Canada's two large railways outperformed their U.S. rivals in the fourth quarter with freight volumes rising 2.6 per cent on strong intermodal, agricultural products and chemicals carloads, a transportation analyst said Monday.

Walter Spracklin of RBC Capital Markets said American railways suffered a 1.8 per cent volume decrease. Challenging global demand for coal as well as a weaker domestic thermal coal market caused coal shipments to fall by nearly 16 per cent.

While the volume trends were in line with guidance provided by the railways in the third quarter, Spracklin is raising his earnings forecast for Montreal-based Canadian National Railway by four per cent to $1.45 per share on superior volume trends and to $5.65 per share for the year.

The consensus forecast of analysts is $1.40 per share for the quarter and $5.59 for the year.

CN had the highest volume growth of all Class 1 railways in the quarter, rising 3.4 per cent, or 8.4 per cent on an RTM (revenue per ton) basis.

Among other things, the improvement was fuelled by new intermodal contracts, robust traffic at Canadian West Coast ports, a 15.3 per cent growth in agricultural products due to a strong Canadian crop and a less robust quarter last year.

"We believe CN will target high single-digit earnings growth in 2013, in line with our current forecast," Spracklin wrote in a report, adding that the guidance will be announced with fourth-quarter and year-end results on Jan. 22.

The railway has forecast that 2012 adjusted diluted earnings by share will grow by up to 15 per cent over the $4.84 earned in 2011. It also expects to generate about $1 billion of free cash, taking into consideration a potential $250-million additional voluntary pension contribution in the fourth quarter.

Spracklin also boosted his target price for CN by $1 to $93 per share on the expectation that it will retain volume in fiscal 2014 that he had expected to be recouped by Canadian Pacific Railway.

He lowered his EPS forecast for CP last month by three per cent to $1.26 per share and says volume trends in the fourth quarter failed to meet the company's forecasts.

"We expect these disappointing freight patterns to result in downward estimate revisions."

He said CP's volumes were up 1.1 per cent in the quarter on a 6.7 per cent growth in chemicals carloads and modest volume growth in four of seven other segments. However, it sustained "notable" declines in forest products, metals and minerals.

The speed of its trains increased by 2.2 per cent in the quarter, the lowest increase in the year.

Spracklin is maintaining his target price for CP shares at $91.

"We continue to believe that the new management team's operating plan will result in materially higher efficiency, productivity and ultimately earnings at CP. However, we believe CP's share price has gotten significantly ahead of this improvement and consider much of the optimism to be fully priced in."

On the Toronto Stock Exchange, CN's shares were up 18 cents at $90.75 Monday afternoon, while CP's shares were off 61 cents at $105.47.