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CN showed a profit of $717-million, or $1.69 a share, in the second quarter of 2013, surpassing analysts’ expectations.

Graham Hughes/CP

Canadian National Railway Co. is moving full-speed ahead on transporting oil by rail – a key growth area of its business – despite safety concerns raised by the recent deadly rail crash in Lac-Mégantic, Que.

In light of the disaster, CN is reviewing all its safety procedures, chief executive officer Claude Mongeau told analysts on a conference call after the release of the company's second-quarter results Monday. CN reported a 14-per-cent jump in earnings, as oil-by-rail revenue surged 150 per cent amid relatively weak growth in some other areas.

Mr. Mongeau said CN hopes to learn as much as it can from the derailment, even though it was not involved in any way. "I have initiated a fact-based and rigorous assessment, with a view to further improve our solid safety record," he said.

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CN rival Canadian Pacific Railway Ltd. moved this month to overhaul its own safety procedures.

Mr. Mongeau said CN had experts in safety, dangerous goods, and environmental issues on the site of the disaster from the beginning, in order to help. They will also contribute to CN's review of its own safety policies. It it still not clear exactly what happened in Lac-Mégantic, he said, and he hopes there is careful analysis before regulators make decisions about shaping safety policies.

"We feel that our train securement policies are robust, but we are nevertheless reviewing them in light of the accident," he said.

The disaster in Lac-Mégantic left more than 40 people dead when a runaway train carrying 72 cars of crude oil, operated by the regional Montreal, Main & Atlantic Railway, derailed.

Last Friday, the Transportation Safety Board of Canada asked Transport Canada, which sets rail regulations, "to review all railway operating procedures to ensure that trains carrying dangerous goods are not left unattended on a main track."

CN's strong earnings report Monday was partly thanks to dramatically rising oil shipments. CN showed a profit of $717-million, or $1.69 a share, in the second quarter of 2013, surpassing analysts' expectations. The profit was a sharp increase from the year-earlier period, when CN posted profit of $631-million, or $1.44.

Revenue rose 5 per cent in the quarter, to $2.66-billion, and the biggest gain came from moving petroleum and chemicals. In that category, revenue was up 17 per cent. But revenue from transporting crude by rail was up an astonishing 150 per cent in the quarter, hitting nearly $100-million, executive vice-president Jean-Jacques Ruest told analysts.

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CN executives said the company is in talks with large oil producers and refiners, mainly in Alberta, about building new terminals that can more efficiently transfer crude oil to large unit trains.

Some terminals are also being built so that heavy crude can be transported by train without having to add the diluent that allows it to be moved by pipeline, Mr. Mongeau said. In that case, different kinds of tank cars are needed, so the investment is significant, he said.

Despite these potential gains in the markets for moving oil, Mr. Mongeau said CN is expecting a bit of a "soft patch" in its markets in the third quarter of this year, because of weakness in grain and coal shipments as the commodity boom cools. But by the end of the year its overall business will have improved, he said.

In the second quarter, revenue from shipments of grains and fertilizers was up 5 per cent, metals and minerals rose 4 per cent, and forest products rose 4 per cent. The only weak numbers were from shipping coal, where revenue was flat, and the automotive sector, where revenue fell 3 per cent.

One factor that has helped CN's profit is that the company has become adept at controlling costs. Its operating ratio – the percentage revenue that is taken up by costs, and a key measure of efficiency – improved slightly to 60.9 per cent in the second quarter compared with 61.3 per cent in the same quarter of 2012.

CN shares are not far off their 52-week high of $107.57, having closed Monday at $105.06, down 49 cents on the day. A year ago they were trading in the $87 range.

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About the Author
Reporter, Report on Business

Richard Blackwell has reported on Canadian business for more than three decades. At the Financial Post and the Globe and Mail he has covered technology, transportation, investing, banking, securities and media, among many other subjects. Currently, his focus is on green technology and the economy. More


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