"We see a challenging end to the year," chief financial officer Luc Jobin said Monday during a conference call to discuss third-quarter results that edged a penny higher than analysts' forecasts.
"Given the weak economic context, however, we certainly have our work cut out and the expectation of reaching the upper end of our guidance is not a foregone conclusion."
The final quarter will compete with a strong finish to last year when it booked a record 12 per cent increase in revenues and 20 per cent boost to adjusted profits in the fourth quarter.
Still, CN continues to expect its adjusted diluted earnings by share will grow by up to 15 per cent over the $4.84 earned in 2011. It also expects to generate about $1 billion of free cash, taking into consideration a potential $250-million additional voluntary pension contribution in the fourth quarter.
The railway reported after markets closed Monday that it earned $664 million, or $1.52 per diluted and adjusted share, for the period ended Sept. 30. That compared to $1.46 per diluted share, or $659 million, a year earlier on revenue of $2.3 billion.
Adjusting for one-time changes, CN's profits increased about 10 per cent from $1.38 per share in the prior year, excluding a gain from the sale of substantially all of the assets of IC RailMarine Terminal Company.
Analysts polled by Thomson Reuters had expected adjusted earnings of $1.51 per share.
Revenues increased by eight per cent from $2.31 billion in the third quarter of 2011. Revenue ton-miles rose seven per cent and carloadings increased three per cent.
CN said the eight per cent increase in revenues were mainly derived from higher freight volumes due to growth of the North American and Asian economies, the railway's performance, freight rate increases and the weaker Canadian dollar.
Total carloads grew by 2.9 per cent during the quarter, led by strong growth by intermodal, chemicals and agricultural products, offset by decreased for coal, ores, metals and minerals.
CN's (TSX:CNR) operating ratio increased by 1.3 points to 60.6 per cent.
Chief executive Claude Mongeau said the railway posted a "solid third-quarter performance" with revenue growing in all business segments.
"This is one of our best third quarters ever," he told analysts.
"Overall when you look at it, pretty much all aspects of our agenda are working and operational and service excellence is helping us to deliver very strong results."
Petroleum and chemicals led the way with a 15 per cent increase in revenues, largely as a result of higher shipments of crude oil originating in Western Canada. CN's crude oil volume in the quarter rose to a run rate of 40,000 carloads on an annualized basis.
Mongeau said he's "cautious about the strength of the economy" but sees opportunities to grow in the longer-term.
"Through our agenda of supply chain collaboration, CN expects to increase revenues slightly faster than general growth in the North American economy and to accommodate this growth at low incremental cost."
Revenues increased for petroleum and chemicals (15 per cent), coal (13 per cent), grain and fertilizers (10 per cent), automotive (nine per cent), metals and minerals (seven per cent), intermodal (six per cent), and forest products (three per cent) despite a big drop in exports to China.
CN said it has won the contract for a large U.S. retailer that's coming to Canada early next year to transport intermodal cargo from Asia and the United States. Although it didn't mention the company by name, the railway's comments point to Target Corp., which is making its entry into the market in the spring.
The railway's board has initiated a $1.4 billion share buyback program over the next 12 months.
Mongeau repeated his past view that mentor Hunter Harrison's arrival at the helm of Canadian Pacific Railway (TSX:CP) was "constructive" for the railway industry, adding he isn't overly worried that he will try to poach CN of top talent.
"I'm not certain at all he will want to come after CN employees," he said in response to an analyst question.
"I think 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."
The railway operates across Canada and the United States, providing access to ports in the Atlantic and Pacific oceans and Gulf of Mexico. It employs nearly 22,000 people and has 33,150 route-kilometres of track.
On the Toronto Stock Exchange, CN's shares closed down 61 cents at $87.07 in Monday trading.