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Actionable news in CNI: CANADIAN NATIONAL RAILWAY,

CN reports Q1-2016 net income of C$792 million, or C$1.00 per diluted share

Diluted earnings per share (EPS) increased by 16 per cent

MONTREAL, April 25, 2016 /PRNewswire/ - CN (TSX: CNR) (NYSE:CNI) today reported its financial and operating results for the first quarter ended March 31, 2016.

First-quarter 2016 financial highlights

  • Net income increased 13 per cent to C$792 million, while diluted EPS increased 16 per cent to C$1.00, compared with the first quarter of 2015.
  • Operating income increased 14 per cent to C$1,217 million.
  • Revenues decreased by four per cent to C$2,964 million. Carloadings declined seven per cent and revenue ton-miles declined nine per cent.
  • Operating expenses declined 14 per cent to C$1,747 million.
  • Operating ratio of 58.9 per cent, an improvement of 6.8 points over the prior-year quarter.
  • Free cash flow (1) for first-quarter 2016 was C$584 million, up from C$521 million for the year-earlier quarter.

Claude Mongeau
, president and chief executive officer, said: "CN delivered a very solid quarterly performance in a challenging economic environment. We successfully aligned our resources with the reduced volume level to achieve strong efficiency gains, while continuing to offer superior customer service and significantly improving our safety performance. These achievements allowed the CN team to deliver record first-quarter financial results."

Revised 2016 financial outlook (2)

Weaker than expected freight demand in certain markets and the strengthening of the Canadian dollar relative to the U.S. dollar have prompted a downward revision to CN's 2016 financial outlook. Under its revised outlook, CN now aims to deliver 2016 EPS in line with last year's adjusted diluted EPS (1) of C$4.44 (compared with its Jan. 26, 2016, financial outlook calling for mid-single digit EPS growth this year).

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. The fluctuation of the Canadian dollar relative to the U.S. dollar affects the conversion of the Company's U.S.-dollar-denominated revenues and expenses. On a constant currency basis, (1) CN's net income for the first quarter of 2016 would have been lower by C$57 million, or C$0.07 per diluted share.

First-quarter 2016 revenues, traffic volumes and expenses

Revenues for the first quarter of 2016 were C$2,964 million, a decrease of four per cent, when compared to the same period in 2015. Revenues increased for automotive (18 per cent), forest products (11 per cent), and intermodal (one per cent). Revenues declined for grain and fertilizers (two per cent), petroleum and chemicals (10 per cent), metals and minerals (18 per cent), and coal (42 per cent).

The decrease in revenues was mainly attributable to decreased shipments of energy-related commodities including crude oil, frac sand, drilling pipe and semi-finished steel products as a result of declining energy markets; reduced shipments of coal due to weaker North American and global demand; reduced U.S. grain exports via the Gulf of Mexico; and lower applicable fuel surcharge rates. These factors were partly offset by the positive translation impact of the weaker Canadian dollar on U.S.-dollar-denominated revenues; freight rate increases; as well as increased shipments of lumber and panels to U.S. markets, higher volumes of finished vehicle traffic, and increased domestic retail intermodal shipments.

Carloadings for the quarter declined by seven per cent to 1,255 thousand.

Revenue ton-miles (RTMs), measuring the relative weight and distance of rail freight transported by CN, declined by nine per cent from the year-earlier quarter. Rail freight revenue per RTM, a measurement of yield defined as revenue earned on the movement of a ton of freight over one mile, increased by four per cent over the year-earlier period, driven by the positive translation impact of the weaker Canadian dollar and freight rate increases, partly offset by a significant increase in the average length of haul and lower applicable fuel surcharge rates.

Operating expenses for the first quarter decreased by 14 per cent to C$1,747 million, mainly due to decreased fuel costs resulting from lower fuel prices and lower volumes of traffic; decreased labor and fringe benefits expense resulting from a lower average headcount due to lower volumes of traffic and cost-management initiatives; decreased purchased services and material expense due to favorable winter conditions; and decreased casualty and other expense due to lower accident costs. These factors were partly offset by the negative translation impact of a weaker Canadian dollar on U.S.-dollar-denominated expenses.

Forward-Looking Statements

Certain information included in this news release constitutes "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995 and under Canadian securities laws. CN cautions that, by their nature, these forward-looking statements involve risks, uncertainties and assumptions. The Company cautions that its assumptions may not materialize and that current economic conditions render such assumptions, although reasonable at the time they were made, subject to greater uncertainty. To the extent that CN has provided non-GAAP financial measures in its outlook, the Company may not be able to provide a reconciliation to the GAAP measures, due to unknown variables and uncertainty related to future results. Key assumptions used in determining forward-looking information are set forth below.

2016 key assumptions

CN has made a number of economic and market assumptions in preparing its 2016 outlook. The Company is assuming that North American industrial production for the year will increase by less than one per cent (compared with its previous assumption announced on Jan. 26, 2016, of approximately one per cent) and assumes U.S. housing starts in the range of 1.2 million units and U.S. motor vehicle sales of approximately 17.5 million units. For the 2015/2016 crop year, the Canadian grain crop was in line with the five-year average and the U.S. grain crop was above the five-year average. The Company assumes that both the Canadian and U.S. 2016/2017 grain crops will be in line with their respective five-year averages. With these assumptions, CN now assumes total carloads for 2016 will decrease by four to five per cent versus 2015 (compared with its previous assumption of slightly negative carloads versus 2015). CN expects continued pricing improvement above inflation. CN now assumes that in 2016 the value of the Canadian dollar in U.S. currency will be in the range of $0.75 to $0.80 (compared with its previous assumption of a range of $0.70 to $0.75), and that the average price of crude oil (West Texas Intermediate) will be in the range of US$35 to US$45 per barrel (as opposed to CN's previous assumption of a price range of US$30 to US$40 per barrel). CN now...


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