July 20, 2009 / 8:35 PM / 8 years ago

UPDATE 2-CN Rail profit off 16 pct, sees better second half

* Railway’s CEO says worst of downturn is behind it

* Q2 earnings in line with analyst forecasts

* Sees no fallout from Teck coal decision (Recasts with comments from conference call)

VANCOUVER, British Columbia , July 20 (Reuters) - Canadian National Railway (CNR.TO) reported a 16 percent drop in quarterly profit on Monday but the country’s biggest railroad predicted the worst of the economic downturn was behind it.

“I think we have seen the bottom,” said CN President and Chief Executive Hunter Harrison.

“I am pretty optimistic that the second half will show a better performance than in the first half,” he said on a conference call with analysts.

Harrison said the “most positive sign” was a pick-up in the past seven or eight weeks in intermodal container traffic, especially on the West Coast.

CN earlier reported net income falling to C$387 million ($350 million), or 82 Canadian cents a share, in the second quarter, ended June 30, as a weak North American economy held back freight volumes, especially in its metals and minerals business.

That was down from C$459 million, or 95 Canadian cents a share, in the same period a year earlier.

Excluding a deferred income tax recovery of C$28 million and C$2 million in costs related to a recent acquisition, profit came in at C$361 million, or 76 Canadian cents a share.

Analysts, on average, had forecast a profit before items of 75 Canadian cents a share, according to Reuters Estimates.

Revenue at CN, which operates in Canada and the United States, fell 15 percent to C$1.78 billion, below the C$1.87 billion analysts had expected.

Revenue ton miles, a measurement of the relative weight and distance of the freight transported, was down 14 percent from the year-ago period.

Operating expenses fell by 14 percent to C$1.2 billion in the quarter, reflecting a drop in fuel prices and cost-containment measures in response to lower traffic.

Harrison said CN had started to move coal for Teck Resources Ltd TCKb.TO on July 10, within days of a surprise announcement that Teck will switch some of its export-bound traffic from Canadian Pacific Railway (CP.TO) after an arbitrator’s decision on a rail rate dispute.

“We are happy to be moving coal for Teck. The rate is very consistent with other rates we have in place to move coal,” Harrison said.

He declined to be drawn on whether more business could be in the offing from Teck or whether there had been any “retaliation” from CP Rail, CN’s arch rival.

“No, I am not worried about retaliation... This is a competitive world. It is our responsibility to be out there and be competitive,” he said.

Shares of CN rose 61 Canadian cents, or 1.2 percent, to C$49.49 on the Toronto Stock Exchange on Monday. The results were released after the market closed.

Asked if he had any unfinished business to accomplish before he steps down and hands the reins to Chief Financial Officer Claude Mongeau at the end of the year, Harrison said:

“We are positioned for a smooth transition. I don’t think there is any trash I am leaving behind.”

$1=$1.11 Canadian Reporting by Nicole Mordant; editing by Rob Wilson

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