(The Canadian Press circulated the following story by Ross Marowits on October 22.)
MONTREAL — Canadian National Railway (TSX: CNR) says it’s in the best position in its history to withstand an economic downturn, as productivity efficiencies are expected to help the railway to chug along in the months to come.
“These times give this group a real opportunity to shine and it’s in tough times that we can really differentiate between this franchise and others,” chief executive E. Hunter Harrison told analysts after CN reported strong third-quarter results Tuesday.
The Montreal-based railway reported that net income increased 14 per cent in the third quarter to $552 million on higher revenues.
Revenues increased 12 per cent to $2.267 billion from $2.02 billion, as five of the railway’s seven freight categories experienced growth over the same period of 2007.
That exceeded even the highest of six analyst estimates compiled by Thomson Financial. On average, they had called for CN’s revenue to rise six per cent to $2.153 billion.
The railway said earnings per diluted share were $1.16 for the quarter ended Sept. 30, up from 96 cents a year earlier, when profits totalled $485 million.
The latest quarter included a deferred income tax recovery of $41 million, or nine cents per share, compared with a recovery of $14 million, or three cents per diluted share in the third quarter of 2007.
Harrison said improvements in key operating metrics such as productivity and asset utilization ensure the railway can withstand a slowdown in the North American economy.
“If we go through some tough times, it will solidify our position as a low-cost carrier and put us in a good position to deal with adversity that might come in the future,” he said in a conference call.
While CN is generating strong free cash to fund its operations and strategic improvements, it has no immediate plans to go on a buying spree of other railways, Harrison said, noting that expansion will be up to his successor.
Its priority remains to close the acquisition of Chicago’s Elgin, Joliet & Eastern Railway line by year-end.
U.S. Steel has said it won’t wait past Dec. 31 and CN has asked the transportation board to give partial approval by that time so the deal can close.
There are about 30 communities along the 320-kilometre regional line that say they fear CN’s plans will to increase freight-train traffic in their area.
Harrison said CN has developed several contingency plans to address an economic slowdown, including a potential $200 million reduction in capital spending.