Canadian National RailwayDOUG WOJCIK
A rebounding economy is placing Canadian National Railway Co. on track for a banner year.
Montreal-based CN, a key economic bellwether because of the wide range of goods transported along its rail network, said Tuesday it's raising its outlook for adjusted earnings per share in 2011.
The country's largest railway is anticipating "continued improvement in economic conditions," prompting it to forecast "double-digit diluted EPS growth of up to 15 per cent" this year, a rosier outlook than original expectations for plain "double-digit" gains. The latest projection compares with $4.20 in diluted EPS in 2010.
Raymond James Ltd. analyst Steve Hansen read the wording of CN executives' revised guidance, and detected an increase in their degree of confidence in the economy as a whole.
"Prior to the quarter, they were aiming to breach the 10-per-cent threshold. Now, there is a subtle nuance in the shift upward, but CN is suggesting EPS growth that will be better than previously suggested," Mr. Hansen said. "Now, they've got a quarter under their belt and they've refined the forecast."
CN posted a near-record $2.1-billion profit last year, up 13 per cent from almost $1.9-billion in 2009.
The company said Tuesday that it shook off a tough winter to post a 31-per-cent jump in its first-quarter profit. CN earned $668-million for the three months ended March 31, up from $511-million in the same period last year. Share profit rose to $1.45 from $1.08.
"Despite a very challenging winter, CN produced a solid first-quarter performance thanks to further, gradual improvements in the North American and global economies and a well-executed winter operating plan," CN chief executive officer Claude Mongeau said in a statement. "Looking forward, CN anticipates strong demand from most business segments for the balance of the year."
Last Thursday, Canadian Pacific Railway Ltd. reported that its first-quarter profit fell 67 per cent to $33.7-million, partly as a result of winter avalanches that delayed freight shipments. Analysts have noted that CP's tracks go through steeper B.C.-Alberta mountain terrain than CN lines.
CN is considered by analysts as the industry leader in operating trains efficiently across its North American network, including in the U.S. Midwest.
Mr. Mongeau said during a conference call that he's looking forward to building on the momentum of the first quarter. CN enjoyed increased carloads of forest products, coal, grain and autos, as well as robust shipments of consumer goods in intermodal containers.
"We have an opportunity to take our game to the next level," Mr. Mongeau told analysts.
In the first quarter, CN had a 69-per-cent operating ratio, a key indicator of productivity that measures operating costs as a percentage of revenue. A lower operating ratio is better, and CN's ratio improved from 69.3 per cent in the first quarter of 2010.
CN is forecasting free cash flow "to be in the order of $1.2-billion" for 2011, up from $850-million originally projected.
Brent Jang