Emboldened by increased freight traffic after the recession, Canadian National Railway Co. CNR-Texpects the North American economy to stay in recovery mode this year, allowing the freight carrier to raise its dividend by 20 per cent.
Montreal-based CN, a key economic bellwether because of the wide range of goods transported along its rail network, is forecasting revenue growth in 2011 as it takes advantage of strong Asian export demand for commodities and robust import orders for consumer goods in Canada and the United States.
“We believe the North American economy will continue to recover in 2011, but at a slower pace than in 2010, and that global economic conditions will continue to improve,” CN chief executive officer Claude Mongeau said on Tuesday as he discussed the railway’s financial results with industry analysts.
CN posted a $2.1-billion profit last year, up 13 per cent from almost $1.9-billion in 2009. Its revenue climbed to $8.3-billion from $7.4-billion, bolstered by shipments of everything from coal and metals to grain and autos.
In the fourth quarter, CN’s profit dipped 14 per cent to $503-million or $1.08 a share. RBC Dominion Securities Inc. analyst Walter Spracklin noted the latest adjusted operating profit fell short of his estimate of $1.13 a share and barely missed analysts’ average forecast of $1.09.
Buoyed by the rail sector’s return to stability, CN announced Tuesday that it will be raising its quarterly dividend to 32.5 cents a share from 27 cents – marking the 15th consecutive year that the company has declared a dividend hike. The new payout will be made on March 31 for shareholders of record March 10.
As well, the freight carrier plans to buy back up to 16.5 million shares, or 3.6 per cent of its outstanding stock in a repurchase program ending Dec. 31, 2011.
CN said it is targeting “double-digit growth” in this year’s share profit, compared with adjusted diluted share profit of $4.20 in 2010, and it expects free cash flow this year to hover around $850-million.
The company’s operating ratio, a key indicator of productivity that measures operating costs as a percentage of revenue, improved last year. A lower operating ratio is better, and CN’s ratio dipped to 63.6 per cent in 2010, compared with 67.3 per cent in 2009.
Despite CN’s near-record annual profit in 2010, Desjardins Securities analyst Benoît Poirier said investors compared CN with Jacksonville, Fla.-based CSX Corp.’s better-than-expected profit reported on Monday. CN shares slipped 1 per cent Tuesday.
Export commodities such as coal and potash should help the railways this year, but grain shipments are forecast to dip after a lacklustre harvest, said Raymond James Ltd. analyst Steve Hansen, who expects year-over-year traffic growth in total in 2011, albeit at a reduced rate, when compared with 2010’s gains since the recession.
In the first two weeks of this year, the railways enjoyed freight increases in areas such as chemicals and autos, while other categories faltered, including grain and non-metallic minerals.
CN and Calgary-based Canadian Pacific Railway Ltd., which reports its financial results on Wednesday, have been scrambling to keep the trains rolling amid January’s winter storms.
“We continue to make progress on reducing backlog of trains staged across our network as a result of the severe weather in the B.C. mountain regions,” CP said in a memo to shippers this week. “We are on plan to be fully recovered by the end of the month. In the U.S., teams are working through the sub-zero weather conditions that persist in Minnesota and North Dakota.”
