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'Co-production' with CP not vital to CN Add to ...

Canadian National Railway Co. is playing down the importance of reaching new co-operation deals with rival Canadian Pacific Railway Ltd., saying future pacts will only have a modest impact on reducing freight bottlenecks.

Hunter Harrison, CN’s former chief executive officer who is being touted by a U.S. hedge fund as the logical choice to become CP’s new CEO, is a proponent of “co-production,” the industry term for competitors working together along certain stretches of track in order to move goods more efficiently.

But CN chief operating officer Keith Creel said Tuesday that CN and CP have already made breakthroughs in sharing tracks to speed up rail shipments. “There’s still some opportunities – nothing monumental, nothing that would equal what we’ve had in the past,” Mr. Creel said during a conference call with analysts.

“But we’re always looking for an opportunity. If one presents itself that makes sense to co-produce, then certainly we’ll step up to the table and convert it,” he said.

Since 2004, Canada’s two largest railways have been co-operating on the West Coast as the Port of Vancouver gets ever busier. Between Vancouver to Kamloops, B.C., freight destined for the Port of Vancouver moves along CN tracks while goods headed toward Alberta are transported on CP lines.

CN chief executive officer Claude Mongeau, who replaced Mr. Harrison as CN’s CEO on Jan. 1, 2010, said it’s best for CN and CP to remain vigorous competitors. “The best hockey or sports franchise really get to their full potential when they meet a strong opponent. So, we’re all for a strong CP and we wish them well,” he said.

Mr. Mongeau commented after CN announced that it will be raising its dividend by 15 per cent, buoyed by an 18-per-cent jump in its fourth-quarter profit. CN will raise its quarterly dividend by 5 cents to 37.5 cents a share, to be paid March 30.

Canada’s largest railway reported that its profit for the three months ended Dec. 31 climbed to $592-million from $503-million in the same period of 2010. CN’s adjusted share profit in the latest quarter of $1.30 exceeded analysts’ expectations.

For the full 12 months of 2011, CN posted a $2.46-billion profit, up 17 per cent from $2.1-billion in 2010. All of CN’s commodity groups thrived on revenue increases in 2011, including metals, intermodal and grain.

CN said it is targeting annual growth of up to 10 per cent in diluted earnings per share, “despite significant headwinds from additional pension expense of about $120-million in 2012.”

In the latest sparring between Pershing Square Capital Management LP and CP, Mr. Harrison said Tuesday that he expects to achieve “just as dramatic a turnaround” at CP as he did at CN. “I've been a railroader since I was 19 years old. I love the industry, the people in it, its culture and the role we play in connecting customers and communities,” he said. “Together, we can transform CP into the railroad its customers, employees and shareholders deserve. I would be proud to help lead CP to that victory.”

His remarks were made in a Pershing Square statement that outlined its proposed alternative slate of directors at CP.

CN took the unusual step on Monday of suspending Mr. Harrison’s lucrative retirement benefits after the railway filed a legal claim that its former CEO had breached a non-compete agreement by teaming up with Pershing Square to campaign for the top job at CP. Underlining the historic and often bitter rivalry between the two railways, CN said in its lawsuit that Mr. Harrison’s move to CP would be “devastating.”

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