(The following story by Brent Jang appeared on the Globe and Mail website on October 28.)
TORONTO — Canadian National Railway Co. announced a $920-million share buyback program yesterday, after reporting that its third-quarter profit rose 18 per cent, beating estimates.
The one-year stock repurchase plan will begin Monday, with Montreal-based CN expecting to buy back up to 14 million shares, or 5 per cent of shares outstanding.
Canada’s largest railway, which also declared a quarterly dividend of 19.5 cents a share, completed its last stock buyback in October, 2003. That previous repurchase was valued at $859-million, and the newest buyback could be worth at least $920-million, based on CN’s latest stock price. CN shares rose $1.33 to $65.90 yesterday on the Toronto Stock Exchange.
Strong Asian trade helped fuel CN’s profit growth. Shipments rose for commodities such as metals, minerals, forest products, coal and chemicals.
CN posted a third-quarter profit of $346-million or $1.19 a share, compared with $294-million or $1.02 a year earlier.
Revenue rose to $1.7-billion from $1.4-billion as the company included the impact of its July purchase of BC Rail Ltd.’s freight operations from the B.C. government. CN’s third quarter also benefited from the acquisition of two U.S. rail operations earlier this year.
“Over all, an outstanding quarter. This model is hitting on all cylinders,” said Hunter Harrison, CN’s president and chief executive officer. “I’m delighted.”
The third-quarter share profit was 6 cents higher than the consensus estimate of $1.13 in a poll of analysts by Thomson First Call. It also beat last year’s third-quarter profit of 91 cents a share, excluding non-recurring items.
CN got a helping hand in the latest quarter from price hedging contracts and fuel surcharges, which took some of the sting away from higher diesel expenses.
Last week, CN and rival Canadian Pacific Railway Ltd. announced a deal to share some of their tracks on the West Coast in a bid to relieve congestion at the Port of Vancouver, which is bustling with Asian imports and exports.
Yesterday, Mr. Harrison said his company is working co-operatively with U.S. rail companies such as CSX Corp. and Union Pacific Corp. on so-called routing protocols on certain portions of U.S. track. He described such pacts as useful because they provide the benefits of a merger without actually merging.
CN also plans to sign co-operation agreements with Burlington Northern Santa Fe Corp. and Norfolk Southern Corp.
“If those initiatives stick together, they have a lot of opportunities for us going forward,” Mr. Harrison said during a 90-minute conference call with analysts.
As for outright mergers, he said he doesn’t think there is an “appetite” in North America for major rivals combining corporately.
Amid U.S. regulatory concerns in 2000, CN and Burlington Northern abandoned their proposed $6-billion (U.S.) merger.
In Canada, Mr. Harrison sees potential at the Port of Prince Rupert in northwestern British Columbia.
He added that he isn’t opposed to the principle of “open access,” where rivals would be allowed access to CN’s existing properties, but only in a fully deregulated environment under commercial terms, with market forces being the driver instead of regulators imposing rates, and railways having reciprocal access. “Access doesn’t bother me. Access is for the strong.”