(The following article by Nicolas Van Praet was posted on the Montreal Gazette website on January 29.)
MONTREAL — Profits at Canadian National Railway Co. motored higher in the fourth quarter after a difficult year of rising fuel costs and a surging loonie.
The Montreal company, which boasts the highest profit margin of all North American railways, yesterday posted fourth-quarter earnings of $224 million, or $1.17 a share. That compares with a profit of $22 million, or 11 cents a share, in the year-earlier period.
CN raised its quarterly dividend 17 per cent, to 19.5 cents per share, starting in March. And it announced a stock split that will see shareholders get one more share for each two shares they hold. Companies typically split their stock to improve liquidity and make their shares more accessible to individual investors.
CN’s results are considered all the more striking given the challenges it faced. Higher corporate taxes in Ontario, higher fuel costs, a higher Canadian dollar compared with the U.S. dollar, and low grain volumes early in the year all poked holes in the company’s earnings. Total revenues for the quarter dropped two per cent to $1.55 billion.
In response, CN cut costs and boosted productivity. CN’s gross ton mile per worker was up for the quarter. Its train length was also up.
For the three months ended Dec. 31, the company recorded its best operating ratio ever at 66.1 per cent. Operating ratio is a measure of operating costs as a proportion of sales. That means it spent the least of all railways in North America to move goods.
“We are positioned for the rebound that we’ve talked so much about,” said Hunter Harrison, CN’s chief executive.
“With the strong grain crop this year, we’re looking for our base business to grow.”
CN’s results provoked a flurry of predictable “great quarter!” congratulations from analysts during a conference call.
But investors didn’t appear impressed by the company’s modest goal of boosting earnings per share by 10 per cent in 2004. They pushed the stock down $1.84. It closed at $79.36 in trading on the Toronto Stock Exchange.
Asked what CN will do with the roughly $600 million of free cash flow it expects to have on hand this year, Harrison said it will pay down its recent purchases of B.C. Rail and Great Lakes Transportation LLC.
He also said newly negotiated labour agreements offer opportunities to invest money to improve delivery times.
“There might be some compelling issues (to say), ‘Let’s build even a better railroad. … Let’s run it 80 miles an hour instead of 60. Let’s give better service. Let’s turn assets faster.’ “