Second-quarter 2008 results
- Diluted earnings per share declined six% to C$0.95.
- Net income declined 11% to C$459 million.
- Revenues increased four percent to C$2,098 million.
- Operating income declined 13% to C$707 million, with the Company's operating ratio rising by 6.3 points to 66.3%.
- The stronger Canadian dollar relative to the US dollar, which affects the conversion of CN's US dollar-denominated revenues and expenses, reduced second-quarter 2008 net income by approximately C$25 million, or C$0.05 per diluted share.
CN's second-quarter 2008 and 2007 results included deferred income tax recoveries of C$23 million (C$0.05 per diluted share) and C$30 million (C$0.06 per diluted share), respectively, as a result of continued reductions in corporate income tax rates in Canada. E. Hunter Harrison, president and chief executive officer, said: 'I am pleased with our second-quarter results given the challenges we faced during the period. Operations performed very well, and we saw revenue gains across most of our commodity groups, although the gains only partly helped to offset spiraling fuel costs that rose 60% year over year to almost C$400 million.
'Despite the headwinds, we saw double-digit growth in intermodal revenues as a result of new container traffic over the Port of Prince Rupert and continued import strength at the Port of Vancouver, as well as higher volumes of commodities to support oil sands development in Alberta.
'CN continues to face economic uncertainties in the current environment, but we are still targeting diluted earnings per share growth in the mid-single-digit range for full-year 2008.'
The four percent increase in second-quarter 2008 revenues was largely attributable to freight rate increases, of which approximately two-thirds were due to a higher fuel surcharge, and increased volumes in specific commodity groups, including intermodal and metals and minerals. Partly offsetting these gains were the negative translation impact of the stronger Canadian dollar on US dollar-denominated revenues and weakness in specific markets, particularly forest products and automotive.
Five of CN's seven commodity groups registered revenues gains in the quarter, led by intermodal (14%), coal (eight percent), petroleum and chemicals (seven%), metals and minerals (six percent), and grain and fertilizers (four percent). Forest products revenues declined 14%, and automotive revenues declined 13%.
Revenue ton-miles, measuring the relative weight and distance of rail freight transported by the Company, declined by two percent during the second quarter versus the comparable period of 2007.
Second-quarter 2008 total 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 four percent, mainly due to freight rate increases that were partially offset by the translation impact of the stronger Canadian dollar.
Operating expenses for the quarter increased by 14% to C$1,391 million, largely as a result of increases in fuel costs, purchased services and material, and casualty and other expenses, which were partly offset by the favorable translation impact of the stronger Canadian dollar on US dollar-denominated expenses, and lower labor and fringe benefits expense.
FIRST-HALF 2008 RESULTS
Net income for the first half of 2008 was C$770 million, or C$1.59 per diluted share, compared with net income of C$840 million, or C$1.63 per diluted share for the comparable period of 2007.
First-half 2008 net income included a deferred income tax recovery of C$23 million (C$0.05 per diluted share) owing to a reduction in provincial corporate income tax rates in Canada, as well as a deferred income tax recovery of C$11 million (C$0.02 per diluted share) resulting from net capital losses arising from the reorganization of a su
