BUSINESS

CN remains optimistic about growing profits in 2013 despite challenging winter

04/22/2013 03:22 EDT | Updated 06/22/2013 05:12 EDT
MONTREAL - Canadian National Railway is maintaining its forecast for a stronger year in 2013 despite suffering a harsh winter that delayed trains and increased costs.

"If the economy stays with us — which I have no indication is not the case — we should be able to come in with the full year in line with our guidance and have the back end of the year very strong," CEO Claude Mongeau said Monday during a conference call.

The country's largest railway expects to report high single-digit adjusted earnings per share growth on top of the $5.61 per share it earned last year.

CN (TSX:CNR) reported slightly better than expected results for the first quarter despite heavy snow in Western Canada compared with a mild winter last year.

The company said Monday it earned $555 million or $1.30 per share for the quarter ended March 31. The results compared with a profit of $775 million or $1.75 per share a year ago, when the company gained $252 million from the sale of rail lines in the Toronto area to Metrolinx.

Excluding one-time gains, the Montreal-based railway said it earned $519 million of $1.22 per share for the quarter compared with $523 million of $1.18 per share a year ago when the company had more shares outstanding.

The average analyst estimate had been for a profit of $1.21 per share in adjusted profits, according to Thomson Reuters.

Revenues increased five per cent to $2.47 billion, from $2.35 billion a year ago, while revenue ton-miles rose three per cent and carloadings increased two per cent.

"It's clear that we've had a tough start to the year but this is a strong team and whatever doesn't knock you down makes you stronger and we are as we speak preparing for next winter," Mongeau told analysts from Edmonton where the company will hold its annual meeting on Tuesday.

He said that train velocity and freight car dwell times in yards have since improved as it tries to regain service levels to all its customers.

Barring heavy rains, the railway believes it shouldn't be hurt by a rapid melting of the large snow cap that has built up away from its main western route.

The results, which were to be announced after the close of markets Monday, were released "inadvertently" two hours ahead of schedule on the company's website.

CN also said it plans to spend $2 billion on capital spending this year, $100 million more than previously announced.

The money will be used to "improve network resilience" to accommodate its expectation of continued strong volume growth.

Among the projects are capacity upgrades in the Edmonton-Winnipeg corridor to help address winter challenges.

The railway's operating ratio was 68.4 per cent, a deterioration of 2.2 percentage points from a year ago.

CN said the revenue increase was mainly attributable to rate increases and higher freight volumes. The railway transported its second highest volumes in history during the quarter.

Revenues increased from petroleum and chemicals (up 17 per cent), intermodal (seven per cent), metals and minerals (three per cent), forest products (two per cent), automotive (two per cent) and grain and fertilizers (one per cent). Coal revenues declined one per cent.

Operating expenses increased nine per cent, due to several factors, including higher labour costs and operational challenges including winter conditions.

The railway remains very optimistic about reaping the benefits from growing demand for transporting crude oil.

Chief marketing officer Jean-Jacques Ruest said refiners are leasing and buying tanker cars to carry crude and pipeline companies are looking at ways to work with railways.

"This is still picking up momentum from one quarter to another and the capital investment for all these different players is very encouraging," he added.

On the Toronto Stock Exchange, CN's shared closed at $97.64, down 84 cents in Monday trading.