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CN said revenues increased four per cent to C$2,098 million during the second quarter while operating income declined 13 per cent to C$707 million, with the company's operating ratio rising by 6.3 points to 66.3 per cent.
The stronger Canadian dollar relative to the US dollar, which affects the conversion of CN's US dollar-denominated revenues and expenses, reduced second-quarter 2008 net income by approximately C$25 million, or C$0.05 per diluted share.
CN's second-quarter 2008 and 2007 results included deferred income tax recoveries of C$23 million $0.05 per diluted share) and C$30 million $0.06 per diluted share), respectively, as a result of continued reductions in corporate income tax rates in Canada.
"I am pleased with our second-quarter results given the challenges we faced during the period," E. Hunter Harrison, president and chief executive officer, said. "Operations performed very well, and we saw revenue gains across most of our commodity groups, although the gains only partly helped to offset spiralling fuel costs that rose 60 per cent year over year to almost C$400 million.
"Despite the headwinds, we saw double-digit growth in intermodal revenues as a result of new container traffic over the Port of Prince Rupert and continued import strength at the Port of Vancouver, as well as higher volumes of commodities to support oil sands development in Alberta.
The four per cent increase in second-quarter 2008 revenues was largely attributable to freight rate increases, of which approximately two-thirds were due to a higher fuel surcharge, and increased volumes in specific commodity groups, including intermodal and metals and minerals.
Partly offsetting these gains were the negative translation impact of the stronger Canadian dollar on U.S. dollar-denominated revenues and weakness in specific markets, particularly forest products and automotive.
Five of CN's seven commodity groups registered revenues gains in the quarter, led by intermodal (14 per cent), coal (eight per cent), petroleum and chemicals (seven per cent), metals and minerals (six per cent), and grain and fertilizers (four per cent). Forest products revenues declined 14 per cent, and automotive revenues declined 13 per cent.
Revenue ton-miles, measuring the relative weight and distance of rail freight transported by the Company, declined by two per cent during the second quarter versus the comparable period of 2007.
Second-quarter 2008 total rail freight revenue per revenue ton-mile, a measurement of yield defined as revenue earned on the movement of a ton of freight over one mile, increased four per cent, mainly due to freight rate increases that were partially offset by the translation impact of the stronger Canadian dollar.
Operating expenses for the quarter increased by 14 per cent to C$1,391 million, largely as a result of increases in fuel costs, purchased services and material, and casualty and other expenses, which were partly offset by the favorable translation impact of the stronger Canadian dollar on U.S. dollar-denominated expenses, and lower labor and fringe benefits expense.
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