(Dow Jones Newswires circulated the following story by Caroline Van Hasselt on April 27, 2010.)
TORONTO — Given the pace of the North American economic recovery, Canadian National Railway Co. (CNI) lifted its 2010 earnings outlook after reporting a 21% increase in its first-quarter profit, which was better than expected.
Montreal-based CN said it is aiming for “solid” double-digit growth in 2010 adjusted diluted share earnings over 2009’s C$3.24, resulting in free cash flow of C$1 billion, up from its previous forecast of C$700 million. Previously, it called for just “double-digit” growth.
A sharp turnaround in the auto industry, a pickup in industrial production and robust Asian/Chinese demand for commodities, as well as an unusually warm winter translated into the movement of more freight along Canada’s largest railway in the quarter.
Net income rose to C$511 million or C$1.08 a share, from C$424 million or 91 Canadian cents in the year-earlier period. Excluding a gain from a rail-line sale, adjusted share earnings were 80 Canadian cents, just ahead of the mean estimate of 79 Canadian cents expected by analysts polled by Thomson Reuters. A lofty Canadian dollar reduced profit by 9 Canadian cents. Revenue rose 6% to C$1.97 billion.
“The economic recovery is faster than we anticipated. We have good growth across all of our businesses,” said Chief Executive Claude Mongeau on a conference call. “It’s not only about the economy, it’s about our ability to serve our customers.”
CN, which is focusing on improving execution and service, moved more freight in the quarter, with carloadings up 16% from the year-earlier period’s depressed levels, and revenue ton-miles up 14%. RTM, a more reliable and accurate measure of volume and distance, measures the movement of a ton of revenue freight a distance of one mile.
Mongeau said the company delivered 90% of its orders to customers on the day it promised, up from 70% in 2008, helping it to increase its market share.
Its operating ratio, the ratio of operating expenses to revenue, was 69.3%, down from 71.7% a year earlier.
The company said it expects industrial production in North America to increase in the 5% range, low double-digit carload growth, a 3.5% increase in pricing, crude oil around US$85 a barrel, and U.S. motor vehicle sales of about 11.5 million units in 2010. The grain crop is expected to be in line with the five-year average. It is also assuming the Canadian dollar will stay at parity with the U.S. greenback.
It remains cautious on U.S. housing starts, reducing its forecast to 675,000 units from 750,000. That’s a notable difference from the optimistic forecast U.S. giant Caterpillar Inc. gave Monday. Caterpillar, which also raised its 2010 outlook after reporting a better-than-expected first-quarter profit, said it projects close to 800,000 units.
In Toronto Monday, Canadian National closed at C$63.72, up 1.2%.
Last week, National Bank Financial analyst David Newman raised his 12-month target price to C$70 from C$64.