CN’s Q1 grain handle drops

Improved revenue and profits in Canadian National Railway’s first three months of 2012 came from nearly all its business segments except grain and fertilizers.

Montreal-based CN on Monday reported net income of $775 million on $2.346 billion in revenues for its first fiscal quarter ending March 31, up from $668 million on $2.084 billion in the year-earlier Q1.

Higher operating expenses, in particular a 15 per cent increase in the railway’s fuel bill to $376 million, were covered by more carloads in all CN’s business segments — except for coal and the grain/fertilizer handle — and by higher revenue in all segments except grain/fertilizers.

Grain and fertilizer carloads were down 11 per cent at 143,000, while grain and fertilizer revenues were down two per cent at $397 million, for revenue per carload of $2,776, up nine per cent.

"While CN benefited from a milder winter and improving economic conditions, our very solid first-quarter results underscore that our strategy is working," company CEO Claude Mongeau said in a release Monday.

Improved gross revenue stemmed from "continuing improvements in North American and global economies" but also from a higher fuel surcharge and freight rate increases, the company said.

The improved ledger helped spur CN to announce a "positive revision" to its 2012 financial outlook, in which it now expects to deliver "a full 10 per cent growth" this year in diluted earnings per share, despite "significant headwinds" from added pension expense of about $100 million compared to 2011.

Among its assumptions for that outlook, CN said it continues to assume the 2012-13 grain crops in both Canada and the U.S. will be "in line with five-year averages.

"With respect to the 2011-12 crop, U.S. corn and soybean production is projected to be slightly below — and exports are projected to be significantly below — the prior year’s crop. Canadian 2011-12 grain production and export forecasts are projected to be moderately above the prior year’s crop."

"Breach"

CN’s Q1 also included a decision by its board to cut off $1.5 million in annual retirement benefits and a planned payout of about $18 million in restricted stock units for the company’s retired CEO, Hunter Harrison.

Harrison has been put forward by the largest shareholder in CN’s rival Canadian Pacific Railway, New York investment firm Pershing Square Capital Management, as its choice to replace CP CEO Fred Green if it wins an upcoming proxy battle to oust Green.

CN noted recent statements by Harrison and by Pershing Square "to the effect that (Harrison) has developed a strategic plan for the operation of (CP) to make it a stronger competitor" against CN.

CN reiterated Monday it "reasonably believes that any such strategic plan would necessarily draw upon (CN’s) confidential information, which would constitute a clear and material breach" of Harrison’s employment agreement with CN, which includes non-compete and non-disclosure agreements.

Pershing Square’s bid to bring Harrison over to CP comes to a head on May 17 in Calgary, when the firm puts forward its slate of directors for election to CP’s board.

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