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A CN train passes by Dorval station in Montreal in this file photo.

Christinne Muschi/The Globe and Mail

The business of delivering crude oil by rail is proving an increasingly lucrative one for Canada's largest railway.

Canadian National Railway Co. finished 2012 with record revenue, driven by a strong pickup in freight volume and expansion into areas such as delivering oil by rail. Revenue increased 7 per cent in the fourth quarter, marking what the company described Tuesday as a strong year helped by greater commodity traffic and exports. And the results are likely to continue as the economy grows, CN executives said.

"We have been able to outpace the economy with record volumes during the year. Crude obviously is a big area where we outpaced the market," said chief executive officer Claude Mongeau.

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The railway's results largely met analysts' expectations. Fourth-quarter profit was $610-million or $1.41 per diluted share, compared with $592-million or $1.32 a year earlier. For 2012, CN announced a profit of $2.68-billion or $6.12 per diluted share, compared with $2.46-billion or $5.41 for 2011.

The company also announced a quarterly stock dividend increase of 15 per cent, or 43 cents a share.

CN expects "high single-digit growth" this year, due to further improvements in the overall economy and new intermodal and energy freight business outweighing $150-million in increased pension costs and depreciation charges.

National Bank Financial analyst Cameron Doerksen noted that CN characteristically makes conservative predictions at the onset of a new year. But the pension expense is a burden, in addition to expectations of lower free cash flow.

CN executives described a number of aspects working in tandem for the strong earnings, from the 15-per-cent increase in petroleum and chemical revenue in 2012 and intermodal up 11 per cent. Even coal showed a 15-per-cent revenue gain. Efficiency also increased with an improving operation ratio (that is, expenses as a percentage of revenue) of 62.9 per cent for 2012, compared with 63.5 in 2011.

"All of these things adding up is why we significantly outpaced the economy and were able to drive record volumes in 2012. And we were able to bring that to the bottom line and deliver record earnings as well," Mr. Mongeau said.

Rail industry watchers often point to CN and other railways' emphasis on trying to improve service. "The story behind the numbers [is] the collaborative effort they are making with their customers," said W. Scott Timpson, president of the Canadian office of international rail consultant firm Argo. "It's better intelligence about arrival times and schedules to prevent trains from having to park aside for hoursand wasting time on both the carrier side and the customer side."

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CN's Mr. Mongeau has been strongly against new regulation that might intercede in service disputes between railways and freight customers, saying that railways are taking care of those problems. He wouldn't tell analysts Tuesday what financial impact possible new regulation might have on the company.

"We will make this a moot issue by providing good service every day," he insisted during the analysts' conference call.

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About the Author

Guy Dixon is a feature writer for The Globe and Mail. More


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