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CN Rail (Andrew Vaughan/Andrew Vaughan/The Canadian Press)
CN Rail (Andrew Vaughan/Andrew Vaughan/The Canadian Press)

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CN Rail sees better times, mortgage rates on rise again Add to ...

Today's top stories from Report on Business:

CN sees better times

Canadian National Railway Co. posted a 21-per-cent boost in first-quarter profit this evening, and raised its outlook for the year. The company, seen as a barometer of the broader economy, said it earned $511-million or $1.08 a share as revenue jumped 6 per cent to almost $2-billion. Its profit compared to $424-million or 90 cents a share a year earlier. Operating income, the railway said, increased 25 per cent in the quarter to $603-million.

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"CN's favourable first-quarter results and assumption of a strong economic recovery going forward have led the company to revise its 2010 earnings esimate upward, even though CN faces the prospect of a higher than anticipated Canadian dollar," the company said in a statement.



U.S. earnings point to rebound

Earnings today from two major U.S. companies - Caterpillar Inc. and Whirpool Corp. - also add weight to data showing the economy rebounding. Caterpillar said orders have jumped markedly, it boosted its outlook for the year and unveiled plans to boost production. "Economic conditions are definitely improving, partciuarly in the world's developing economies," said chief executive Jim Owens.

Whirlpool, the biggest appliance manufacturer in the world, also boosted its projection as its first-quarter profit more than doubled.

Related: Signs of U.S. recovery are mounting

Should analysts be more upbeat?

Investors in Canadian stocks are beginning to reap the rewards of the earnings recovery.

As shareholders prepare for the first truly hectic week of the quarterly reporting season in Canada, CIBC World Markets notes that estimates point to a 45-per-cent gain among TSX companies, given stronger economic growth, firmer resource prices and the fact that earnings are coming off weak levels of a year ago. That would mark the fastest year-over-year rise since the first quarter of 2003.

"Although two sectors - materials and financials - will account for three quarters of the year-to-year increase in dollar earnings, nine of 10 sectors should show improvement," CIBC's Peter Buchanan and Meny Grauman said in a research note. "Nearly a fifth of all dividend announcements since the start of the year have provided enriched payouts compared to 11 per cent in the fourth quarter, and share buybacks are also rising - both signs that shareholders are starting to benefit from the earnings recovery."

Mr. Buchanan and Mr. Grauman also pointed out that the better-than-expected results among S&P 500 companies hasn't bolstered the confidence of some analysts watching Canadian earnings. "Although TSX [first-quarter]earnings are expected to be the strongest in seven years, recently as many analysts have cut their estimates as have raised them," they said. "All this suggests that current [earnings-per-share]projections for the TSX composite are on the conservative side, leaving some potential for upside surprises as we head into a heavy week for earnings announcements."

Related: Dollar's rise a good thing for TSX earnings

Besides CN, several major companies report this week, including Husky Energy Inc., TransAlta Corp., Barrick Gold Corp., Canadian Pacific Railway Ltd., CGI Group Inc., Jean Coutu Group Inc., Rogers Communications Inc., Shoppers Drug Mart Corp., Cenovus Energy Inc., Imperial Oil Ltd., Potash Corp. of Saskatchewan and TransCanada Corp.

UBS Securities Canada projects a sharp jump in first-quarter profit from CN today and expects "management optimism regarding the improving outlook and rebound in volumes will be somewhat tempered by the unfavourable impact of the strengthening [Canadian dollar]and continued long-term economic uncertainty."

It will be interesting to see whether Shoppers Drug Mart, which reports Wednesday, will give any update on the impact of Ontario's proposed drug reforms. It has already said it is scaling back the number of its 24-hour and open-til-midnight stores, closing some pharmacy sections early and cutting back on some free services. Drug stores across the province estimate the reforms will cost $1-billion in revenue next year.

One of the more interesting reports may come Thursday from Potash Corp., which last month raised its first-quarter profit projection to between $1.30 (U.S.) and $1.50 a share, a sharp jump from its previous estimate of 70 cents to $1.

Related: Potash Corp.'s Bill Doyle dims hopes for new mines

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