Canadian National Tops Profit Estimates as Cargoes Rise

Canadian National Railway Co. earnings declined less than analysts estimated in the first quarter as cargo growth blunted the impact of higher operating costs.

Adjusted profit of C$1.22 compared with an average estimate of C$1.21 in a Bloomberg survey of 29 analysts. Including an after-tax gain of 8 cents a share, net income was C$555 million ($541 million), or C$1.30 a share, compared with C$775 million, or C$1.75, a year earlier, the Montreal-based company said in a statement.

Earnings were curbed by an increase in operating costs such as fuel, labor and snow removal as the winter brought extreme cold and more precipitation than normal in western Canada. That drove up the operating ratio, an industry benchmark for efficiency, and eroded the benefit of a 5 percent gain in sales to C$2.47 billion.

Canadian National “encountered tougher weather conditions than most carriers,” Jason Seidl, an analyst at Cowen Securities LLC in New York, said in a note before the results were published. “This jammed up the company’s network and had negative impacts on operating metrics such as train velocity and cars on line.”

Canadian National dropped 0.9 percent to C$97.64 at 4:01 p.m. in Toronto. Before today, the stock had gained 9 percent since the start of the year.

Operating Ratio

The railroad’s operating ratio, which compares expenses to sales, deteriorated to 68.4 percent from 66.2 percent a year earlier. Fuel costs rose 7.7 percent, purchased services climbed 10 percent and labor and fringe benefits gained 12 percent.

Train speed and dwell time, the average number of hours that railcars spend in yards, have improved since the start of the second quarter, Chief Executive Officer Claude Mongeau said in the statement.

“CN will emerge stronger from this first-quarter experience,” Mongeau said. “To improve network resilience, particularly given our expectation of continued strong volume growth, CN is undertaking several capacity enhancement projects in its Edmonton-Winnipeg corridor.”

The railroad today reaffirmed its profit target for 2013. The company in January predicted diluted earnings per share will have “high single-digit growth” from adjusted profit of C$5.61 per share in 2012.

During the first quarter, petroleum and chemicals revenue jumped 17 percent, container-car revenue advanced 7 percent and metals and minerals gained 3 percent.

Canadian National boosted its capital expenditure forecast for the year to C$2 billion today from C$1.9 billion previously. About C$1.1 billion of the total will focus on track infrastructure “to maintain a safe and fluid railway network,” Canadian National said.

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