Canadian National Railway Corporation (



Q3 2010 Earnings Call Transcript

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October 26, 2010 4:30 pm ET


Robert Noorigian – VP, IR

Claude Mongeau – President and CEO

Keith Creel – EVP and COO

J.J. Ruest – EVP and Chief Marketing Officer

Luc Jobin – EVP and CFO


Scott Group – Wolfe Research

Bill Greene – Morgan Stanley

Jason Seidl – Dahlman Rose & Co.

Cherilyn Radbourne – TD Newcrest

Michael Weinz – JP Morgan

David Newman – National Bank Financial

Chris Ceraso – Credit Suisse

Walter Spracklin – RBC Capital Markets

Tim Axtell [ph] – Banc of America

Gary Chase – Barclays Capital

Benoit Poirier – Desjardins Securities

Fadi Chamoun – BMO Capital Markets

Jeff Kauffman – Sterne, Agee & Leach



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Welcome to the CN third quarter 2010 financial results financial results conference call. I would now like to turn the meeting over to Mr. Robert Noorigian, Vice President Investor Relations. Ladies and gentlemen, Mr. Noorigian

Robert Noorigian

Thank you for joining us for CN’s Q32010 financial results. I would like to remind you again about the comments that have already been made regarding forwarding looking statements. With us to today is Claude Mongeau our President and Chief Executive Officer, Luc Jobin – Executive Vice President & Chief Financial Officer, Mr. Keith Creel, Executive Vice President & Chief Operating Officer and J.J. Ruest – Executive Vice President & Chief Marketing Officer

After the presentation we'll take questions from those of you who are listening on the call. Could you please identify yourselves when you are asking the questions in order to be fair to everybody that’s there, could you please limit yourself to one question with one follow up. It is now my pleasure to introduce Mr. Claude Mongeau, our President and Chief Executive Officer. Claude?

Claude Mongeau

Thank you, Bob. And thank you to all of you for joining up on this call. We're very, very pleased to announce our third quarter results. They are good results. We are pleased that we were able to drive a significant volume growth and significant top line growth. If I measure it on constant currency basis, our revenues are up 18%.

J.J. will give you the contour of that growth later, but pretty across the whole book of business we've been making inroads and taking advantage of the economic recovery, but we're also making inroads in terms of our ability to serve our customers and grow faster than what the economy would give us by getting more of their discretionary business.

So, that's solid growth that has been accommodated as low incremental cost. Keith and his team are doing a wonderful job to handle the business creating flexibility to improve service but also maintaining our high level of efficiency and continuing to make progress in terms of productivity and this is what helped us drive a very good operating ratio, our third quarter operating ratio was 60.7 which is 2 point improvement over last year.

In terms of earnings, solid earnings up 25 –27% on an adjusted basis, Luc will give you some of the details of how we were able to drive this performance, but this is the third quarter in a row where we're able to show leverage and show solid performance on an earnings standpoint and free cash flow standpoint.

Year-to-date your – that's $938 million of the free cash flow and that’s despite the fact that we have made a contribution to our – voluntary contributions to pension plan which Luc will explain to you in a minute. So, clearly from a financial standpoint very solid results and I'd like to say just a few words to give you an update on what we're trying to move forward in terms of our strategic agenda, with a particular emphasis on service excellence.

There was a lot of milestones achieved during the quarter in terms of supply chain collaboration you may have followed us that we've been able to finalize the basically across Canada (inaudible) all of the major Canadian ports now have a supply chain agreement. And I'm also pleased to report that we have service level agreements with all of the key container terminal operator in all of those major ports across Canada.

We're leveraging the value that comes with those service level agreements in terms of visibility and end-to-end focus one box at a time. We're fixing issues and addressing bottlenecks on an on-going basis pretty daily with the benefit of these score cards that we've put together with our partners. And it's really helping us to improve our performance in terms of the overseas business you've seen the results of that over the last several months, that’s again the third quarter and J.J. will give you the detail. We have very good growth in terms of our overseas business.

Our end-to-end approach is also showing significant benefit in the bulk side. We've had good performance in terms of our new scheduled grain performance but also very, very good performance in moving Canadian coal to the West Coast in record level. So, we call it our mine-to-shift supply chain approach and it's clearly paying dividends.

In the merchandise side, similar story, a couple milestones we've introduced our new car order process which givers flexibility to our customers, we are using that flexibility to gain opportunities one car load at a time whether it's in steel or forest product we are able to respond quickly and have higher fulfillment rate which is helping service to our customers but importantly it is helping CN capture more business and given that every carload counts it is helping us having the top line grow little faster than what the general economy would have given us.

So all of these service initiatives are core to our strategic agenda, we have said we would be working on those when we met with you in – at our Analysts Meeting in May or early June. And we are delivering on them one step at a time. And it's a positive story over all.

With that, I will turn it over and Keith will give us a run down on our operations.

Keith Creel

Yeah, thank you, Claude. Let me start by recognizing and thanking the best operating team in the industry that I'm honored to lead again for delivering a strong operating performance this quarter, you know, since Cliff Paul laid out our CN 2010 Vision three quarters ago, this team continues to leverage our operating model focusing on delivering meaningful results which we're basing on service innovation, and point engagement, growth absorption, and a constant pursuit of safety excellence.

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