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Just as it did in the first quarter, Canadian National Railway Co. dealt with a weakening economy, strengthening Canadian dollar and skyrocketing fuel prices in the second quarter. And the effects of those headwinds showed up again in the financial box score.

Although CN's revenue increased 4 percent to $2.1 billion, diluted earnings per share declined 6 percent to 95 cents, net income dropped 11 percent to $459 million, operating income decreased 13 percent to $707 million, operating expenses rose 14 percent to $1.4 billion and the railroad's operating ratio jumped up 6.3 points to 66.3 compared with second-quarter 2007 results.

The stronger Canadian dollar vs. the U.S. dollar reduced net income by about $25 million and fuel costs jumped 60 percent year over year to about $400 million.

"Operations performed very well, and we saw revenue gains across most of our commodity groups, although the gains only partly helped to offset spiraling fuel costs," said CN President and Chief Executive Officer E. Hunter Harrison in a prepared statement.
 
Five of seven commodity groups registered year-over-year revenue gains, led by intermodal (14 percent), coal (8 percent), petroleum and chemicals (7 percent), metals and minerals (6 percent), and grain and fertilizers (4 percent). Forest products and automotive revenue declined 14 percent and 13 percent, respectively.

"We saw double-digit growth in intermodal revenues as a result of new container traffic over the Port of Prince Rupert and continued import strength at the Port of Vancouver, as well as higher volumes of commodities to support oil sands development in Alberta," said Harrison.

Revenue gains primarily were driven by rate increases, of which about two-thirds were due to a higher fuel surcharge and increased traffic volumes in several sectors.

During the first half, CN's revenue increased 2 percent to $4 billion compared with first-half 2007's total. However, operating income decreased 10 percent to $1.2 billion, net income fell 9 percent to $770 million, operating expenses rose 9 percent to $2.8 billion and CN's operating ratio increased 4.3 points to 69.4.