CN Rail tops profit estimates on higher freight volumes

(Reuters) - Canadian National Railway Co CNR.TOCNI.N on Tuesday reported a better-than-expected quarterly profit and raised its forecast for full-year adjusted earnings as the railroad moved higher volumes of commodities including grains and fertilizers at better pricing.

FILE PHOTO: A Canadian National (CN) rail caboose is displayed outside a logistics company's office in Sherwood Park, near Edmonton, Alberta, Canada November 13, 2016. REUTERS/Chris Helgren/File Photo

Canada’s largest railroad expects to move higher volumes in the second half of 2018, as it expects strong demand through 2019, and will improve capacity by bringing new workers and locomotives into service.

The capacity gives Montreal-based CN more leeway to take on crude-by-rail contracts, provided it does not disrupt service of commodities like grain, said Chief Executive Jean-Jacques Ruest, who now heads the company on a permanent basis.

“In the second half, we will have more capacity, therefore we will also be able to execute a bigger book of business of crude,” Ruest told analysts.

CN Rail and smaller rival Canadian Pacific Railway Ltd CP.TO are investing in rail infrastructure to ease capacity constraints following a surge in demand from producers of grains and other commodities.

Oil producers are eying railroads as production has exceeded pipeline capacity.

CN said it now expected adjusted earnings of C$5.30 to C$5.45 per share, compared with C$5.10 to C$5.25 per share estimated previously.

CN also added another C$100 million ($76.02 million) to its capital budget, taking its total spending to C$3.5 billion for 2018, as it looks to invest in new rail cars.

CN expects capital expenditures to remain similar in 2019 compared with this year.

The introduction of tariffs on items like lumber and aluminum have not impacted CN’s business, Ruest said.

“So far the impact has not been material in two of the three commodities where there is a duty,” he said. “The volume is actually increasing on the cross-border activities.”

Total carloads, the amount of freight loaded into cars during a specified period, rose 5.8 percent, while rail freight revenue per carload increased 3.9 percent, the company said in a statement.

CN Rail said operating ratio, which measures operating costs as a percentage of revenue, increased to 58.2 percent from 57.5 percent a year earlier.

Net income rose to C$1.31 billion ($995.82 million), or C$1.77 per share, in the second quarter ended June 30 from C$1.03 billion, or C$1.36 per share, a year earlier.

Excluding items, the company earned C$1.51 per share, topping analysts’ average estimate of C$1.38, according to Thomson Reuters I/B/E/S.

Reporting by Anirban Paul in Bengaluru and Allison Lampert in Montreal; Editing by Anil D’Silva and Lisa Shumaker