For CN, a strong 2018 finish

Written by William C. Vantuono, Editor-in-Chief
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CN President and CEO JJ Ruest.

CN, in reporting financial and operating results for fourth-quarter and full-year 2018, noted that the year ended on a strong note, “driven by solid top-line growth and significantly improved operating efficiency.”

Fourth-quarter 2018 compared to fourth-quarter 2017

  • Revenues of C$3.81 billion, an increase of 16%.
  • Diluted EPS of C$1.56, a decrease of 55% and adjusted diluted EPS of C$1.49, an increase of 24%. Included in diluted EPS in the fourth quarter of 2017 was a deferred income tax recovery of C$2.35 per diluted share resulting from the enactment of a lower U.S. federal corporate income tax rate.
  • Operating margin of 38.1%, an increase of 0.8 points (operating ratio of 61.9%).)
  • Adjusted operating margin of 38.8%, an increase of 1.5 points (adjusted operating ratio of 61.2%).
  • Operating income of C$1.45 billion, an increase of 19%. (2)

Full-year 2018 compared to full-year 2017

  • Revenues of C$14.3 b million, an increase of 10%.
  • Diluted EPS of C$5.87, a decrease of 19% and adjusted diluted EPS of C$5.50, an increase of 10%. Included in diluted EPS in 2017 was a deferred income tax recovery of C$2.33 per diluted share resulting from the enactment of a lower U.S. federal corporate income tax rate.
  • Operating margin of 38.4%, a decrease of 1.8 points (operating ratio of 61.6%).
  • Adjusted operating margin of 38.5%, a decrease of 1.7 points (adjusted operating ratio of 61.5%).
  • Operating income of C$5,493 million, an increase of five%. (2)
  • Adjusted return on invested capital (adjusted ROIC) of 15.7%, a decrease of 0.2 points.

“I’m very pleased with our fourth-quarter results and the strong finish to 2018,” said CN President and CEO JJ Ruest, Railway Age’s 2019 Railroader of the Year. “With approximately C$1.3 billion of revenue growth in the final three quarters of the year, CN regained its position of strength and demonstrated again its ability to grow at low incremental cost. 2019 will be a year of building on this momentum. We are focused on operational productivity and services that resonate with customers.”

2019 outlook and shareholder distribution

“With CN-specific growth opportunities, combined with a broadly positive economic backdrop, we expect high single-digit volume growth in 2019 in terms of revenue ton miles (RTMs),” said Ruest.

CN expects to deliver EPS growth in the low-double-digit range this year compared to adjusted diluted EPS of C$5.50 in 2018.

CN’s Board of Directors approved an 18% increase to CN’s 2019 quarterly cash dividend, effective for the first quarter of 2019, “demonstrating our confidence in the long-term financial health of the Company. In addition, the Company’s Board of Directors also approved a new normal course issuer bid that permits CN to purchase, for cancellation, over a 12-month period up to 22 million common shares, starting on Feb. 1, 2019, and ending no later than Jan. 31, 2020.


CN will invest approximately a record $2.94 billion (C$3.9 billion) in its capital spending program. Of that $1.2 billion (C$1.6 billion) is targeted toward track and railway infrastructure maintenance, the same as was spent in 2018.

“In 2019, our record capital program of C$3.9 billion will be focused on investing in the renewal of a more efficient and reliable locomotive fleet, adding network capacity to accommodate our solid pipeline of growth in diverse markets and bringing technology to our Precision Scheduled Railroading,” said Ruest.

Some additional details on CN capital spending were made available to attendees at the NRC Conference in Marco Island, Fla., earlier this month.

Notable items:

  • Tie replacement will drop 10% in 2019, according to Jim McLeod, CN Chief Engineer  Structures, Design and Construction. McLeod told the NRC conference the railroad would replace 950,000 ties this year. But that on a “steady state basis, [CN is] ideally looking to replace 2.1 million ties overall annually, taking into account the higher traffic density.”
  • Main line basic track maintenance investment is expected to decline 5% in 2019 to $840 million from a year earlier.
  • The railroad plans to replace 369 track-miles of rail this year, a drop from 383 miles in 2018.
  • The railroad is investing $65 million in its strategic bridge initiative this year, well above the $45.6 million in 2018.

CN also plans to add nearly 80 miles of double-track this year, well up from 50 miles in 2018.

CN also plans to roll out fully automated track inspection this year. Phase One involves use of eight track inspection boxcars continually inspecting 4,800 miles of key core main line track. The railroad is also adding inspection portals in multiple locations. Those portals are designed to detect damage and wear on locomotives and railcars, as well as to collect data on usage.

Capital spending on Positive Train Control (PTC) projects is expected to be $226 million (C$300 million) this year, well below the $301 million (C$400 million) of 2018.

Engineering Editor Paul Conley contributed to this story.

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