Canadian National Railway (CNI)

Q2 2011 Earnings Call

July 25, 2011 4:30 pm ET


Jean-Jacques Ruest - Chief Marketing Officer and Executive Vice President

Keith Creel - Chief Operating Officer and Executive Vice President

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Claude Mongeau - Chief Executive Officer, President, Director, Chairman of Donations & Sponsorships Committee and Member of Strategic Planning Committee

Luc Jobin - Chief Financial Officer and Executive Vice-president

Robert Noorigian - Vice President of Investor Relations


Bascome Majors - Susquehanna Financial Group, LLLP

Walter Spracklin - RBC Capital Markets, LLC

William Greene - Morgan Stanley

David Newman - Cormark Securities Inc.

Turan Quettawala - Scotia Capital Inc.

Garrett Chase - Barclays Capital

Thomas Wadewitz - JP Morgan Chase & Co

Jacob Bout - CIBC World Markets Inc.

Christian Wetherbee - Citigroup Inc

Fadi Chamoun - BMO Capital Markets Canada

David Vernon - Sanford C. Bernstein & Co., Inc.

Steven Sherowski - BofA Merrill Lynch

Scott Group - Wolfe Trahan & Co.

Jason Seidl - Dahlman Rose & Company, LLC

Cherilyn Radbourne - TD Newcrest Capital Inc.



I would like to remind you that today's remarks contain forward looking statements within the meaning of applicable securities laws. Such statements are based on assumptions that may not materialize and are subject to risks described in CN's second quarter 2011 financial results press release and analyst presentation documents that can be found on CN's website. As such, actual results could differ materially. Reconciliations for any non-GAAP measures are also posted on CN's website at Please stand by your call will begin shortly.

Welcome to the CN Second Quarter 2011 Financial Results Conference Call.

I will now like to turn the meeting over to Mr. Robert Noorigian, Vice President, Investor Relations. Ladies and gentlemen, Mr. Noorigian.

Robert Noorigian

Thank you for joining us for CN's second quarter financial results call. I'd like to remind you about the comments that have already been made regarding our forward-looking statements.

With us today is Claude Mongeau, our President and Chief Executive Officer; Luc Jobin, Executive Vice President, Chief Financial Officer; Mr. Keith Creel, Executive Vice President, Chief Operating Officer; and J.J. Ruest, Executive Vice President, Chief Marketing Officer.

After the presentation today, we'll take questions from those of you who are listening on the call. Could you please identify yourself when you're asking the questions. In order to be fair and so we can get through the 30 analysts that are following us at the present time, would you limit yourself to one question.

Thank you very much. And now, it's my pleasure to introduce Claude Mongeau, CN's President and Chief Executive Officer.

Claude Mongeau

Thank you, Bob and thank you, everybody, for joining us on this call. We are going to take you through our second quarter results. These were very good results. I'm particularly pleased, given the adversity we faced, with the solid growth that we were able to deliver across-the-board.

J.J. will give you more details. But adjusting for currency, we have revenue growth of 11% and good growth across all the business units. And I'm very pleased that our supply chain collaboration is working for us. It's working in every segment but in particular in Intermodal sector, we are seeing very, very solid growth on the back of our end-to-end supply-chain approach. So this bodes well in terms of the balance of the year. Not done here, but it will come at on what we see in terms of the environment. But certainly, our ability to lead the industry in terms of carload growth in the second quarter is a very solid proof point that our strategy is working.

It's working on the top line, but it's also working in terms of operational excellence. I have to say Keith and his operating team did basically a bang-up job. It was an exceptional quarter, protecting the integrity of our network and the reliability of the supply-chain we served. We did face, like every other arrow, significant challenges from flood in the southern part of our network to the western part of the network, even the east, some exceptional flooding to fires to mudslides, all of this coming and kept coming at us throughout the quarter. But we were able to keep very, very solid operational metrics, and importantly, do so to protect the service and the reliability to our customers. And when you add it all up, this is the key -- one of the key reasons we were able to come in with an operating ratio of 61.3%, which is essentially in line with the performance we achieved last year.

In terms of earnings growth, up 12%. Luc will give you some of the details, but 12% despite the headwinds that we faced based. It's a very solid performance and it was backed up by equally solid free cash flow performance. At midyear, we have delivered $823 million of free cash flow, which is certainly indication of the solid results overall that this team has been able to deliver in the second quarter and in the first half in general.

Keith, with that, can you go over the operating results?

Keith Creel

Sure. Thanks, Claude. Operationally coming out of a challenging weather-related first quarter, our team's agenda was really focused on taking advantage of what we expected to be the operating conditions that are much more favorable, which would allow us to restore our service and productivity metrics. This performance standards, clear any traffic backlogs we had at the time and optimized our network fluidly. But little did we know what mother nature had in store for us. The snow melted but the weather challenges did not abate.

Regardless, I'm happy to report that this team succeeded protecting the integrity of our network for our customers by demonstrating the tenacity and the sense of urgency required to ultimately produce these results.

I'm especially proud of the relentless commitment and the sacrifices, the contribution of the engineering team, who had what I certainly hoped, was an unusual number of severe weather-related disruptions to deal with throughout the quarter. To deliver this acceptable operating metrics in spite of this adversity, protect the integrity of the network and do it while delivering to most what was an unimpeded service as a testament to the key enabler of success that we have at this franchise, and that's the railroaders that we all work with, all 22,000 of them.

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