CN posts fourth-quarter gain as agriculture shipments lift freight volumes

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Canadian National Railway Co. says its fourth-quarter profit rose by 8 per cent, buoyed by rising grain and fertilizer shipments.

Montreal-based CN, Canada's largest railway, said revenue for the three months ending Dec. 31 rose by 2 per cent, driven by a 14-per-cent increase in agriculture freight and a 4-per-cent rise in automotive shipments.

CN's profit of $1-billion, diluted per-share earnings of $1.32 and revenue of $3.2-billion were in line with analyst expectations.

For the full year of 2016, CN's profit rose by 3 per cent to $3.64-billion, while revenue fell by 5 per cent to $12-billion. The company's operating ratio, a measure of expenses versus revenue, improved by 2.3 points to 55.9 per cent.

CN posted revenue declines for metals and minerals (6 per cent), coal (6 per cent) and petroleum and chemicals (5 per cent). Forest products sales were flat, the company said. Carloads rose by 3 per cent.

"Despite facing difficult winter conditions in December, CN delivered very strong fourth-quarter results and throughout 2016 demonstrated once again its ability to perform well in a mixed economic environment," Luc Jobin, CN president and chief executive officer, said in a statement accompanying the results, which were released after markets closed on Tuesday. "We saw weaker volumes during the year, but quickly adjusted as our dedicated team of railroaders maintained its focus on operational efficiency, while continuing to provide quality service to our customers and improve our safety performance."

CN increased its quarterly dividend by 10 per cent, bringing the annual payout to $1.65 a share.

CN shares have risen by 32 per cent in the past 12 months, outperforming those of rival Canadian Pacific by 8 percentage points and the broader S&P/TSX composite index by 4 points. An index of the four major U.S. railroads – Union Pacific, Kansas City Southern, CSX Corp. and Norfolk Southern Corp. – has risen by 68 per cent in the same period.

All major North American railways saw business slow in 2016, amid economic weakness and reduced demand for commodities and industrial goods.

"Overall, the economy remains challenging, but we remain optimistic and expect to see moderate volume growth in 2017," Mr. Jobin said.

"The worst of the market correction in several commodity markets is behind us," Mr. Jobin said on a conference call with analysts on Tuesday evening.

Fadi Chamoun, a stock analyst at Bank of Montreal, said he expects freight volumes for the North American industry to rise by 2 per cent this year.

"The outlook for demand appears to be improving," Mr. Chamoun said in a research note, pointing to strength in U.S. manufacturing and construction spending. "There are, however, some headwinds, most notably in segments vulnerable to a strong U.S. dollar, likely flattening demand in the automotive markets and above-normal inventories in the utility coal segment," Mr. Chamoun said.

His comments were underscored by Canada's National Energy Board, which says Canadian oil exported by rail to the United States rose by 49 per cent to 102,000 barrels a day in October, the most recent month for which data is available. That's the highest level since April, 2016, but well below the peak of 178,000 barrels a day reached in September, 2014.