Canadian National 2013 Profit Growth May Trail Estimates

Canadian National Railway Co. forecast profit growth for 2013 that may fall short of analysts’ estimates as the country’s biggest railroad confronts increased pension expenses.

Diluted earnings per share will have “high single-digit growth” from adjusted profit of C$5.61 ($5.65) per share in 2012, the Montreal-based company said today in a statement. Analysts projected C$6.17, the average of 29 estimates compiled by Bloomberg, implying a 10 percent increase in 2013.

Chief Executive Officer Claude Mongeau said Canadian National faces the “challenge” of pension and increased depreciation expenses totaling about C$150 million. The shares fell 1 percent to C$93.77 in Toronto trading, their biggest single-day drop since Nov. 14. They rose 13 percent last year.

“The guidance for 2013 is probably the most important driver here,” David Tyerman, an analyst at Canaccord Genuity in Toronto, said in a telephone interview. “It’s a little lower than what people were expecting. Then again, these guys have a track record of being conservative.”

Free cash flow in 2013 will probably be C$800 million to C$900 million, Canadian National said. That’s short of the C$1.62 billion estimate in a Bloomberg survey of 11 analysts.

Economic Growth

Canadian National’s forecasts for this year are predicated on North American industrial production increasing by about 2 percent, Chief Financial Officer Luc Jobin said on a conference call with analysts.

The economy across North America is “sluggish but it’s constructive,” Mongeau said on the conference call. Canadian National expects 2013 revenue to outpace gross domestic product as the company transports more crude and lumber, and staffing will probably increase by 1 percent, he said.

Fourth-quarter net income rose to C$610 million, or C$1.41 a share, from C$592 million, or C$1.32, a year earlier, the company said. Excluding some items, Canadian National had been expected to earn C$1.41 a share, the average estimate of 29 analysts, according to data compiled by Bloomberg. Revenue rose 6.6 percent to C$2.53 billion, the Montreal-based company said in a statement.

Canadian National raised its quarterly dividend to 43 cents a share, a 15 percent increase. The dividend will be paid on March 28 to shareholders of record as of March 7, the company said in a separate statement.

Commodity Shipments

The company’s trains carried more oil during the quarter amid rising demand from shippers. Petroleum and chemicals revenue rose 13 percent to C$427 million, while coal revenue climbed 15 percent to C$171 million even as volume fell 6 percent. Grain and fertilizer revenue advanced 11 percent. Canadian National has said it may move twice as many carloads of crude oil this year as it did last year.

Operating ratio, an industry benchmark of cost against revenue, improved to 63.6 percent in the quarter from 64.7 percent in the same period a year earlier. The ratio for all of 2012 was 62.9 percent, an improvement of 0.6 percentage point.

Mongeau told analysts he doesn’t expect top executives to depart for Canadian Pacific Railway Ltd., which is led by former Canadian National CEO Hunter Harrison.

“We have a winning team and I think we’re having fun together, and I don’t see us losing people,” Mongeau said. “If we do, we have huge bench strength and we will carry forward and continue to win in the marketplace.”