April 23, 2012 / 8:33 PM / in 6 years

UPDATE 3-CN Rail sees 2012 profit at top end of forecast

* CN now expects 2012 diluted EPS to rise 10 pct this year

* Had previously forecast earnings growth of up to 10 pct

* First-quarter earnings rise 16 pct, beating market expectations

* Milder winter, stronger economy help boost earnings, forecast

April 23 (Reuters) - Canadian National Railway said on Monday its full-year earnings would come in at the top end of an earlier forecast after a mild winter and improving economy helped it lift first-quarter earnings by 16 percent, beating market expectations.

After adjustments, CN, Canada’s biggest railroad, now expects diluted earnings per share to rise by 10 percent for all of 2012, up from diluted EPS of C$4.84 for 2011.

Previously CN forecast an increase in earnings of up to 10 percent this year. The railroad, which competes with Canadian Pacific Railway, also raised its full-year cash flow forecast to C$950 million ($954.82 million) from previous guidance of C$875 million.

“The first quarter was solid. The second quarter is starting out on a very solid footing. Our results are lining up to help us deliver a very strong year. If the economy stays with us, 2012 should be a banner year,” said CN President and Chief Executive Claude Mongeau on a conference call.

CN’s net income for the first three months of 2012 rose to C$775 million ($778.93 million), or C$1.75 a share, from C$668 million, or C$1.45, in the same period of 2011, CN reported.

Excluding certain items, EPS came in at C$1.18 a share, well ahead of analysts average expectations of C$1.03 a share, according to Thomson Reuters I/B/E/S.

The results “were very, very good,” said BMO Capital Markets analyst Fadi Chamoun.

“It is the combination of very strong operations, helped by a mild winter. They had very strong revenue growth,” Chamoun said, highlighting an 18 percent increase in revenues from coal shipments.

CN’s group revenues increased 13 percent to C$2.3 billion, in line with market expectations. Revenues across the products that it transports, bar grains and fertilizers, rose.

CN’s operating ratio, an important barometer of efficiency in the railroad industry, improved to 66.2 percent from 69 percent in the year-earlier period.

The lower the number, which measures operating costs as a percentage of revenue, the more efficient the operation.

The efficiency of Canada’s two top railroads is at the center of a proxy battle being fought at CN rival CP by activist investor William Ackman and his hedge fund Pershing Square Capital Management. CP’s operating ratio is 80.1 percent, the weakest of North America’s big railroads. CN’s is the strongest.

Ackman wants to replace CP’s chief executive with former CN CEO Hunter Harrison, arguing that Harrison can drive the same productivity improvements at CP as he did at CN. Shareholders will vote on Ackman’s proposed slate of directors May 17.

CN’s results come three days after CP reported quarterly profit quadrupling to C$142 million, helped by the mild winter and after its operations were hard hit by avalanches and heavy snow a year ago.

CN’s shares ended 0.92 percent weaker at C$79.39 on the Toronto Stock Exchange. The results were released after the market close.

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