Winnipeg Free Press - PRINT EDITION

Railway beats earnings forecasts

CN's profits rise 16% in first quarter of 2012

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MONTREAL -- Canadian National Railway boosted its earnings guidance for the year after beating analyst forecasts with first-quarter profits that surged 16 per cent.

The Montreal-based railway earned $775 million or $1.75 per share for the period ended March 31, compared to $1.45 per share in the prior year.

The results and CN's assumption of continued improvement in economic conditions prompted it to revise its 2012 earnings outlook to 10 per cent adjusted earnings growth.

"While CN benefited from a milder winter and improving economic conditions, our very solid first-quarter results underscore that our strategy is working," said president and CEO Claude Mongeau.

Excluding a $252-million after-tax gain from the sale of a Toronto rail line, CN earned $1.18 per share, up 31 per cent from an adjusted 90 cents in the quarter last year. It (TSX:CNR) was expected to earn $1.03 per share (excluding gains), according to analysts polled by Thomson Reuters.

Revenues increased 13 per cent to $2.35 billion, higher than the nearly $2.3 billion forecast by analysts and $2.08 billion in the prior year.

Revenue ton-miles -- a key metric for railway operators -- rose six per cent, while carloadings increased five per cent.

The company said Monday it now expects to deliver "a full 10 per cent growth" in adjusted diluted EPS this year over the $4.84 per share earned in 2011 despite $100 million in additional pension expenses. That's up from its prior guidance for EPS growth "of up to 10 per cent."

The higher revenues stemmed from higher freight volumes due in part to continuing improvements in North American and global economies, a milder winter and the company's performance in several key segments.

Revenues increased for metals and minerals by 31 per cent, coal by 18 per cent and intermodal by 17 per cent.

CN's Canadian rival Canadian Pacific Railway (TSX:CP) said Monday it's raising its quarterly dividend to 35 cents from 30 cents ahead of a key shareholder vote.

CPR's largest shareholder, Pershing Square Capital Management, is seeking to replace the railway's chief executive. The New York hedge fund wants to replace CP CEO Fred Green with former CN CEO Hunter Harrison.

But CN foresees the arrival of Harrison at CP's helm as increasing opportunities for itself, according to a report by Benoit Poirier of Desjardins Capital Markets.

The railway expects a Harrison-led CP might become more disciplined in terms of prices. But it also believes some CP customers will move more of their business to CN.

On the Toronto Stock Exchange, CN's shares closed down 74 cents at $79.39 in Monday trading.

-- The Canadian Press

Republished from the Winnipeg Free Press print edition April 24, 2012 B6

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