January 22, 2013 / 5:48 PM / in 5 years

CN Rail's 2013 profit forecast disappoints, shares dip

TORONTO (Reuters) - Canadian National Railway (CNR.TO), the country’s biggest rail carrier, gave a profit outlook for 2013 on Tuesday that fell short of analyst expectations, and its shares slipped even though the company posted higher quarterly earnings and raised its dividend.

The Montreal-based railway forecast its earnings per share in 2013 will grow in the high-single digits, on a percentage basis, a marked slowdown from the past two years.

CN’s stock fell 1.3 percent. The shares had powered about 19 percent higher over the past year.

”If you look at the earnings growth that they’re calling for, high-single digits,“ said Raymond James analyst Steve Hansen, ”that’s down from roughly 16 percent last year, which really does suggest the cycle’s maturing a little bit here.

“And that brings in the question what multiple you’re willing to pay for the stock,” he said.

There have been lofty expectations for CN, which boasts top-notch operating efficiency and trades at 15 times 2012 earnings.

CN’s guidance implies 2013 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.

Still, analysts said CN management is typically cautious in its full-year forecasts.

“This has to be taken into context,” said Canaccord Genuity analyst David Tyerman. “The stock is up a good amount over the last year and we’re ... down just over 1 percent. So it’s hardly telling you it’s a disaster.”

PENSION, DEPRECIATION NIPS PROFIT

CN’s fourth-quarter results largely matched expectations. 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 a record C$2.5 billion, stoked by a 15 percent increase for coal, 13 percent jump for petroleum and chemicals, and 11 percent gain for grain and fertilizers. Revenue for intermodal, or containers carrying a variety of goods transported by more than one form of carrier, rose 7 percent.

The gains were party offset by a 2 percent decline in forest product revenue and 1 percent drop in metals and minerals.

CN also announced a 15 percent increase in its quarterly dividend to 43 Canadian cents.

Looking ahead for 2013, CN said an approximate C$150 million ($150.9 million) increased pension expense and rising depreciation costs will bite into earnings.

“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, a decline from C$1 billion in 2012, and spend C$1.9 billion on capital investments.

The company’s operating ratio, a key measure of a railway’s productivity, improved by 1.1 points to 63.6 percent in the fourth quarter. A lower ratio, which calculates operating costs as a percentage of revenue, indicates greater efficiency of a railway.

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

Shares of CN fell C$1.24 to C$93.52 on the Toronto Stock Exchange, making it the day’s fourth-biggest net loser.

($1 = 0.99 Canadian)

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

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