Business Context and Reporting Period
This Form 6-K, filed on August 13, 2019, reports the release of the 2019 Investor Fact Book for Canadian National Railway Company (CN). The document serves as a comprehensive reference guide covering CN's markets, operations, and financials as the company commemorates its 100th anniversary. The financial data presented primarily reflects the full fiscal year ended December 31, 2018, with select quarterly data for 2018 and 2017.
Key Financial Metrics (Fiscal Year 2018)
| Metric | Value (CAD) |
|---|---|
| Total Revenues | $14,321 million |
| Operating Income | $5,493 million |
| Net Income | $4,328 million |
| Adjusted Net Income | $4,056 million |
| Diluted Earnings Per Share (EPS) | $5.87 |
| Adjusted Diluted EPS | $5.50 |
| Free Cash Flow | $2,514 million |
| Operating Ratio | 61.6% |
| Adjusted Operating Ratio | 61.5% |
| Adjusted Debt-to-Adjusted EBITDA | 1.94x |
| Adjusted Return on Invested Capital (ROIC) | 15.7% |
| Total Assets | $41,214 million |
| Shareholders' Equity | $17,641 million |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased by 10% to $14.3 billion in 2018 compared to $13.0 billion in 2017, driven by volume growth across most commodity groups.
- Profitability: Operating income rose to $5.49 billion from $5.24 billion in 2017. However, Net Income decreased to $4.33 billion from $5.48 billion in 2017, largely due to a significant deferred income tax recovery in 2017 related to U.S. tax legislation.
- Adjusted Performance: Adjusted Net Income increased to $4.06 billion from $3.78 billion in 2017, reflecting underlying operational strength excluding one-time items.
- Capital Investment: CN undertook a record capital investment plan of $3.9 billion in 2019, up from $3.53 billion in 2018, focused on network capacity, technology, and fleet renewal.
- Dividends: Dividends per share increased to $1.82 in 2018 from $1.65 in 2017, marking the 23rd consecutive year of dividend increases.
Guidance, Outlook, and Management Commentary
Strategic Outlook
Management emphasizes a "Five-Point Strategy" anchored on safety, sustainability, efficiency, and innovation. Key strategic drivers include:
- Technology Deployment: Transitioning from proof-of-concept to full-scale deployment of digital technologies, including Smart Network (digital twin), Automated Train Control (PTC), and Autonomous Track Inspection.
- Organic Growth: Leveraging underutilized network capacity in the Eastern and Southern regions and expanding service offerings in temperature-controlled supply chains.
- Inorganic Growth: Recent acquisition of The TransX Group of Companies to expand logistics capabilities and intermodal reach.
Risks and Contingencies
Forward-looking statements are subject to risks including general economic conditions, industry competition, fuel price volatility, regulatory changes, cybersecurity threats, and natural events. The filing notes that CN is on track to complete full Positive Train Control (PTC) implementation by December 31, 2020, as mandated by the U.S. government.
Investor Verification Checklist
- Adjusted vs. GAAP Reconciliation: Verify the impact of the $338 million gain on disposal of property and $27 million in severance costs excluded from 2018 Adjusted Net Income.
- Capital Expenditure Execution: Monitor the execution of the $3.9 billion 2019 capital plan, specifically the 80 miles of double track and 2 new sidings planned for the year.
- PTC Implementation: Track progress on the $1.5 billion Positive Train Control rollout, with full implementation targeted for end of 2020.
- Commodity Mix Sensitivity: Assess exposure to volatile sectors such as Petroleum and Chemicals (24% of revenue) and Coal (5% of revenue) given global supply/demand fluctuations.
- Dividend Sustainability: Confirm the ability to maintain the 23-year streak of dividend increases given the high capital investment requirements.