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Two CN locomotives are paired with a tank car fuel tender.

Canadian National Railway

Canadian National Railway Co. is feeling the chill of a nasty winter.

The country's largest railway posted a fourth-quarter profit of $635-million on Thursday, a 4-per-cent rise that executives said was dampened by costs associated with the extreme cold weather in December.

The December cold snap clogged parts of the North American transportation system and railways were forced to run shorter trains and pay more for labour and fuel to keep pace. CN executives said on a conference call the expenses could bleed into the first quarter of 2014, as the Arctic air persisted throughout January.

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The Montreal-based railway said revenue for the three months ended Dec. 31 rose by 8 per cent, as freight volumes rose for petroleum, chemicals and metals, but costs rose by 10 per cent.

"December was tough," chief executive officer Claude Mongeau said. "We had difficult weather."

CN, which employs 22,000 people and operates 32,000 kilometres of track in Canada and the United States, also reported an annual profit of $2.6-billion for 2013, a 2-per-cent drop, as higher labour costs and a weaker Canadian dollar helped to drive up operating expenses by 7 per cent.

The Canadian dollar has recently fallen to less that 90 cents (U.S.), driving up costs for companies such as CN that have some U.S.-dollar denominated expenses. At the same time, the lower dollar is good news for CN customers that export to the United States. However, CN executives said it was too soon to tell if they would see a resulting rise in shipments to U.S. destinations.

After the close of markets, CN said it was raising its annual dividend by 16 per cent to $1, marking an 18th consecutive year of increases.

Mr. Mongeau said he was most proud of the railway's safety record of 33 main-line accidents for the year. "That's about as good as we've ever done," he said.

CN's operating ratio, which measures costs as a share of sales, was 63.4 per cent in 2013, better than the 70 per cent rival Canadian Pacific Railway Ltd. reported on Wednesday. CN has long been seen as the better-run railway, but CP has narrowed the efficiency gap in the past 18 months under new CEO Hunter Harrison.

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For 2014, CN is sticking with the previously issued guidance of double-digit growth over its 2013 diluted earnings per share of $3.09 and free cash flow of about $1.6-billion.

The large grain crop in Western Canada is expected to provide a steady source of revenue for the railways through the spring and summer. However, grain growers and the companies that ship and trade the commodity have complained the railways are providing poor service, forcing them to store the crop and miss out on relatively strong market prices. Because they can't sell their crop, some Western Canadian farmers are facing cash flow problems ahead of the key seeding season.

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