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There’s been no escaping the generally downbeat cast to Class Is’ quarterly teleconferences during the past few quarters, particularly when traffic totals and revenue figures were delivered. For a while there, the only discussion of “up” came when rail execs reiterated their big-picture beliefs (“The fundamentals haven’t changed. We believe in rail, we believe in this franchise.”) or analysts asked them if they actually were looking up (as in “You’ve hit bottom, so …”)

Now that many economists and rail execs seem to believe that we’ve not only hit bottom but perhaps even are inching (and not just looking) upward, the tenor of Class Is’ third-quarter teleconferences could be downright upbeat. CN’s certainly was yesterday.

In addition to its congratulatory overtones — one analyst after another offered well wishes to E. Hunter Harrison, who’ll retire as CN president and chief executive officer at year’s end — the teleconference was decidedly hopeful, thanks in part to the confidence Harrison and his colleagues execs exuded during the 75-minute session.

“This is a pretty good quarter to finish on,” as Harrison put it. “It’s been a great run.”

That said, the Q3 revenue figures are what they are. Net income declined to $440.2 million, or 93 cents per diluted share, from year-earlier net income of $527.3 million, or $1.11 per diluted share, largely as a result of lower freight volumes stemming from “depressed North American and global economies,” according to a prepared statement. Meanwhile, revenue declined 18 percent to $1.76 billion, carloads declined 15 percent and revenue ton-miles declined 11 percent. The year-over-year increase in the U.S. dollar relative to the Canadian dollar also affected the conversion of CN’s U.S.-dollar-denominated revenues and expenses, increasing third-quarter net income by $14.3 million.

“The third quarter … was another challenging one for CN, with significant weakness across markets affecting our freight volumes,” Harrison said.

There was better news on the operating front. Operating expenses declined 18 percent to $1.1 billion, reflecting lower year-over-year fuel prices and cost-containment measures in response to lower traffic. Operating income declined 18 percent to $657.9 million, while the operating ratio was essentially flat at 62.7.

“The CN team continued to focus on cost containment and productivity improvements during Q3-2009, and the team delivered,” Harrison said. “We made solid operational gains — system train speeds improved again, rising 11 percent year-over-year, while the average dwell time for freight cars in our classification yards across the railroad declined by 9 percent from a year earlier. Equally important, our accident rate improved by 8 percent over the same period of 2008.”

In their respective takes on the Class I’s near-term outlook, the teleconferencing execs — Harrison, Executive Vice President Claude Mongeau, EVP and Chief Financial Officer Luc Jobin and EVP Sales and Marketing James Foote — all said they expect CN to post better numbers, possibly even in the next quarter.

“It appears that several of our markets may have hit bottom,” Harrison said. “Our productivity gains during 2009 position us well for the eventual recovery in traffic.”

Expect the productivity improvements to continue, especially as business picks up, added Mongeau, who earlier in the day was appointed as a CN board director. Mongeau will succeed Harrison as president and CEO on Jan. 1, 2010.

“We’ll have the volume increases working for us,” he said. “Hunter and I have a deal: He told me he would come out of his grave if we don’t continue to post improvements.”


— Pat Foran