By Susan Taylor
TORONTO, April 22 Canadian National Railway Co
took a big winter weather hit, the country's largest
rail operator said on Monday, as extreme cold and heavy snow in
Western Canada slowed operations and nipped into profits.
CN said it has since turned the corner, returning to more
efficient operations, but will bump up its capital spending plan
by C$100 million ($97.39 million), to C$2 billion, to make its
network more resilient and productive.
The company performed relatively well during brutal winter
weather, but more encouraging is their prospect for growth in
the burgeoning crude-by-rail market, said Raymond James analyst
"They're tracking at a 60,000 carload run rate now on the
crude-by-rail side - that's up quite significantly from the
30,000 carloads they did last year. And they're just getting
going on unit train volumes now," he said.
Unit trains, those which have the same origin and
destination, are more efficient.
CN executives said during a conference call with analysts
that its crude-by-rail revenue was up 300 percent during the
quarter with about C$75 million of its book business directly in
"The organic growth prospects for crude-by-rail at CN are
very significant. We also expect solid demand from the buoyant
North American energy sector," said Executive Vice-President and
Chief Marketing Officer Jean-Jacques Ruest.
The company said it was in discussions with larger-scale
refineries and integrated producers that are looking at building
capabilities to unload at their refineries.
CN said it hopes major terminals will be built in Alberta
and announced that new terminals will be opening both in the
U.S. Gulf and Western Canada in the coming months.
CN also said it sees continued growth in its inter modal
market, which handles shipping containers, driven by growth from
West Coast ports. A recovering U.S. housing market is also
expected to power growth in lumber and panel demand.
The company said both offshore and domestic demand for
potash remains strong and it sees robust petroleum coke
Net income for the period ended March 31 fell to C$555
million, from C$775 million, CN said, while adjusted earnings
per share rose to C$1.22, from C$1.18 in the same period last
Revenue was up 5 percent at C$2.47 billion, while car
loadings increased 2 percent, the Montreal-based company said.
On average, analysts were expecting adjusted earnings of
C$1.21 a share on revenue of C$2.49 billion, according to
Thomson Reuters I/B/E/S.
For its first quarter, CN said revenue growth largely
reflected freight rate increases and higher freight volumes,
partly offset by the impact of winter weather on operations and
Shares of CN closed down 0.85 percent at C$97.64 on the
Toronto Stock Exchange. The stock, already down, dipped further
after the results, which were inadvertently released before
markets closed due to a time zone error, the company said.
A lower tax rate gave CN results a 7 Canadian cent per share
lift, which helped mask a weak quarter, RBC Capital Markets
analyst Walter Spracklin said in a note to clients.
CN's operating ratio, a core measure of railway
productivity, deteriorated by 2.2 points to 68.4 percent in the
quarter. A lower ratio, which measures operating costs as a
percentage of revenue, indicates greater efficiency.
"At the end of it all, service was not where it needed to
be, and we are going to be working hard to recover," Chief
Executive Claude Mongeau said during the call.
"The outlier impact this year is something we don't want to
repeat in the future, and so we are preparing ourselves to have
stronger service into next year."
CN maintained its 2013 forecast for earnings per share to
grow in the high-single digits on a percentage basis from C$5.61
in 2012. That would mark a big slowdown from last year's 16
It still sees modest economic growth in North America, with
carloads increasing by 3 to 4 percent, and targets free cash
flow in the range of C$800-C$900 million.
CN shares have climbed about 8 percent year-to-date on broad
investor support for the sector, but dramatically lagged the 24
percent increase of smaller rival Canadian Pacific Railway Ltd
over the same period.
CP is expected to report its financial results on Wednesday