CN Rail raises growth forecast

CN Railon Wednesday reported higher net profit of $631 million for the second quarter and a 13 per cent increase inrevenues, adding it expects increased growth for the rest of the year.

Canada's largest railway had $1.44 earnings per diluted share, compared to year-earlier net income of $538 million, or $1.18 per diluted share.

Revenues increased 13 per cent to $2.54 billion for the quarter over the same period in 2011.

The operating ratio a key performance metric in the railroad industry that calculates the percentage of revenues spent to operate the railroad was 61.3 per cent, unchanged from the year-earlier.

"I think our second quarter results showed a lot of strength," chief executive Claude Mongeau told analysts on a conference call.

CN Rail revised its financial outlook upward for 2012, saying it will deliver up to 15 per cent growth in adjusted diluted earnings per share for the year despite an additional pension expense of approximately $100 million. That compares with CN's April outlook calling for 10 per cent growth in 2012 adjusted diluted EPS.

The Montreal railway also said it will generate free cash flow of approximately $1 billion, compared with April's outlook calling for free cash flow of $950 million.

But Mongeau did acknowledge that there could be an economic slowdown in the United States in the second half of this year and said he's also keeping an eye on China's economy.

Excluding grain and fertilizers, CN says it registered solid traffic increases in every commodity group in the second quarter and noted the increases were due to economic growth, market share gains and a short strike at competitor Canadian Pacific Railway.

Adjusted earnings per share which excluded a net income tax expense of six cents per diluted share came in at $1.50, beating analyst estimates.

Analysts' estimates compiled by Thomson Reuters put revenue at $2.51 billion for the second quarter, and earnings per share were estimated at $1.48.

In comparison, Canadian Pacific Railway Ltd.said a series of expenses, ranging from a nine-day strike in May to management transition costs, contributed toweaker second-quarter earnings.

CP income slips

CP Rail reported net income fell to $103 million, or 60 cents per share, in the three months ended June 30. That compares to a profit of $128 million, or 75 cents per share, a year earlier.

CN's former chief executive Hunter Harrison is now president and CEO of competitor CP Rail.

When asked about Harrison leading CP Rail, Mongeau said he will focus on his own railway.

"We have one franchise to manage, we will have our hands full doing that," he told analysts.

Harrison, 67, is credited with turning CN into North America's most successful railway company a track record lauded by Canadian Pacific's largest shareholder in its push for change at the top.

CN argued during a highly public battle between CP's former leaders and activist shareholder William Ackman that Harrison continued to have contractual obligations to his former employer.

In late June, CN issued a statement congratulating Harrison on his appointment but warning that it won't be dropping a legal battle it launched earlier this year.

CN has said it was concerned that it will be difficult, if not impossible, for Harrison to perform his new duties for CP without drawing upon his broad knowledge of CN's confidential information, which he is not permitted to do.