OTTAWA — Canadian National Railway Co. posted a 12% increase in third-quarter earnings yesterday, as last year’s acquisition of Wisconsin Central Transportation Corp. offset a “catastrophic” decline in grain traffic, the National Post reported.
But the Montreal-based railway said that even though economic conditions remain challenging it will achieve earnings targets and even use some of its $444-million in free cash from the first nine months to buy back up to 6.5% of its shares.
“We are on track, short of a catastrophe and reasons totally beyond our control, to meet that target of 5% earnings per share growth,” said Paul Tellier, president and chief executive.
For the third consecutive quarter CN’s operating ratio, a measure of efficiency, rose unfavourably over the previous year. It increased to 67.8% from 67.5% and while still the industry’s best, Mr. Tellier vowed further productivity efforts, including layoffs.
“We’ll leave no stone unturned to make sure that we continue to reduce our operating ratio … I have no hesitation to say we will reduce our operating ratio next year,” he said.
The major problem faced by CN is the drought in Western Canada that has cost the company $150-million in high margin, lost revenue.
“The crop will be at less than 50% of the five year average. When I say catastrophic and devastating, this is not an exaggeration on my part,” he said.
For the quarter, CN reported net income of $268-million or $1.32 per share fully diluted, up from $240-million ($1.21) in the third quarter of 2001. Revenue was $1.5 billion, up from $1.32-billion.
If Wisconsin Central, which CN bought last October, is included in 2001’s results on a pro forma basis then earnings per share were flat in the quarter, Mr. Tellier said.
The earnings were in line with the expectations of analysts surveyed by First Call. Last month, CN had issued an earnings warning that results would be at the low end of forecasts due to drought in Western Canada. Bob Fay, an analyst at Canaccord Capital, said the results were good given the economic background against which CN and other railways are working.
“Generally what’s happening with the rails is that they’re starting to have a battle with the cost line,” he said, citing inflation and fuel.
“They’re struggling a bit trying to control costs, especially with revenue having gone pretty quiet.”
While the operating ratio was up, Mr. Fay that is to be expected when grain drops so precipitously because the railways tend to make high margins shipping it.
Grain was the only one of CN’s seven business segments whose revenue declined in the quarter. Grain and fertilizers were off 15%. Forest products driven by construction demand were up 30%, petroleum and chemicals were up 22%, automotive up 20%, metals and mineral up 17%, intermodal 12% and coal 6%.