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Rail News Home Canadian National Railway - CN


Rail News: Canadian National Railway - CN

CN: Favorable foreign exchange rate, falling fuel costs help prop up financial performance


Nothing like a couple of “shock absorbers” to soften the blows from a 10.5 percent decline in traffic volume. During an earnings conference held yesterday, Canadian National Railway Co. senior executives identified those absorbers — a decline in the value of the Canadian dollar versus the U.S. dollar and decreasing fuel costs — as the reasons the Class I’s fourth-quarter financial results were better than they might have been otherwise.

The results were particularly strong given that CN faced the most challenging business environment “I have seen in my 40-plus years” in the railroad industry, said President and Chief Executive Officer E. Hunter Harrison.

Net earnings totaled $457.3 million, or 96 cents per share, including a deferred income tax recovery of $33.5 million, vs. net earnings of $665 million, or $1.34 per share, including a net deferred income tax recovery of $227 million in fourth-quarter 2007. But revenue increased 11 percent to $1.8 billion and operating income rose 11 percent to $655 million. Without the favorable foreign exchange rate, revenue would have risen only 1 percent.

Automotive registered the only year-over-year revenue decline at 3 percent. However, on a foreign exchange-adjusted basis, coal revenue increased 26 percent, metals and minerals revenue rose 5 percent, intermodal revenue went up 4 percent and petroleum and chemicals revenue increased 3 percent, while automotive revenue declined 16 percent, forest products revenue dropped 7 percent, and grain and fertilizers revenue decreased 3 percent.

Quarterly operating expenses rose 15 percent to $1.1 billion compared with fourth-quarter 2007 expenses. But on a foreign exchange-adjusted basis, expenses increased only 2 percent, said Executive Vice President and Chief Financial Officer Claude Mongeau. Fuel costs dropped 1 percent — or 19 percent on a foreign exchange-adjusted basis — to $243 million. In addition, CN’s operating ratio inched up 0.6 points to 62.7.

“Although overall freight demand is much weaker, the basic driver of our business -— demand for reliable, efficient, cost-effective transportation — remains intact,” said Harrison.

For the full year, revenue increased 7 percent to $6.8 billion, operating income rose 1 percent to $2.3 billion, net income dropped 12 percent to $1.5 billion, diluted earnings per share decreased 7 percent to $3.15 (but rose 9 percent to $2.96 on a foreign exchange-adjusted basis), and CN’s operating ratio increased 2.3 points to 65.9 compared with 2007 figures.

Going forward in 2009, CN will emphasize productivity and “continue to turn over stones every day,” as well as maintain pricing discipline, pursue opportunities that extend beyond business-cycle considerations, and manage assets and costs effectively in response to lower traffic volumes, said Harrison.

During the conference, Harrison also shared breaking news on the Elgin, Joliet & Eastern Railway Co. (EJ&E) acquisition: The Surface Transportation Board on Thursday rejected another request for a stay in its decision that approved the transaction, and any requests for a stay now will go through the appeal process, said Harrison. In addition, a federal appellate court rejected an emergency request from several Chicago-area communities to postpone the transaction.

CN expects to close on the acquisition “any day now,” said Harrison. The Class I has budgeted $1.5 billion for capital expenditures in 2009, of which $100 million would be spent on EJ&E infrastructure improvements.

Jeff Stagl

Contact Progressive Railroading editorial staff.

More News from 1/23/2009