CN Rail dividend increasing 25 per cent as Q4 profit surges to $844 million

MONTREAL – Canadian National Railway is raising its quarterly dividend by 25 per cent as the country’s largest railway says it expects to profit from the growing U.S. economy and a weaker loonie that should boost Canadian exports.

Chief executive Claude Mongeau said CN expects to increase its profits by more than 10 per cent in 2015 despite the uncertainty over lower oil prices and challenges facing the global economy.

“We believe that the environment is conducive to continue the growth, particularly as we see the impact of lower oil prices on consumer income and the North American and U.S. economy that we are leveraged to,” Mongeau said during a conference call after markets closed.

The railway also plans to increase its capital spending by about $300 million to $2.6 billion. Spending includes the purchase of 90 locomotives, up from 60 bought in 2014.

The railway says its quarterly dividend will be increased to 31.25 cents per share from 25 cents for the biggest annual increase in the 20 years since the railway was privatized.

The dividend increase came as CN said its profit surged by nearly a third to $844 million in the fourth quarter. That amounted to $1.03 per diluted share for the period ended Dec. 31, up from $635 million or 76 cents per share a year earlier.

Revenue was up nearly 17 per cent at $3.2 billion.

The Montreal-based railway said crude shipments increased more than 40 per cent in the fourth quarter to 34,000 carloads, raising the total for the year to 128,00 carloads. That’s the most of any North American railway.

CN expects total crude and frac sand carloads will increase by 75,000 from 217,000 in 2014 to 292,000 in 2015.

“Our energy markets are continuing to grow even though, perhaps, at a slightly lesser pace than the last few quarters, but clearly overall (there’s) good scope for growth if the economy holds,” Mongeau told analysts.

The railway (TSX:CNR) was expected to earn 97 cents per share in adjusted profits on $3.1 billion of revenues, according to analysts polled by Thomson Reuters.

CN said its operating ratio, which tracks operating expenses as a percentage of revenue, declined 4.1 percentage points to 60.7 per cent, a measure of efficiency in which lower is better.

The railway’s full-year operating ratio improved by 1.5 points to 61.9 per cent, a record low for the company.

The railway moved record volumes in 2014 thanks in part to robust shipments of Canadian and U.S. grain, along with crude and energy products. Carloads were up eight per cent to 5.6 million while revenue ton-miles increased 10 per cent.

It expects North American industrial production will grow by three to four per cent in 2015, with total carloads increasing by the same rate.

For the full year, it earned $3.17 billion or $3.85 per diluted share on $12.1 billion of revenues. That compared with a profit of $2.61 billion or $3.09 per diluted share on $10.58 billion in revenue in 2013.

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Note to readers: This is a corrected story: A previous version gave an incorrect forecast figure for crude and frac sand carloads