Canadian National Profit Beats Estimates, Plans Buyback

Canadian National Railway Co., North America’s most efficient carrier, said it will split its stock and plans a C$1.4 billion ($1.36 billion) buyback after posting a third-quarter profit that beat analysts’ estimates.

The results released late yesterday set the stage for Canadian Pacific Railway Ltd.’s earnings today. Analysts project the country’s second-biggest railroad will report net income of C$304.7 million, compared with Canadian National’s C$705 million. That beat the C$685.4 million estimated on average by analysts.

Canadian National’s results benefited from a jump in petroleum and chemicals revenue and gains in sales from intermodal freight, that can be carried by train, truck or ship. The company said it will split its stock 2-for-1 and buy back as many as 15 million shares, or 4.1 percent, of the outstanding total, in the next year.

“This was a significant beat,” Walter Spracklin, an analyst at RBC Capital Markets who recommends investors buy Canadian National stock, said in a telephone interview from Toronto. “It seems that all cylinders are firing. On top of that, the buyback is becoming a bit of a tradition for them.”

It’s the third straight year in which Canadian National has announced a stock buyback program in connection with its third-quarter results. A year ago, the company unveiled plans to buy as many as 18 million, or 4.8 percent, of its outstanding shares.

Revenue rose 8 percent to C$2.7 billion, ahead of the average estimate of C$2.65 billion. Including costs of 5 cents a share linked to a one-time deferred income tax adjustment, net income rose to C$705 million, or C$1.67 a share, from C$664 million, or C$1.52, a year earlier, the company said.

Railroad Efficiency

Petroleum and chemicals revenue rose 17 percent to C$485 million in the third quarter, the company said. Intermodal revenue rose 13 percent to C$577 million. Operating ratio, a measure of railroad efficiency that compares expenses to revenue, improved by 0.8 percentage point to 59.8 percent.

Canadian National has signed up four intermodal and automotive customers of rival Canadian Pacific Railway this year, including Chrysler Group LLC. The company, which estimates it carries about half of all new completed vehicles sold in Canada, will add Chrysler’s business in mid-2014, Chief Marketing Officer Jean-Jacques Ruest said on a conference call.

Canadian National also reaffirmed its full-year target of “high single-digit growth” for adjusted profit, compared with C$5.61 a share last year. The company expects “to finish 2013 on a strong note,” Chief Financial Officer Luc Jobin said on the call.

Extended Trading

The stock fell 0.1 percent to C$109.76 in Toronto yesterday. The U.S. traded shares rose as much as 1.5 percent to $108.35 in extended trading after the company’s results were disclosed.

The share split will take the form of a stock dividend, with shareholders receiving one extra common share for each share held. The stock dividend will be payable on Nov. 29 to shareholders of record at the close of business on Nov. 15, Canadian National said. The board approved a fourth-quarter dividend of 21.5 Canadian cents a share, post split, to be paid on Dec. 31, to shareholders of record on Dec. 10, the company said.

Canadian National was the operator of a train carrying crude oil and liquefied petroleum gas that derailed four days ago in the western province of Alberta, causing an explosion and fire with no injuries.

Regulator Scrutiny

Regulators have raised scrutiny of oil transport by rail in Canada and the U.S. after a Montreal, Maine & Atlantic Railway Ltd. train derailed in Lac-Megantic, Quebec, on July 6, killing at least 47 people and incinerating buildings in the town’s center.

Chief Executive Officer Claude Mongeau defended the company’s safety record on the conference call, saying Canadian National moves in excess of 1 billion tons of commodities a year and has “two to three” accidents a month.

“To be able to have so few accidents in any given year with so much volume is quite remarkable,” he said. “It’s difficult to get better than that, but we are committed to continue to improve.”

Canadian National is “focused as we speak on returning service levels to our customers,” Mongeau said. Residents of Gainford, Alberta -- who were evacuated as a result of the derailment -- are “safely back at home,” he said.

To contact the reporter on this story: Frederic Tomesco in Montreal at tomesco@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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