(Reuters circulated the following story by Allan Dowd on October 22.)
VANCOUVER, B.C. — Canadian National Railway Co. reported a 2 percent drop in net income in the third quarter on Monday due to weaker forestry shipments and a stronger Canadian dollar.
The railway said it expects those problems to continue through the fourth quarter, but its executives told analysts they are leery about making predictions for 2008 given the current economic volatility.
“I don’t think the (Canadian) dollar is going to stay this way, but I can’t say when it will turn,” said Chief Executive Hunter Harrison, adding that few people had expected the Canadian currency to surge past the U.S. dollar during the quarter.
CN said it still predicts earnings per share growth of 5 percent for the full year 2007, but will include gains it expects to record from its sale of Montreal station property and its stake in English Welsh and Scottish Railway.
Without those gains, adjusted earnings per share for 2007 would likely be flat with a year ago, the company said.
On Monday, CN reported third-quarter net income of C$485 million, or 96 Canadian cents a share, including a C$14 million favorable tax adjustment. That compared with a profit of C$497 million, or 94 Canadian cents per share, in the same period a year ago.
CN, which has operations in Canada and the United States, said revenue in the quarter ended Sept. 30 was C$2.02 billion, down a touch from C$2.03 billion a year ago as car-loading volumes dropped.
Forestry is CN’s largest freight commodity sector, but the strong Canadian dollar has hit both the lumber and paper industries hard. Revenue from forestry-related shipments was off 13 percent.
Five paper mills that CN serves idled operations during the third quarter, with weaker forestry markets hitting the carrier’s eastern Canadian operations more than those in the west, CN executives told analysts.
The Montreal-headquartered railway also saw its operating ratio, a transportation industry measure of efficiency, worsen to 62 percent in the quarter from 58.5 percent in the third quarter of 2006.
“An operating ratio of 62 is still far, far ahead of our peers,” Harrison told analysts.