(Bloomberg News circulated the following article by Rip Watson on April 20.)
NEW YORK — Canadian National Railway Co., the North American railroad with the highest profit margin, said first-quarter earnings rose 21 percent as the company increased freight rates.
Net income climbed to C$362 million ($317.4 million), or 66 cents a share, from C$299 million, or 52 cents, a year earlier, the Montreal-based company said in a statement today. Revenue rose 8.3 percent to C$1.85 billion from C$1.71 billion.
Canadian National raised prices an average of 8.5 percent a shipment. U.S. railroads such as Union Pacific Corp., the biggest by sales, and No. 3 CSX Corp. also have said higher rates helped boost earnings as demand increased to haul cargo such as Asian imports. Canadian National’s profit has risen for eight consecutive quarters.
“Railroads in general are benefiting from pricing power,” said Dan Ortwerth, an analyst at St. Louis-based Edward Jones & Co. with a “buy” rating for the company’s shares. “In the long-term, Canadian National is setting the standard. They are improving internal efficiency, using computer technology to manage yards and tracks. They are putting a big emphasis on on- time service and reliability.”
The company’s margin, or profit per sales dollar, increased to 33.8 cents before taxes and interest from 30.8 cents a year earlier. Canadian National said productivity improvements resulted in a 2 percent drop in wage and benefit costs and lower casualty expenses.
Chief Executive Officer Hunter Harrison said on a conference call that productivity gains included a 6 percent improvement in per-employee shipments, measured in freight tons per mile. Canadian National had a similar increase in average train speed, he said.
Earnings Outlook
Chief Financial Officer Claude Mongeau on the conference call maintained the company’s full-year forecast of 10 percent to 15 percent earnings growth, saying “we see more chance of being at the upper end of the range.”
The average forecast of 14 analysts in a Thomson Financial survey was for 15 percent growth to C$3.18 a share, from C$2.77 in 2005. Last year’s profit increase was 24 percent.
Canadian National faces “a number of headwinds,” including the rise of the Canadian dollar against the U.S. currency, fuel costs and pension expenses, Mongeau said.
First-quarter net income was reduced C$10 million because of the stronger Canadian dollar, spokesman Mark Hallman said. The company gets about a third of its revenue from the U.S. Fuel costs rose 22 percent to C$203 million.
Revenue Forecast
Executive Vice President James Foote on the call also repeated the company’s forecast for revenue growth of 7 percent to 8 percent and price increases of between 3 percent and 4 percent excluding fuel fees this year. In 2005, sales rose 11 percent to C$7.24 billion.
Total shipments in the first quarter were little changed at 1.19 million. Freight tonnage and miles shipped rose 2 percent.
Asian cargo and other international traffic contributed to a 12 percent increase to C$321 million in revenue from consumer- goods shipments hauled by a combination of trains and ships or trucks, That was the biggest gain for any freight group.
Revenue increased 10 percent for shipments of coal. Forest products, the biggest category in terms of shipments, rose 8 percent to C$438 million, helped by lumber from western Canada.
The per-share profit matched the estimate of James Valentine, a Morgan Stanley analyst who Institutional Investor magazine ranks among the most accurate for transportation companies. The average estimate was 63 cents in a Thomson Financial survey of 12 analysts.
Canadian National shares were unchanged at C$54.10 at 4:10 p.m. in Toronto Stock Exchange trading. The stock has gained 16 percent this year.