MONTREAL - A transportation analyst says Canada's two large railways outperformed their U.S. rivals in the fourth quarter with freight volumes rising 2.6 per cent on strong intermodal, agricultural products and chemicals carloads.
Walter Spracklin of RBC Capital Markets said American railroads sustained a 1.8 per cent volume decrease on challenging coal markets.
While the volume trends were in line with guidance provided by the railways in the third quarter, Spracklin is raising his earnings forecast for Montreal-based Canadian National Railway (TSX:CNR) by four per cent to $1.45 per share on superior volume trends.
CN had the highest volume growth of all Class 1 railroads in the quarter, rising 3.4 per cent, or 8.4 per cent on an RTM (revenue per ton) basis.
Spracklin expects CN will target high-single digit earnings growth in 2013.
It has forecast that 2012 adjusted diluted earnings by share will grow by up to 15 per cent over the $4.84 earned in 2011. It also expects to generate about $1 billion of free cash, taking into consideration a potential $250-million additional voluntary pension contribution in the fourth quarter.
He also boosted his target price for CN by $1 to $93 per share on the expectation that it will retain volume in fiscal 2014 that he had expected to be recouped by Canadian Pacific Railway (TSX:CP).
Spracklin lowered his EPS forecast for CP last month by three per cent to $1.26 per share and says volume trends in the fourth quarter failed to meet the company's forecasts.
He says CP's volumes were up 1.1 per cent in the quarter on strong chemicals growth and modest volume growth in four of seven other segments. However, it sustained "notable" declines in forest products, metals and minerals.
The speed of its trains increased by 2.2 per cent in the quarter, the lowest increase in the year.
On the Toronto Stock Exchange, CN's shares were unchanged at $90.57 while CP's shares lost 69 cents at $105.39 in midday trading.