TORONTO - Canadian National Railway Co., often seen as an economic bellwether, says the signals are unclear on whether market conditions are improving, refraining to declare a bottom to the downturn, according to the Toronto Globe and Mail.
CN executives cautioned yesterday that volumes remain weak in a variety of categories, including shipments of autos, forest products, coal, petroleum and metals.
Still, the company overcame declining traffic and benefited from lower fuel bills to post a strong first-quarter profit, and says its cargo volumes are positioned to prosper when the economy does rebound.
Traffic volumes, as measured by "revenue ton miles," fell an average of 14 per cent in CN's first quarter from the same period in 2008.
But the Montreal-based railway's first-quarter profit rose 36 per cent to $424 million, helped by the one-time gain of $135 million from the sale of a Toronto-area rail corridor. Excluding that gain and other items, CN's share profit of 64 cents still slightly exceeded analysts' expectations.
A drop in the cost of powering locomotives helped, with first-quarter fuel expenses falling to $182 million from $310 million.
The start of 2009 went relatively smoothly on the rails, with better winter conditions than the first quarter of 2008, when CN took the rare step of halting its trains in Western Canada for two days in January because it was too cold to safely haul freight.
In this year's first quarter, CN had a 74.1 percent operating ratio (a key indicator of productivity that measures operating costs as a percentage of revenue), up from 72.9 percent a year earlier. A lower operating ratio is better.
Amid a recession that has hurt North American railways, CN saw its first-quarter revenue dip 4 percent to $1.86 billion. In the first 14 weeks of this year, North American freight carriers' carloads have tumbled 17.7 percent.
"We're well positioned to weather this storm," said CN chief executive officer Hunter Harrison, who is set to retire later this year. "I am very encouraged, even in this environment."
Mr. Harrison and CN chief financial officer Claude Mongeau said the railway will be keeping a tight rein on expenses, including reduced overtime bills and operating with fewer staff.
At the end of March, CN had 22,083 employees, down 620 people or 2.7 percent from a year earlier. Employees are being asked to take vacation time, where possible, to help with the balance sheet.
"So far, we have been able to avoid any massive layoffs," Mr. Harrison said. "To some degree, our employees are very appreciative that we're trying to do what we can to take care of our own, to the extent we can."
Mr. Mongeau said CN's pension plan is in good shape, but may be headed toward a "technical solvency deficit," depending on whether the federal government relaxes rules on pension calculations.
As to the economy, he said there are mixed signals on how long the economic downturn will last, but it appears "the contraction may still have some distance to go."
It's difficult to read the economic future, he said, adding that the U.S. economy may be experiencing its worst recession since the early 1980s.
(This item appeared April 21, 2009, in the Globe and Mail.)
