Canadian National (NYSE: CNI) reported increases in net profit and revenue in the second quarter of 2019, with its acquisition of trucking and transportation provider TransX providing both higher revenue and costs.
The company said its adjusted net profit was $1.25 billion in the second quarter, compared with $1.12 billion for the same period in 2018. Adjusted diluted earnings per share were $1.73, a 15 percent increase from the second quarter of 2018. All financial figures are in Canadian dollars; a Canadian dollar is worth US$0.76.
Second quarter revenue rose 9 percent to $3.96 billion, while operating income increased 11 percent to $1.68 billion. Canadian National said the increase was due to several factors, including the inclusion of TransX to its intermodal commodity group, a weaker Canadian dollar, freight rate increases and higher volumes primarily from crude oil and Canadian and U.S. grain. Offsetting these gains were lower volumes of fracking sand, lumber and potash, the company said.
The company's operating expenses rose 8 percent to $2.28 billion, also because of the inclusion of TransX and a weaker Canadian dollar. Higher costs resulting from increased volumes of traffic also contributed to the increase in operating expenses.
Canadian National also said its operating ratio improved by 0.7 points to 57.5 percent. Investors look at the operating ratio to help determine the profitability of a company, with a lower ratio implying greater company profits.
Service metrics improved in the second quarter, with average terminal dwell time falling to 7.2 hours from 8.1 hours in the second quarter of 2018, while average train velocity rose to 19 miles per hour from 18.2 hours.
"The CNI team delivered record second quarter results, and we remain optimistic on CNI's volume prospects in the second half of the year while maintaining our vigilance on costs," said JJ Ruest, the company's chief executive officer. "Our focus on delivering profitable growth and advanced technologies to modernize our scheduled railroading model is expected to continue driving long-term value creation for our shareholders."
Canadian National provided some preliminary assumptions of how the company sees the remainder of 2019. North American industrial production could grow to 1 percent, down from a June estimate of 2 percent, while U.S. housing starts will be approximately 1.25 million units and U.S. motor vehicle sales are estimated at approximately 17 million units. The grain crop from harvest year 2019-2020 in Canada will likely be in line with the three-year average for volumes, but the U.S. grain crop will be below volume average.
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