* Says economy improving; company turning corner
* Hikes dividend 7 pct; announces share buyback
* Q4 adjusted EPS C$0.90 vs year-earlier C$1.12 (Recasts with conference call)
VANCOUVER, Jan 26 (Reuters) - Canadian National Railway Co (CNR.TO) (CNI.N), witnessing a revival in the economy after a bruising year of weak freight volumes, is aiming for an increase of at least 10 percent in earnings this year, the company said on Tuesday.
Canada’s biggest railway, which earlier in the day posted a 20 percent drop in adjusted fourth-quarter net income, said the worst was behind it and it was targeting double-digit growth in diluted earnings per share in 2010 on the back of a gradual economic improvement.
“We have turned the corner in the last quarter ... in terms of year-over-year growth. That is continuing into January,” CN Chief Executive Claude Mongeau said.
“If the economy stays on track, we should be able to grow earnings and deliver solid free cash flow,” said Mongeau, presenting his first set of results since taking over as CN’s CEO this month.
Mongeau said CN’s confidence that the economy is rebounding was behind Tuesday’s announcement of a 7 percent hike in the quarterly dividend to 27 Canadian cents, and a share buyback.
CN, which operates in Canada and the United States, said it planned to buy back up to 15 million of its shares this year, equal to 3.2 percent of common stock issued.
A possible headwind to the company’s optimistic outlook is the expected appreciation this year by the Canadian dollar against the U.S. currency, which depresses CN’s U.S. dollar-denominated earnings when they are converted to the Canadian currency.
Earlier on Tuesday, CN posted a 20 percent drop in quarterly net income from operations, hurt by a five-day strike, weather disruptions and a stronger Canadian dollar.
Net income fell to C$424 million ($400 million), or 90 Canadian cents a share, in the three months ended Dec. 31. That excluded an after-tax gain of C$59 million, or 12 Canadian cents a share, from a rail line sale.
The earnings compared with adjusted net income of C$531 million, or C$1.12 a share, a year earlier and were in line with analysts’ forecasts.
Revenue was 14 percent lower at C$1.88 billion.
If the sale of a Toronto area line to Metrolinx, a regional transport agency, is included, net income in the fourth quarter increased by 2 percent to C$582 million, or C$1.23 a share.
During the quarter, CN’s carloadings were flat year-over-year, but up 4 percent from the third quarter. Volumes of coal, automotive, grain and fertilizers, and petroleum and chemicals all rose in the final quarter of 2009.
Locomotive engineers working for CN in Canada went on strike for five days in late November after the company unilaterally imposed a contract on them.
Mongeau said the strike cost the railway C$10 million.
Both sides agreed to resume talks, but in mid-December submitted unresolved wage and benefit issues to binding arbitration after failing to find common ground.
CN shares ended at C$55.68 on the Toronto Stock Exchange on Tuesday, up 32 Canadian cents. Year-to-date, the stock is down about 3 percent. The company released its results after the market closed.
$1=$1.06 Canadian Reporting by Nicole Mordant; editing by Rob Wilson