Industry News

CN Rail Profit Sags, Says Worst Is Over

October 21, 2009 | 01:00 p.m. CDT

Canadian National Railway Oct. 20 reported a better than expected 13 percent drop in third-quarter profit as deep cost cuts helped cushion the impact of the recession, Reuters reports.

Executives at Canada's biggest railroad repeated cautiously upbeat comments made in recent months that the worst of the economic downturn was over, but also pointed out there would still be economic head winds. "I think we have bounced across the bottom and now we are starting to float to the top," said Chief Executive Hunter Harrison.

However, the recent strength in the Canadian currency against the U.S. dollar could hurt CN's bottom line in the fourth quarter, Chief Financial Officer Luc Jobin said, when the railway's U.S. earnings are translated back into Canadian dollars. In the same vein, the company won't benefit from the sharp drop in fuel prices it enjoyed in the fourth quarter last year, Jobin said.

A possible near-term positive could be the settling of drawn-out labor negotiations. CN and 1,700 locomotive engineers, represented by the Teamsters union, are still without a contract after their last one expired at the end of 2008. "The two sides are not far apart . . . both sides want to reach an agreement," Harrison said, adding that there could be "good news" possibly in "a week or so, or two."

CN said net income adjusted for various tax issues fell 13 percent to C$446 million ($439 million), or 94 Canadian cents a share, in the three months ended Sept. 30, from C$511 million, or C$1.07 a share, a year earlier. Revenue fell 18 percent to C$1.85 billion. CN cut operating costs by 18 percent to C$1.16 billion during the quarter.

Revenue ton miles, a measure of the relative weight and distance of freight transported, was down 11 percent from the year-ago period, while carloads fell 15 percent.

"The CN team continued to focus on cost containment and productivity improvements during Q3-2009. And the team delivered," Harrison said. "We kept the operating ratio essentially flat at 62.7 percent and made solid operational gains -- system train speeds improved again, rising 11 percent year-over-year, while the average dwell time for freight cars in our classification yards across the railroad declined by 9 percent from a year earlier. Equally important, our accident rate improved by 8 percent over the same period of 2008."