(The following story by Brent Jang appeared on the Globe and Mail website on January 23.)
TORONTO — Canadian National Railway Co., fresh off a record $2.16-billion profit in 2007, is forecasting another robust year despite a weakening U.S. economy, high diesel prices and recent market turmoil.
Canada’s largest railway expects to weather the storm and ride a predicted 1.7-per-cent increase in gross domestic product this year in North America, CN chief executive officer Hunter Harrison said yesterday during a conference call with analysts.
“I’m looking forward to a real bounce back in 2008, despite some of the things that we read every day,” he said.
The Canadian dollar, which soared to $1.10 (U.S.) last November, is forecast by CN to trade close to parity. The Montreal-based railway expects revenue will grow between 6 and 8 per cent in 2008, while diluted earnings per share growth might be in the “mid-to-high single digit” range. Mr. Harrison said CN could post free cash flow of $750-million (Canadian) this year.
CN kept profit rolling in last year, despite a 15-day strike in February, avalanches in March that blocked its main line in the West and another obstacle – the strengthening loonie.
The company’s operating ratio – a key indicator of productivity that measures operating costs as a percentage of revenue – was 63.6 per cent last year, compared with 61.8 per cent in 2006. A lower number is better, but against a backdrop of a rising loonie and high fuel prices, CN was pleased with the results. CN still has the railway industry’s best operating ratio.
Spurred by its record 2007 profit and cautious optimism for 2008, CN approved a 10-per-cent increase to its dividend. Shareholders of record on March 10 will receive a quarterly dividend of 23 cents a share at the end of March, up from the previous payout of 21 cents.
Last year’s $2.16-billion profit was a 3-per-cent improvement over the previous high of $2.09-billion in 2006. Fourth-quarter profit rose 67 per cent to $833-million, bolstered by a deferred income tax recovery of $284-million. Excluding extraordinary items, per share profit of 90 cents slightly exceeded analysts’ expectations.
CN, seen as a barometer of economic health, saw its forest products shipments suffer last year with the downturn in the U.S. housing market. But an 11-per-cent decline in forestry revenue was offset by gains in other categories such as petroleum, chemicals, coal, grain, fertilizer and autos.
CN chief financial officer Claude Mongeau said that while some economists “fear a full-blown recession,” he envisages a soft landing.
“We hope to have a good year and have the stock price go up,” Mr. Mongeau said.
A challenge facing CN this year is its planned purchase of the Elgin, Joliet and Eastern Railway Co. (EJ&E), currently owned by United States Steel Corp. The deal is subject to approval from the U.S. Surface Transportation Board.
Mr. Harrison said it seems “a little ridiculous” to think the EJ&E deal could take two or three years to undergo an environmental review, as some have speculated. CN is running into opposition from suburban Chicago residents who don’t want to see the little-used EJ&E tracks take on rerouted traffic from the city’s core.
“We will fight the good fight,” he said, add