Canadian National Quarterly Profit Rises on Shipments

Canadian National Railway Co., the country’s biggest railroad, said third-quarter profit rose less than 1 percent as revenue from grain, petroleum and chemical carloads increased.

Profit excluding some items rose to C$1.52 ($1.53) a share from C$1.38 a year earlier, the Montreal-based company said in a statement today. That beat the C$1.51 a share average estimate of analysts surveyed by Bloomberg.

Canadian National benefited as its trains carried more oil amid rising demand from shippers. Still, the company said it won’t announce profit targets for 2013 until January and reaching the upper end of its earnings guidance for this year is not a “foregone conclusion.”

“The cautionary comments regarding the outlook do not come as a complete surprise to us,” Fadi Chamoun, an analyst at BMO Capital Markets, said in an e-mailed note to clients. “Management is executing well,” and the company “should benefit from several areas of growth in 2013 including the U.S. housing recovery,” said Chamoun, who has a market perform rating on the stock.

Net income increased less than 1 percent to C$664 million, or C$1.52 a share, from C$659 million, or C$1.46. Revenue rose 8.2 percent to C$2.5 billion, in line with the C$2.52 billion average estimate.

Canadian National also today approved a new plan to buy back as much as C$1.4 billion in stock. The shares, which have gained 8.6 percent this year, fell 61 cents to C$87.07 by 4 p.m. in Toronto today.

Railroad Outlook

Canadian National’s operating ratio, which measures expenses against revenue, rose to 60.6 percent from 59.3 percent a year earlier. The company reiterated that adjusted full-year earnings may increase as much as 15 percent.

“We see a challenging end to the year,” Chief Financial Officer Luc Jobin said on a conference call. “Given the weak economic context, we certainly have our work cut out, and the expectation of reaching the upper end of our guidance is not a foregone conclusion.”

Canadian National won’t announce profit targets for 2013 until the fourth-quarter earnings call in January, Jobin said.

Intermodal shipments, the company’s biggest source of revenue, rose about 6 percent to C$510 million. Petroleum and chemicals jumped about 15 percent to C$416 million, while grain and fertilizers advanced 10 percent to C$368 million.

Canadian National said Oct. 18 that it agreed with Tundra Energy Marketing Ltd. to build a rail-car loading terminal to handle crude oil from producers in the Bakken shale in Manitoba and Saskatchewan.

Crude Oil

The railroad plans to move 30,000 carloads of crude oil in 2012 and may be able to double the business next year, Chief Marketing Officer Jean-Jacques Ruest said on the call.

Canadian National said separately today that it’s still seeking to recover C$3 million of retirement benefits paid to former Chief Executive Officer Hunter Harrison, who was hired to lead smaller rival Canadian Pacific Railway Ltd. in June. Canadian National said Harrison “failed to fulfill the terms” of his employment agreement.

Harrison’s plan to improve efficiency and boost profit at Canadian Pacific means Canadian National will “have to get even better faster,” CEO Claude Mongeau said on the call.

Mongeau dismissed concern that Harrison may seek to recruit some Canadian National executives.

“Hunter has a good strategy undergoing, he and I go way back,” Mongeau said. “He’s a man of his word and I would expect him to focus on driving change at CP without having to poach CN. If he does poach CN, we have a lot of retention tools, and a lot of bench strength.”

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