MONTREAL — A wire service reports that second-quarter profit rolled in slightly better than expected at Canadian National Railway Co., North America’s fifth-largest railroad, as it benefited from a recent acquisition and strong retail sales in Canada, the company said on Monday.
But given recent shaky signals from the Canadian economy, the ever-cautious CN chief executive, Paul Tellier, hinted Canada’s largest railway could lose some steam in the second half of the year.
“We remain very cautious for the second half,” he said in a conference call with reporters.
Tellier said its wariness came from the murky outlook for the North American economy as its stock market is ailing from corporate accounting scandals and companies are shy about investing to expand their business.
He also cited concerns about the Canadian grain crop, expected to be weak again this year after a drought-stricken season last year.
“The Canadian economy is working better than the U.S. economy. The U.S. economy is working very well, the forecasts are there for the second half of the year but we are not taking anything for granted,” Tellier said.
“Whatever commodity you are looking at, there are so many factors that come into play and the markets are so volatile that we just want to say that we are very cautious,” he said.
In the second quarter ended June, CN said it earned a profit of C$280 million ($179 million) or C$1.39 a share, up from an adjusted profit of C$240 million or C$1.21 a share a year earlier.
EARNINGS TOP ESTIMATES
Analysts expected CN to post a profit of C$1.34 a share in the quarter, with estimates ranging from C$1.31 to C$1.40 a share, according to a survey of five brokerages by research firm Thomson First Call.
Revenues rose to C$1.55 billion from C$1.39 billion, as five of its seven shipping business improved.
The bulk of the revenues increase came from the acquisition of Wisconsin Central last year. Without that franchise, CN revenue would have gone up only 1 percent, Tellier said.
CN said petroleum and chemicals revenues rose 28 percent, followed by forest products, up 24 percent, metal and minerals, up 18 percent, automotive, up 14 percent, and intermodal, up 7 percent.
Revenues from coal slipped 8 percent as mine closures hit metallurgical coal shipments and warm weather reduced the coal needs of US power plants. Grain and fertilizers revenues, suffering after droughts last year, fell 7 percent.
“We took a hell of a beating in grain and coal,” Tellier said.
He expects grain trade to remain weak this year. The railway grain revenues are already down C$99 million from last year, and Tellier sees another C$30 million to C$40 million slipping off the grain bottom line.
“I think that at best our grain revenues next year will be similar to this year, and they may be worse,” Tellier said.
The company said its operating ratio, a key measure of a railway’s efficiency, stayed well ahead of the rest of the North American rail industry. But higher labor costs pushed it up to 68.4 percent from 68.1 percent in the year-earlier period.
CN stock was one of the Toronto Stock Exchange’s top performers in 2001 and early 2002, surging to a 52-week high of C$85.53 in early March from a low of C$51. But the stock has tumbled since then and finished down 19 Canadian cents at C$71.81 on Monday.
Since January, CN stock lost 6 percent, underperforming its main Canadian rival, Canadian Pacific Railway Ltd. (Toronto:CP.TO – News), which gained 4 percent, but outperforming US-based CSX Corp (NYSE:CSX – News), which slipped 9 percent.