CN lowers guidance as 2nd quarter profit slips 29%

CN lowers guidance as 2nd quarter profit slips 29%    Canadian National Railway Co. Monday lowered its full-year expectations after experiencing weather and labor challenges, a strengthening Canadian dollar, and “continued pockets of economic weakness.”
   The railroad said these factors all contributed to a 29 percent drop in second quarter net income to C$516 million ($487 million), down from C$729 million in the same period last year.
   Last year’s result was aided by C$250 million ($226 million) tax recovery primarily from the enactment of lower federal and provincial corporate tax rates in Canada. The latest quarter included a deferred income tax recovery of C$30 million ($29 million).
   The company’s quarterly operating income and revenue both increased 1 percent to C$811 million ($766 million) and C$2.03 billion ($1.91 billion), respectively.
   After six months, CN reported net income of C$840 million ($793 million), down 23 percent from C$1.09 billion in the first half 2006. CN’s operating income for the period decreased 4 percent to C$1.37 billion ($1.29 billion) while revenue increased 1 percent to C$3.93 billion ($3.71 billion), achieved mainly because of higher freight rates and an overall improvement in traffic mix.
   CN said its small gain in first half revenue was largely offset by the impact of a first quarter United Transportation Union strike — which it said reduced its first half net income by C$35 million ($34 million) — adverse weather conditions in the first quarter, operational challenges, primarily in western Canada, lower fuel surcharge revenues as a result of a decrease in crude oil prices, weakness in specific markets, particularly forest products, and the translation impact of a stronger Canadian dollar on U.S. dollar-denominated revenues.
   CN now expects full-year, adjusted diluted earnings per share growth of about 5 percent, compared with an earlier growth forecast of more than 10 percent. This outlook assumes that economic growth in North America will accelerate in the second half of the year and that crude oil prices (West Texas Intermediate) will settle around $70 per barrel, and the Canadian/U.S. exchange rate will remain around 95 cents.
   “CN performed well in light of a number of market-related and operational challenges in the second quarter of 2007, including the shutdown of our line to Prince Rupert as a result of a June flood, ongoing weakness in the forest products sector, and two illegal blockades of our Toronto-Montreal main line. Amid these challenges CN's automotive, petroleum and chemical, and grain and fertilizer business units performed well,” said E. Hunter Harrison, CN’s president and chief executive officer.
   “Looking forward, CN anticipates stronger intermodal volumes following the October start-up of the new Prince Rupert, B.C., container terminal for Asian traffic. And we expect our new operations team to make the most of the significant opportunities available to us in economically vibrant and resource-rich western Canada.”
   Meanwhile, CN’s board of directors has authorized a plan to buy back up to 6.6 percent of its shares.