OREANDA-NEWS. CN (TSX: CNR) (NYSE: CNI) reported its financial and operating results for the second quarter and six-month period ended June 30, 2013.

Second-quarter 2013 highlights

Second-quarter 2013 net income was CAD 717 million, or CAD 1.69 per diluted share, compared with net income of CAD 631 million, or CAD 1.44 per diluted share, for second-quarter 2012. The second-quarter 2013 results included a net gain of CAD 13 million (CAD 0.03 per diluted share) resulting from a gain on a non-monetary transaction with another railway that was partly offset by the effect of the enactment of higher provincial corporate income tax rates.

Excluding the net gain, Q2-2013 adjusted diluted earnings per share (EPS) increased 11 per cent to CAD 1.66 from Q2-2012 adjusted diluted EPS of CAD 1.50. (1)

Revenues for the latest quarter increased five per cent to CAD 2,666 million, driven by a five per cent increase in revenue ton-miles and a two per cent increase in carloadings.

Operating income increased six per cent to CAD 1,042 million.

Operating ratio improved by 0.4 of a point to 60.9 per cent.

Free cash flow totalled CAD 437 million for the first half of 2013, compared with free cash flow of CAD 703 million in the comparable period of 2012. (1)

Claude Mongeau, president and chief executive officer, said: “We executed strongly during the second quarter, with service and operating metrics on a steady improvement trend. This performance underscores our agenda of Operational and Service Excellence, which is key to achieve solid revenue growth at low incremental cost.

“Looking forward, despite slower volume growth than anticipated, the CN team will maintain a keen focus on growing revenues faster than the overall economy as well as on tightly managing costs to meet our full-year financial outlook.”

2013 financial outlook (2)

CN is maintaining the 2013 financial outlook issued on Jan. 22, 2013, as well as the plan to invest approximately CAD 2 billion in capital programs in 2013, which was revised upward from CAD 1.9 billion on April 22, 2013.

Foreign currency impact on results

Although CN reports its earnings in Canadian dollars, a large portion of its revenues and expenses is denominated in U.S. dollars. As such, the Company’s results are affected by exchange-rate fluctuations. On a constant currency basis that excludes the impact of fluctuations in foreign currency exchange rates, CN’s second-quarter 2013 net income would have been lower by CAD 4 million, or CAD 0.01 per diluted share. (1)

Second-quarter 2013 revenues, traffic volumes and expenses

The five per cent rise in second-quarter revenues was mainly attributable to freight rate increases; higher freight volumes due to strong energy markets, market share gains, as well as growth in the North American economy; and the positive translation impact of the weaker Canadian dollar on U.S.-dollar-denominated revenues. CN’s fuel surcharge had a minimal overall impact on the results as higher volumes were offset by a decrease in applicable fuel prices.

Revenues increased for petroleum and chemicals (18 per cent), grain and fertilizers (five per cent), metals and minerals (four per cent), forest products (four per cent), and intermodal (three per cent). Coal revenues were flat and automotive revenues declined by three per cent.

Carloads increased by two per cent while revenue ton-miles, measuring the relative weight and distance of rail freight transported by CN, increased five per cent over the same quarter in 2012.

Rail freight revenue per revenue ton-mile, a measurement of yield defined as revenue earned on the movement of a ton of freight over one mile, increased one per cent over the second quarter of 2012, driven by freight rate increases and the positive translation impact of the weaker Canadian dollar on U.S.-dollar-denominated revenues, partly offset by an increase in the average length of haul and the impact of a lower fuel surcharge.

Operating expenses increased four per cent in the second quarter of 2013, mainly due to increased purchased services and material expense, higher fuel costs, and higher depreciation and amortization.

(1) See discussion and reconciliation of non-GAAP adjusted performance measures in the attached supplementary schedule, Non-GAAP Measures.

(2) See Forward-Looking Statements for a summary of the key assumptions and risks regarding CN’s 2013 outlook.