MONTREAL, Que. — Canadian National Railway (CN) has reported a healthy increase in earnings for the third quarter despite an overall unstable economy.
CN said its third-quarter net income was $552 million, or $1.16 per diluted share, compared with net income of $485 million, or $0.96 per diluted share, for the comparable period of 2007.
The results for the third quarters of 2008 and 2007 were affected by deferred income tax adjustments, company officials said in a release. Net income for the latest quarter included a deferred income tax recovery of $41 million, or $0.09 per diluted share, following resolution of various income tax matters and adjustments related to tax filings of prior years. Third-quarter 2007 net income included a deferred income tax recovery of $14 million, or $0.03 per diluted share, as a result of net capital losses from the reorganization of subsidiaries.
Operating income for third-quarter 2008 increased by 10% to $844 million from $768 million a year earlier. Revenues increased 12% to $2,257 million from $2,023 million, while operating expenses increased 13% to $1,413 million from $1,255 million.
CN’s operating ratio for the most recent three-month period was 62.6%, compared with 62.0% for the third quarter of 2007.
E. Hunter Harrison, president and CEO, said: “I am extremely pleased with our results. Operational execution during the quarter was outstanding, with notable gains in network fluidity, productivity and asset utilization, while we enjoyed good revenue growth across most commodity groups.
“Looking forward, the uncertain economic landscape in North America and around the world will pose challenges to CN and its customers. But we believe CN is well positioned to weather the headwinds we have a unique business model anchored on precision railroading, and a strong freight franchise with growth prospects in intermodal, bulk commodities and energy-related developments in Western Canada. We will continue to pursue these opportunities aggressively while maintaining a clear focus on cost control and productivity improvements to keep CN at the forefront of rail industry efficiency.”
CN’s third-quarter 2008 revenues increased 12% due to freight rate increases, of which approximately two-thirds was related to a higher fuel surcharge resulting from year-over-year increases in applicable fuel prices; and higher volumes in specific commodity groups, particularly intermodal, metals and minerals, and coal. These gains were partly offset by weakness in forest products, reduced grain volumes as a result of depleted stockpiles, and the effect of hurricanes on traffic in the Southern US.
Five of CN’s seven commodity groups registered revenues gains in the quarter, led by coal (41%), metals and minerals (29%), intermodal (24%), petroleum and chemicals (9%), and automotive (3%). Forest products revenues declined 2%, and grain and fertilizers revenues declined 1%.
Revenue tonne-miles, measuring the relative weight and distance of rail freight transported by CN, declined by 2% during the third quarter versus the comparable period of 2007.
Operating expenses for the quarter increased by 13% to $1,413 million, largely as a result of higher fuel costs and purchased services and material expenses, which were partly offset by lower labour and fringe benefits expense.