Skip to main content

Railcars sit at a Canadian National Railway (CN) yard in Hamilton, Ontario in this file photo.ANDREW WALLACE/Reuters

Canadian National Railway says its net income surged 21 per cent to $853-million in the third quarter as revenues reached a record $3.12-billion.

Excluding one-time items, the earnings for the period ended Sept. 30 amounted to $1.04 a share, a penny shy of expectations, and compared with net income of $705-million or 86 cents last year, which included a $19-million income tax expense.

Revenues grew 16 per cent from $2.7-billion as carloadings increased 11 per cent to 1.47 million and revenue-ton miles were up 13 per cent.

"Clearly we are growing much faster than the economy, which is our game plan," chief executive Claude Mongeau said Tuesday during a conference call.

CN's operating ratio, a measure of efficiency, improved one percentage point to an all-time low of 58.8 per cent.

The Montreal-based railway also said its board of directors authorized the repurchase over the next year of up to 28 million common shares, representing 3.4 per cent of its outstanding shares. CN repurchased 22.3 million common shares last year, returning $1.4-billion to shareholders.

CN had been expected to earn $1.05 a share in adjusted profits in the third quarter, according to analysts polled by Thomson Reuters. Revenues were forecast to grow 16.6 per cent to $3.146-billion.

The railway saw its volume reached a record high in the quarter on robust grain shipments and strong growth in energy markets. Canadian grain shipments increased 50 per cent.

It maintained its full-year outlook to deliver solid double-digit EPS growth over $3.06 in adjusted diluted EPS earned last year and to generate free cash flow in the range of $1.8-billion to $2-billion, excluding major asset sales.

Analysts foresee strong growth prospects for CN in crude oil and frac sand, along with international intermodal from Prince Rupert.

Fadi Chamoun of BMO Capital Markets anticipates the railway will generate 14 per cent compounded annual earnings per share growth over the next five years.

He expects CN's crude volumes will increase to 200,000 carloads a year by 2015 from about 130,000 currently, and could reach 300,000 over the next two years. Shipments of frac sand used to extract underground oil and gas in the process known as fracking are forecast to grow by 25 per cent annually over the next several years.

The improving results should lead to an acceleration in dividend increases, the analyst wrote in a report.

CN, with about 24,000 employees, transports some $250-billion worth of goods annually across its rail network spanning Canada and mid-America.