CN Rail beats profit forecasts on higher revenues

Canadian National Railway beat analyst expectations as its profits grew 20 per cent to $1.03 billion in the second quarter on higher revenues.
Canadian National said revenues grew 17 per cent to $3.3 billion in the second quarter, led by shipments of metals and coal. (CN)

Canadian National Railway beat analyst expectations as its profits grew 20 per cent to $1.03 billion in the second quarter on record quarterly revenues.

The Montreal-based railway earned $1.36 per diluted share, up from $1.10 a year earlier when it posted $858 million in net income.

Excluding a tax recovery, the railway earned $1.01 billion or $1.34 per share for the period ended June 30. That's up from $865 million or $1.11 per share in the second quarter of 2016.

Revenues grew 17 per cent to $3.3 billion, led by metals and coal, which were both up by 33 per cent. Grains and fertilizers increased 23 per cent, automotive 20 per cent, intermodal 17 per cent, petroleum and chemicals 12 per cent, and forest products six per cent.

Carloads were up 11.8 per cent, above the industry average of 4.6 per cent.

Volumes were helped by record hauling of international containers, automotive finished vehicles and frac sand for oil and gas drilling, which was up 175 per cent. Canadian grain carloads were up 23 per cent.

CN Rail was expected to earn $1.31 per share in adjusted profits on $3.25 billion of revenues, according to analysts polled by Thomson Reuters.

Volume growth expected

Railway president and CEO Luc Jobin said the country's largest railway delivered a solid performance on strong volume growth.

"Looking ahead, we hold a positive view of the economic environment, and we expect to have volume growth in the second half, although we will be facing some tougher comparisons versus last year," he said in a conference call Tuesday.

The railway is maintaining its earnings guidance for the full year even if a rising Canadian dollar eats away some profits.

"We continue to see favourable economic conditions in North America, including a stronger than expected Canadian economy," added chief financial officer Ghislain Houle.

He said consumer confidence remains positive while a strong energy sector is driving frac sand and crude volumes, even it doesn't foresee a big growth in crude-by-rail for the year.

The operating ratio, a measure of efficiency that balances revenue with expenses, worsened by 60 basis points in the quarter to 55.1 per cent over the prior-year quarter.