January 22, 2013 / 2:12 PM / 6 years ago

CN Rail's 2013 profit forecast disappoints, shares dip

TORONTO (Reuters) - Canadian National Railway (CNR.TO) forecast a 2013 profit on Tuesday that fell short of analyst expectations, sending shares of the country’s biggest rail carrier lower even as it posted higher quarterly earnings and increased its dividend.

CN shares, which have climbed some 19 percent over the past year, dropped just over 1 percent in early trade on Tuesday after the railway said it is aiming for growth in earnings per share in the high single digits, in terms of percentage.

That implies earnings of C$6.11 a share, said BMO Capital Markets analyst Fadi Chamoun, a figure that trailed his earlier forecast of C$6.15 and the mean analyst estimate of C$6.22, according to Thomson Reuters I/B/E/S.

Canaccord Genuity analyst David Tyerman said he had estimated 2013 earnings at C$6.05, an 8 percent increase that reflected increased pension costs that the company warned about last quarter.

“This has to be taken into context,” Tyerman said. “The stock is up a good amount over the last year and we’re not exactly down a huge amount, we’re down just over 1 percent. So it’s hardly telling you it’s a disaster.”

The company’s stock may not be “priced for perfection,” he added, but there are high expectations from the railway, which boasts top-notch operating efficiency.

CN’s operating ratio, a key measure of a railway’s productivity, improved by 1.1 points to 63.6 percent in the fourth quarter. The lower the ratio, which calculates operating costs as a percentage of revenue, the more efficient a railway.

For all of 2012, the ratio was 62.9 percent, a 0.6 point improvement over 2011.

The Montreal-based railway said its 2013 estimates reflect an approximate C$150 million ($150.9 million) headwind from increased pension expenses.

“For 2013, CN anticipates continued gradual improvement in the economy and further growth opportunities in intermodal, energy and other resource markets,” Chief Executive Claude Mongeau said in a statement.

The company expects to generate between C$800 million and C$900 million in free cash flow in 2013 and spend C$1.9 billion on capital investments.

CN also announced a 15 percent increase in its quarterly cash dividend.

For its fourth-quarter, CN said profit rose to C$610 million, or C$1.41 a share, from C$592 million, or C$1.32, a year earlier. Revenue climbed 7 percent to C$2.5 billion.

Shares of CN fell C$1.01 to C$93.75 in early trading on the Toronto Stock Exchange.

($1 = 0.99 Canadian)

Reporting By Susan Taylor; Editing by Frank McGurty and Nick Zieminski

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