Freight volumes fuel rail profits

Higher freight volumes across a range of sectors — including metal, coal, grains and fertilizers — are driving significant profit gains at Canada’s major railways.

On Tuesday Canadian National Railway reported a 20 per cent increase in quarterly profit, with net income increasing to $1.03 billion or $1.36 per share in the three months ended June 30. Adjusted profit rose by 21 per cent to $1.34 a share, up from $1.11 in the second quarter of 2016.

Revenue also increased by 17 per cent from the same time last year to $3.3 billion, as CN moved higher volumes across several sectors. Revenues for shipments of metals, minerals and coal increased by 33 per cent, while grains and fertilizers jumped by 23 per cent and automotive by 20 per cent.

The positive results come after CN’s rival Canadian Pacific Railway reported record profits last week, with revenues hitting $1.6 billion, driven largely by higher volumes in bulk products such as coal, potash and, to a lesser extent, grain.

CN’s president and chief executive Luc Jobin said in a call with analysts that the company maintains a positive outlook on the North American economy.

“Our performance was driven by a sizable increase in revenues building on volume momentum which started in the fourth quarter of 2016, and our growth was also broad based and achieved across most business sectors,” he said.

“We are restating our guidance, and in spite of some of the changes in currencies and other little headwinds, we’re staying the course.”

A surging Canadian dollar — the loonie reached 80 cents this week, up nearly 10 per cent since early May — has the potential to affect CN’s earnings results going forward, given a large portion of its revenues and expenses are denominated in U.S. dollars.

“On a constant currency basis, CN’s net income for the second quarter of 2017 would have been lower by $28 million, or $0.04 per diluted share,” the company said in its quarterly report.

CN’s operating ratio, a measure of railway efficiency in which a lower number is better, increased by 60 basis points to 55.1 per cent over the prior-year quarter.