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For Canadian National Railway Co., fourth-quarter financial results can best be described as a story divided into two tales: overcoming headwinds in the form of a strong Canadian dollar, high fuel prices and weak forest products demand; and riding tailwinds provided by strong coal and intermodal markets, and growing bulk and industrial products opportunities from western Canada's ongoing oil boom.

CN's quarterly revenue decreased 3 percent to $1.9 billion and operating income declined 3 percent to $716 million, but traffic volume rose 5 percent to 1.2 million carloads, net income — including a deferred income tax recovery of $276 million — jumped 67 percent to $811 million and operating expenses dropped 3 percent to $1.2 billion compared with fourth-quarter 2006 totals. In addition, CN's quarterly operating ratio improved 0.1 points to 62.1.

Four commodity groups — intermodal, petroleum and chemicals, metals and minerals, and coal — posted year-over-year revenue gains.

"However, tough market conditions reduced forest products revenues by 19 percent," said CN President and Chief Executive Officer E. Hunter Harrison during the Class I's earnings conference call yesterday, referring to the soft U.S. housing market.

CN rallied despite a Canadian dollar that strengthened throughout the fourth quarter and oil prices that reached $90 per barrel, said Executive Vice President and Chief Financial Officer Claude Mongeau. The railroad's fuel costs jumped up 49 percent, or by $100 million, but labor expenses dropped significantly.

CN also was able to maintain pricing momentum through the quarter, said Harrison. The Class I obtained rate hikes exceeding 4 percent.

For the full year, the railroad's revenue decreased 4 percent to $7.7 billion, operating income declined 5 percent to $2.8 billion, operating expenses increased 2 percent to $4.9 billion and operating ratio went up 1.8 points to 63.6 compared with 2006's totals. Net income increased 3 percent to $2.1 billion.

All in all, it was a relatively good year for CN, which dealt with a weak U.S. housing market, first-quarter labor strike and several weather-related issues, particularly in western Canada, said Harrison.

The Class I's '07 capital expenditures totaled $1.6 billion. In 2008, the railroad plans to spend $1.5 billion, including $1 billion on track projects. CN also will spend $75 million to begin improving the Athabasca Northern Railway Ltd.'s infrastructure as part of an acquisition deal reached last month.

— Jeff Stagl