020.

Second-quarter 2021 revenues, traffic volumes and expenses Revenues for the second quarter of 2021 were C$3,598 million, an increase of C$389 million, or 12 per cent, when compared to the same period in 2020.

The increase was mainly due to higher volumes across most commodity groups due to the continued economic recovery and freight rate increases; partly offset by the negative translation impact of a stronger Canadian dollar and lower export volumes of Canadian grain.

RTMs, measuring the weight and distance of freight transported by CN, increased by 13 per cent from the year-earlier period. Freight revenue per RTM increased by one per cent over the year-earlier period, mainly driven by freight rate increases; partly offset by the negative translation impact of a stronger Canadian dollar.

Operating expenses for the second quarter decreased by nine per cent to C$2,216 million, mainly driven by the C$486 million loss on assets held for sale recorded in the second quarter of 2020, as well as the positive translation impact of a stronger Canadian dollar; partly offset by higher fuel costs and higher incentive compensation.

CN Proposal to Combine with KCS

On May 21, 2021, CN and KCS (NYSE: KSU) announced that they have entered into a definitive merger agreement to combine in a transaction valued at US$325 per KCS share, or approximately US$33.6 billion. (3)

CN is proposing to use a voting trust structure, which requires the approval of the Surface Transportation Board (“STB”).

Under the terms of the merger agreement, KCS shareholders will receive US$200 in cash and 1.129 CN common shares for each share of KCS common stock upon closing of the transaction into a voting trust, if approved by the STB.

In its May 26, 2021 joint filing, CN and KCS outlined the compelling case for the pro-competitive combination and the use of a voting trust.

CN is confident that its use of a voting trust meets the STB’s standards and believes that, after a fair and thorough review by the STB, it should be approved.

The proposed combination will establish seamless, single-line service from Canada, through the United States and into Mexico.

The end-to-end CN-KCS combination will expand North American trade and power economic prosperity, provide numerous new connections and service options for customers, enhance competition, and deliver many compelling and innovative benefits for ports, employees, communities and the environment.

To read the full report, click here.


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