Canadian National Railway Q2 2010 Earnings Call Transcript

Canadian National Railway Q2 2010 Earnings Call Transcript
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Canadian National Railway (CNI)

Q2 2010 Earnings Call

July 22, 2010 4:30 p.m. ET

Executives

Robert Noorigan - VP, IR

Claude Mongeau - President & CEO

Keith Creel - EVP & COO

J.J. Ruest - EVP & CMO

Luc Jobin - EVP & CFO

Analysts

Jason Seidl - Dahlman Rose

Bill Green - Morgan Stanley

Chris Ceraso - Credit Suisse

Jacob Bout - CIBC

Ed Wolfe - Wolfe Trahan

Walter Spracklin - RBC Capital Markets

Tom Wadewitz - JPMorgan

Cherilyn Radbourne - TD Newcrest

Ken Hoexter - Merrill Lynch

Scott Malat - Goldman Sachs

Sal Vitale - Sterne Agee

Presentation

Operator

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Previous Statements by CNI
» Canadian National Railway Company. Q4 2009 Earnings Call Transcript
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» Canadian National Railway Company Q2 2009 Earnings Call Transcript

Welcome to the CN Second Quarter 2010 Financial Results Conference call. I would now like to turn the meeting over to Mr. Robert Noorigan, Vice President, Investor Relations.

Ladies and gentlemen, Mr. Noorigan.

Robert Noorigan

Thank you Dave and thank you for joining us for our second quarter 2010 financial results. I would like to remind you again about the comments that have already been made regarding our forward-looking statements. With us today is Mr. Claude Mongeau, President and Chief Executive Officer, Luc Jobin, Executive Vice President and Chief Financial Officer, Keith Creel, Executive Vice President, Chief Operating Officer and J.J Ruest, Executive Vice President and Chief Marketing Officer.

After the presentation we'd like to take questions from those of you who are listening on the call, would you please identify yourself on asking the questions and we'd really like to be fair to everybody, so could you limit yourself to one question with one follow-up. Thank you.

With that it's pleasure to introduce Mr. Claude Mongeau, CN's President and Chief Executive Officer. Claude?

Claude Mongeau

Thank you Bob and thank you all for joining us this afternoon. We are very, very pleased to announce our second quarter results. They are good results. The economic recovery is taking hold, and we were able to turn in both solid earnings growth, and strong free cash flow generation on a year-to-date basis.

Our EPS for the quarter is specifically of $1.13 which is up 38% from last year on a reported basis, but if you look at in on an adjusted basis, it's up actually close to 50% on a year-over-year basis.

This was driven by the top line. The economy obviously held being, but also our service and our ability with careful planning to handle the business with Keith clearly some sectors and I just mentioned a few here J.J. will give you a more detail with automotive at 52%, coal at 49% and metals and minerals at 46%, it takes a lot of solid work and careful planning to be able to help your customer handle that kind of growth in a short period, especially coming back from the deep recession that we all face last year particularly in the second quarter actually of 2009. So, our revenues overall are up 18%, the volumes are up 27% on a carload basis and 15% on an RPM basis.

The main difference between the two is mostly around short-haul iron ore movements but both indicators show the strength of the recovery up to now in 2010. We are trying to do our best to help our customers with strong supply chain focus and service improvements to accommodate that business growth and we are doing so at the low incremental cost.

Our operating ratio is improving quite significantly on a year-over-year basis, till bit more than six point. Keith will give you some of the key details why we were able to do so. Clearly, our precision rail road model, our focus on operational excellence and our goals to accommodate business at low incremental costs is clearly coming through and that reflects itself in the earnings momentum and the improvement at the level of operating ratio.

I said earlier our free cash flow was very strong indeed, Luc will give you more detail but for the first six months we are at around $958 million of free cash flow generation clearly a strong performance, some of it driven by the sale that we were able to do earlier this year but nevertheless strong, strong free cash flow generation that bodes well on a go forward basis to our ability to create shareholder value.

Just turning briefly to the next stage in your presentation, I just want to say few words about how our game plan is unfolding. This is the second quarter that we report as a new executive's team here at CN and we are basically firing on all cylinders. Our strategy is working, everything is with precision railroading at the core but clearly our focus on accommodating the business at low incremental costs is coming through.

People were concerned that with the added volume, you would see some of the fluidity and velocity metric suffering and that's clearly not what we are seeing. We have been able to continue to improve in this regard and that comes true in terms of our results.

The more important point is we are improving in terms of velocity and fluidity and key productivity metric at the same time as we are improving service metric for our customers.

Our focus first mile and last mile, our focus on supply chain initiative and our focus on engaging to understand our customers business is paying dividend and we are continuing to focus in this regard. We call it deeper customer engagement or supply chain innovation. At the end of the day it's about finding ways to work hand in hand with your customers so that we can help them grow and as they grow help us bring the volume, the top line to our bottom-line so that we can continue to create shareholder for many years to come.

At the moment can do so as we accommodate the economic recovery which we hope will continue despite the uncertainty that it will continue into the balance of the year for 2010 and outlook we will give later a little bit more about how we see the world unfolding for the balance of the year.

So, with this I will turn it over to the team starting with Keith Creel.

Keith Creel

Okay, thanks Claude. As you captured in your comments, solid team execution continues to be a key ingredient in our success story. As the operating guy, I'm honored to lead the team that executes this operating model day to day and we do it by insuring we operate in an environment that above all else will protect the safety of our franchise or employees and the communities we operate in and through. In return this environment gives us a sustainable platform that allows us to deliver the superior service that our customers deserve and expect and do it at the same time with tremendous operating leverage that has allowed us to absorb the volume growth we've experienced at a very low incremental cost.

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