Canadian National Railway (CNI)

Q4 2011 Earnings Call

January 24, 2012 2:00 pm ET

Executives

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

Keith E. Creel - Chief Operating Officer and Executive Vice President

Compare to:
Previous Statements by CNI
» Canadian National Railway's CEO Discusses Q3 2011 Results - Earnings Call Transcript
» Canadian National Railway's CEO Discusses Q2 2011 Results - Earnings Call Transcript
» Canadian National Railway's CEO Discusses Q1 2011 Results - Earnings Call Transcript

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

Analysts

William J. Greene - Morgan Stanley, Research Division

Walter Spracklin - RBC Capital Markets, LLC, Research Division

Turan Quettawala - Scotia Capital Inc., Research Division

Garrett L. Chase - Barclays Capital, Research Division

Matthew Troy - Susquehanna Financial Group, LLLP, Research Division

Fadi Chamoun - BMO Capital Markets Canada

Christian Wetherbee - Citigroup Inc, Research Division

Benoit Poirier - Desjardins Securities Inc., Research Division

Jacob Bout - CIBC World Markets Inc., Research Division

Thomas R. Wadewitz - JP Morgan Chase & Co, Research Division

Cherilyn Radbourne - TD Securities Equity Research

Presentation

Operator

[Operator Instructions] 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 fourth quarter 2011 and full year 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 www.cn.ca. [Operator Instructions]

Welcome to the CN Fourth Quarter 2011 and Full Year 2011 Financial Results Conference Call. I would now like to turn the meeting over to Mr. Robert Noorigian, Vice President, Investor Relations. Ladies and gentlemen, Mr. Noorigian.

Robert Noorigian

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

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

As many of you already know, CN's Board of Directors, yesterday, decided to suspend certain payments and benefit compensation to Mr. Harrison. And we have filed proceedings to affirm CN's rights in the U.S. Federal Court in Illinois. We do not have any further comments on this matter, and we would ask that you would please focus on CN's outstanding fourth quarter financial results in your questions. In order to be fair to all the participants, please limit your questions to one each.

And with that, it's now my pleasure to introduce Mr. Claude Mongeau, CN's President and Chief Executive Officer.

Claude Mongeau

Thank you, Bob, and thank you for all of you to join us on this fourth quarter call. I'm very pleased with our performance in that last quarter of the year. I think we were helped with weather but we finished with record revenue performance. We have outstanding car loading volume and revenue performance, all the way to the end of the year, on December 31. So JJ will take you through that but overall, if I adjust for currency, our revenues are up 12%.

Clearly, if you look at it for the quarter but also for the full year, we were successful in outpacing the economy, but also in outpacing our peers. I think our car loadings for the full year were 4% versus an average for the industry that was up around 3.2%. So our game plan is working from a revenue standpoint. And we are bringing it to the bottom line. Solid financial results, our operating ratio at 64.7 reflects seller productivity throughout the quarter, but we also have to face issues and headwind, and Luc will give you some details whether it's stock-based compensation or fuel lag, which we have to contend with.

EPS for the quarter, on a reported basis was $1.32, adjusted was $1.30. Either way, the EPS is up 20%, which is a strong performance on a year-over-year basis. And free cash flow the same, we finished the year with effectively just under $1.2 billion of free cash flow. And that included the benefit from a number of well-timed and very smart monetization, which helped us deliver on that performance.

If I look at the full year, that theme of strong revenue performance was not just a fourth quarter phenomenon. It was really throughout the full year. We've had our record car loading performance, the range of commodities, where we are back at peak level, and we brought that also to the revenue line with solid pricing and a very responsive fuel surcharge has helped us cover for increases in the price of diesel.

Strong financial performance backed up by very solid operational services. And as Keith will show you in a minute, in our operational performance, in our service performance, we are clearly trying to balance operational and service excellence, and it's helping us deliver those strong results. We are doing the trade-off in the right manner and it's helping us bringing additional income and additional business in support of our customers. It's really consistent with our strategy to be a true supply-chain enabler, to encourage collaboration and define ways with our customers and transportation partners to go after efficiency, but also to help them win in the marketplace and help them grow their own business.

I was also very pleased that, just before Christmas actually, we had 2 collective agreements that have been, agreements in principle, that have been struck with the Teamsters, our locomotive engineers, and with our maintenance of way employees, the steel workers. And those 2 agreements are out for ratification, we should get the results pretty soon. But it was particularly pleasing to see that we were able to reach those collective agreements, actually before the term of the agreement, so we did not need any conciliation, any mediation. We struck a fair deal and we plan to build on those agreements to continue our push with our colleagues and railroaders on a go-forward basis.

Read the rest of this transcript for free on seekingalpha.com