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(Corrects seventh paragraph to show operating ratio decreased, not increased, by 3.7 points in 2015 to 58.2 percent)
By Allison Lampert
Jan 26 (Reuters) - Canadian National Railway Co reported a better-than-expected fourth quarter profit and raised its 2016 quarterly dividend by 20 percent as costs fell on lower fuel expenses.
The company, which reported 2015 adjusted profit of C$4.44 ($3.15) per share, also said it expected earnings per share to grow in the mid-single digit percent in 2016.
However, Canadian National Railway expects lower volumes during the first quarter of 2016, compared with the same period a year earlier, because of weaker demand for the transport of iron ore and crude by rail.
"We are not counting on a rebound in commodities," CN Chief Marketing Officer Jean-Jacques Ruest told analysts on a call.
Chief Executive Officer Claude Mongeau said CN has become more efficient as it faces a softer Canadian economy and increased competition with trucks because of lower fuel prices.
"We are facing an uncertain environment," Mongeau said, who has returned to work following treatment for a precancerous soft-tissue tumor in his larynx.
CN Rail's operating ratio, a key efficiency measure, improved by 3.5 points to 57.2 percent during the fourth quarter. For 2015, CN reported an operating ratio of 58.2 percent, a decrease of 3.7 points compared with 2014.
The ratio expresses operating costs as a percentage of revenue, so lower values are better.
Canadian National's operating costs fell 7 percent to C$1.81 billion in the fourth quarter.
Net income rose to C$941 million, or C$1.18 per share, in the quarter ended Dec. 31. Analysts on average had expected profit of C$1.11 per share, according to Thomson Reuters I/B/E/S. For the year-ago quarter, net income was C$844 million, or C$1.03 per share.
The Montreal-based company's revenue fell 1.3 percent to C$3.17 billion, hurt by lower shipments of coal due to weaker North American and global demand.
Canadian National also raised its 2016 quarterly dividend by 20 percent and said it was on track to meet its target payout ratio of 35 percent. ($1 = C$1.41) (Reporting by Anet Josline Pinto in Bengaluru and Allison Lampert in Montreal; Editing by Kirti Pandey, Bernard Orr)