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As expected, severe winter weather and a contentious strike certainly did a number on Canadian National Railway Co.’s first-quarter numbers. Yesterday, the Class I reported:

• Diluted earnings per share of $0.56, down 5 percent from year-earlier earnings per share of $0.59.

• Net income of $289.1 million, a decline of 10 percent from first-quarter 2006 net income of $323.1 million.

• Revenue of $1.70 billion, a slight increase of $8 million compared with first-quarter 2006’s $1.69 billion.

• An operating ratio of 70.6, a 3.5-point increase from the same 2006 period.

“The first three months of 2007 were very challenging for CN, as we announced in our media release of March 29,” said President and Chief Executive Officer E. Hunter Harrison in a prepared statement. “Our results for the quarter were affected by unusually difficult winter weather in Western Canada during January and February, a work stoppage by conductors and yard-service employees across Canada in February, and then avalanches and landslides in Western Canada that blocked our main line to and from Vancouver in March."

The headline-hogging United Transportation Union (UTU) strike reduced first-quarter operating income by $44.6 million, and net income by $31.2 million, or seven cents per diluted share, CN estimates.

Meanwhile, the essentially flat revenue reflected freight rate increases, an overall improvement in traffic mix driven principally by extended routings for certain forest products traffic, and the translation impact of the weaker Canadian dollar on U.S. dollar-denominated revenues. Even so, the increase was partly offset by the effect of the UTU strike, the weather, weakness in specific markets, and lower fuel surcharge revenue resulting from a decrease in crude oil prices.

Also, CN’s operating expenses increased by 6 percent to $1.2 billion, primarily due to increased casualty and other expenses, equipment rents, and purchased services and material expenses, which were partly offset by lower labor and fringe benefit expenses. And the Class I’s revenue ton-miles declined 3 percent. But rail freight revenue per revenue ton-mile increased by 4 percent compared with the 2006 period.

Bottom line: Consider the quarter a short-term blip that has the potential to serve as a long-term learning lesson for CN strategists and rank-and-filers alike, Harrison told analysts during an April 23 teleconference.

“This was by far the most challenging first quarter I’ve experienced in my 40-plus year career … but overall, I’m really pleased,” he said. “We’re already back to where we were when this all started about Thanksgiving last year. … The [performance] metrics are setting daily records. And we’ve learned a lot. My outlook is as positive as it’s ever been.”