OREANDA-NEWS. CN (TSX: CNR) (NYSE: CNI) today reported its financial and operating results for the fourth quarter and year ended Dec. 31, 2013.

Fourth-quarter and full-year 2013 financial highlights

Fourth-quarter 2013 net income was CAD 635 million, or CAD 0.76 per diluted share, compared with net income of CAD 610 million or, CAD 0.71 per diluted share, for the year-earlier quarter.

Full-year 2013 net income was CAD 2,612 million, or CAD 3.09 per diluted share, compared with net income of CAD 2,680 million, or CAD 3.06 per diluted share, for 2012.

Full-year 2013 adjusted diluted EPS increased nine per cent to CAD 3.06, with adjusted 2013 net income of CAD 2,582 million versus adjusted net income of CAD 2,456 million in 2012. (1)

Q4-2013 operating income increased five per cent to CAD 967 million, and full-year 2013 operating income also rose five per cent to CAD 3,873 million.

Fourth-quarter 2013 operating ratio increased by 1.2 points to 64.8 per cent; full-year 2013 operating ratio was 63.4 per cent, compared with 62.9 per cent for 2012.

2013 free cash flow totalled CAD 1,623 million, compared with free cash flow of CAD 1,661 million for 2012. (1)

Claude Mongeau, president and chief executive officer, said: “CN's agenda of Operational and Service Excellence delivered record volumes and revenues in 2013. Key operating and service metrics remained solid, and we continued to drive incremental improvement in our broad safety record. CN reduced its accident rate per million train miles by nine per cent in 2013, the latest sign of long-term gains in safety. In the past 10 years, CN's main-track accidents have declined by more than 50 per cent despite increased freight volumes.

“CN sees good opportunities in 2014 in a number of markets, including intermodal, oil-and-gas-related commodities, Canadian and U.S. grain, and commodities related to the recovery in the U.S. housing market. With continued supply chain collaboration and solid execution, the CN team is focused on safely and efficiently growing the Company's business at low incremental cost and at a pace faster than the overall economy.”

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 net income for the quarter and year ended Dec. 31, 2013, would have been lower by CAD 19 million, or CAD 0.02 per diluted share, and CAD 37 million, or CAD 0.04 per diluted share, respectively. (1)

Positive 2014 outlook, increased dividend(2)

Mongeau said: “CN's 2014 outlook remains consistent with the 2014 financial guidance that we announced on Dec. 10, 2013. CN is aiming to deliver double-digit EPS growth in 2014 over adjusted diluted 2013 EPS of CAD 3.06, as well as 2014 free cash flow in the range of CAD 1.6 billion to CAD 1.7 billion. CN is also planning for 2014 capital expenditures of approximately CAD 2.1 billion, compared with CAD 2.0 billion in 2013. (1)

“Given CN's strong balance sheet and its solid outlook for earnings and free cash flow generation, I am pleased to announce that the Company's Board of Directors has approved a 16 per cent increase in CN's 2014 quarterly common-share dividend.”

Fourth-quarter 2013 revenues, traffic volumes and expenses

Revenues for the fourth quarter of 2013 increased by eight per cent to CAD 2,745 million. Revenues increased for petroleum and chemicals (22 per cent), metals and minerals (12 per cent), forest products (11 per cent), intermodal (11 per cent), automotive (four per cent), and grain and fertilizers (two per cent). Coal revenues declined by nine per cent.

The increase in revenues was mainly attributable to higher freight volumes due to strong energy markets, market share gains, as well as growth in the North American economy; the positive translation impact of the weaker Canadian dollar on U.S.-dollar-denominated revenues; freight rate increases; and the impact of a higher fuel surcharge, as a result of higher volumes and year-over-year increases in applicable fuel prices.

Carloadings for the quarter rose three per cent to 1,310 thousand.

Revenue ton-miles, measuring the relative weight and distance of rail freight transported by CN, increased by five per cent over the year-earlier quarter. 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 by four per cent.

Operating expenses for the quarter increased by 10 per cent to CAD 1,778 million. The increase was primarily due to higher labor and fringe benefits expense as a result of increased pension expense and higher incentive compensation; the negative translation impact of the weaker Canadian dollar on U.S.-dollar-denominated expenses; and increased purchased services and material expense, in part due to weather-related conditions. These factors were partly offset by lower casualty and other expense.

The fourth-quarter 2013 operating ratio was 64.8 per cent, compared with 63.6 per cent for the year-earlier quarter.

Full-year 2013 revenues, traffic volumes and expenses

2013 revenues increased seven per cent to CAD 10,575 million. Revenues increased for petroleum and chemicals (18 per cent), intermodal (nine per cent), metals and minerals (seven per cent), forest products (six per cent), automotive (two per cent), and grain and fertilizers (one per cent). Coal revenues declined by three per cent.

The rise in total revenues was largely due to freight rate increases; higher freight volumes due to strong energy markets, market share gains, as well as growth in the North American economy; the positive translation impact of the weaker Canadian dollar on U.S.-dollar-denominated revenues; and the impact of a higher fuel surcharge, mainly as a result of higher volumes.

Carloadings for the year increased three per cent to 5,190 thousand.

Revenue ton-miles increased by four per cent over 2012, while rail freight revenue per revenue ton-mile increased by three per cent.

Operating expenses for 2013 increased by seven per cent to CAD 6,702 million, mainly due to higher labor and fringe benefits expense; the negative translation impact of the weaker Canadian dollar on U.S.-dollar-denominated expenses; and increased purchased services and material expense, in part due to weather-related conditions. These factors were partly offset by lower casualty and other expense.

The operating ratio was 63.4 per cent in 2013, compared with 62.9 per cent in 2012.