Business Context and Reporting Period
This Form 6-K filing by Canadian National Railway Company (CN) serves as a notice of the availability of materials for the 2020 Annual Meeting of Shareholders, scheduled for April 28, 2020. The filing includes the Management Information Circular and the 2019 Annual Report. The financial data presented covers the fiscal year ended December 31, 2019.
Key Financial Metrics (Fiscal Year 2019)
| Metric | Value (CAD) |
|---|---|
| Total Revenues | $14.9 billion |
| Operating Income | $5.6 billion |
| Net Income | $4.2 billion |
| Adjusted Diluted Earnings Per Share | $5.80 |
| Free Cash Flow | $2.0 billion |
| Capital Investments | $3.9 billion |
| Share Repurchases | $1.7 billion |
| Dividends Paid | $1.5 billion |
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased by 4% ($596 million) compared to 2018, driven by freight rate increases, the inclusion of TransX in the intermodal group, and higher volumes of petroleum crude and refined products. This was partially offset by lower volumes of forest products and U.S. thermal coal exports.
- Earnings: Net income decreased by 3% to $4.2 billion, while Adjusted Diluted EPS increased by 5% to $5.80. The decline in net income was influenced by a $112 million decrease in reported earnings, though adjusted metrics showed growth.
- Operating Ratio: The operating ratio increased to 62.5% (up 0.9 points from 2018), while the adjusted operating ratio was 61.7% (up 0.2 points). Increases were driven by higher purchased services, depreciation, and the negative translation impact of a weaker Canadian dollar, partially offset by lower fuel prices.
- Acquisitions: CN completed the acquisition of TransX Group of Companies (March 2019) and the intermodal temperature-controlled division of H&R Transport Limited (December 2019) to strengthen intermodal capabilities.
Guidance, Outlook, and Management Commentary
- 2020 Outlook: Management expresses "cautious optimism" for 2020. The company expects growth in petroleum crude, intermodal traffic, and Canadian coal exports, but anticipates lower volumes in U.S. coal exports, U.S. grain, and lumber.
- Capital Program: The 2020 capital expenditure program is reduced to approximately $3.0 billion (down from the record $3.9 billion in 2019), with a continued focus on track maintenance ($1.6 billion) and strategic capacity initiatives ($0.8 billion).
- Shareholder Returns: The Board approved a 7% increase in the quarterly dividend to $0.5750 per share for 2020. A new Normal Course Issuer Bid (NCIB) was approved to repurchase up to 16 million common shares through January 31, 2021.
- Safety and Operations: Management highlighted a focus on safety, noting that while the FRA accident ratio improved, the company did not meet its specific safety targets for 2019. A conductor strike in November 2019 caused a nine-day operational disruption.
- Risks: Key risks include general economic conditions, labor negotiations, regulatory changes (including U.S. Tax Reform impacts), and environmental liabilities.
Important Facts for Investor Verification
- Verify the impact of the November 2019 conductor strike on Q4 2019 volumes and the subsequent resolution of the collective agreement.
- Confirm the integration progress and financial contribution of the TransX and H&R acquisitions in 2020 results.
- Monitor the execution of the reduced 2020 capital program and its effect on network capacity and service reliability.
- Review the company's safety performance metrics against its targets, particularly regarding the "Life Critical Rules" initiative.
- Assess the impact of the weaker Canadian dollar on future revenue translation and operating expenses.