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CN anticipates strong year in 2014 despite concerns about weather, Asia trade

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MONTREAL - Canadian National Railway is increasing its dividend by 16 per cent on anticipation of double-digit earnings growth next fiscal year despite concerns about trade with Asia and challenging winter weather conditions that have continued into the new year.

The country's largest railway said it will pay a quarterly dividend of 25 cents per share as of March 31, the 18th consecutive year it has increased the payout.

The increase came as the railway earned $635 million, or 76 cents per diluted share in the quarter, up from $610 million or 71 cents in the prior year.

Revenue for the quarter increased 8.3 per cent to $2.745 billion from $2.53 billion a year ago, it said in an earnings report issued after markets closed.

CN (TSX:CNR) was expected to earn 77 cents per share and $2.75 billion in revenues during the quarter, according to analysts polled by Thomson Reuters.

For the full year, the railway earned $2.6 billion or $3.09 per diluted share compared with a profit of $2.68 billion, or $3.06 per share in 2012.

Revenue for 2013 totalled $10.57 billion, up from $9.92 billion.

Chief executive Claude Mongeau said the 2013 performance was "solid" with a good finish in the fourth quarter.

"We have been able for the full year to outpace the economy and grow faster in base market conditions," he said during a conference call.

"The volumes were up faster than our peers in the industry and that is consistent with our game plan."

CN had a $19-million gain from currency fluctuations in the quarter and $37 million for the full year. Each one-cent drop in the value of the loonie versus the U.S. dollar translates into an increase of one or two cents per share of earnings.

CN maintained an industry-leading operating ratio — a key number that measures how much revenue is used to run the railway — even though the number increased to 63.4 per cent for the year and 64.8 per cent in the quarter, which was 1.2 percentage points higher than a year ago.

Operating income grew by five per cent to $967 million in the quarter and to $3.87 billion for the year. Free cash flow reached $1.6 billion.

Extreme weather in December has continued in January making operations extremely difficult, said Mongeau, citing as examples that it snowed in New Orleans and that Winnipeg has recorded its coldest temperatures since 1879.

He said the cold weather is affecting the railway's ability to meet demand that is "constructive" on both sides of the border. Grain is expected to be strong well into 2015. The lone concern is commodities because of a slowdown in Asia, a big importer.

"Even though the first quarter will be challenging, we have two months to go and we feel confident we will be able to deliver good performance in the first quarter and stay on track for our full-year guidance."

In addition to more than 10 per cent adjusted EPS growth in 2014, CN expects to generate at least $1.6 billion of free cash, invest $2.1 billion in capital projects and repurchase up to 30 million of its shares for some $1.4 billion.

While the railway started the year with two derailments in New Brunswick, CN said its accident ratio decreased by nine per cent last year as it experienced 33 main track accidents, matching the performance in 2012.

"And it is not just 2013, this is effectively a decade-long trend of improvement in our safety performance," he told analysts.

Main track accidents have decreased by more than half despite increased volumes.

CN said its revenue growth in the quarter was driven by strong energy markets, market share gains and growth in the North American economy.

Petroleum and chemicals revenues were up 22 per cent, metals and minerals 12 per cent, forest products 11 per cent, intermodal 11 per cent, automotive four per cent and two per cent for grain and fertilizers. Coal was down nine per cent. It transported almost 75,000 carloads of crude for the year and nearly 25,000 in the quarter.

On the Toronto Stock Exchange, CN's shares closed at $59.34, up $1.26 or 2.17 per cent on Thursday.

Follow @RossMarowits on Twitter

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