(Bloomberg News distributed the following article by Rip Watson on April 20.)
WASHINGTON — — Canadian National Railway Co., the North American railroad with the highest profit margins, said first-quarter earnings rose 42 percent, helped by acquisitions and rate increases.
Net income increased to C$299 million ($241.2 million), or C$1.04 a share, from C$210 million, or 73 cents, a year earlier, the Montreal-based company said in a statement today. Revenue rose 19 percent to C$1.71 billion from C$1.44 billion.
Canadian National raised freight rates an average of 9.2 percent. Sales from acquisitions rose C$121 million after the addition of two U.S. ore-hauling railroads and BC Rail Ltd., a Canadian carrier that mostly hauls forest products such as lumber. Profit a year earlier was reduced by a strike.
“There were a lot of moving parts this quarter, nearly all of them positive for Canadian National,” Morgan Stanley analyst James Valentine, who rates the stock “overweight,” said in an interview. “They had strong grain traffic and they didn’t have a strike,” said Valentine, who doesn’t own the stock.
Revenue from transporting metals rose 49 percent to C$199 million, the biggest gain, helped by the purchase of ore-hauling railroads that feed raw materials to steel mills. Revenue from forest products rose 26 percent to C$404 million. Canadian National was the biggest hauler of lumber and paper even before buying BC Rail. Grain rose 8 percent to C$276 million. Autos was the only revenue group to drop, a 6 percent decline, as carmakers made fewer vehicles.
Currency Effects
The strengthening of the Canadian dollar relative to U.S. currency cut net income by C$15 million in the latest quarter, and the strike reduced earnings by C$24 million in last year’s first quarter. Canadian National has said it collects about 60 percent of revenue in U.S. dollars.
“Our strong performance was driven by a number of factors”, Chief Executive E. Hunter Harrison said in a statement. The company was helped by a “return to more normal traffic levels following the 2004 Canadian Auto Workers strike.”
The company’s total shipments rose 4.7 percent in the quarter, a rail trade group said. Profit margin before taxes and interest increased to 30.8 cents per dollar of sales from 27.5 cents a year earlier, Canadian National said.
The per-share profit topped the average forecast of 96 cents in a Thomson Financial survey of 10 analysts. A stock buyback that began in November contributed to the rise in per-share earnings, the company said.
Canadian National shares fell 22 cents to C$72.22 at 3:59 p.m. in Toronto Stock Exchange trading. They’ve risen 33 percent in the past year.