COMPETITION WATCH: Forestry drags down CNs third quarter revenues

MONTREAL, Que. — CN has reported essentially flat revenues for the third quarter of 2007, as several of the companys commodity groups helped to offset significant weakness in forest products.

Revenues came in at C$2,023 million for the quarter ending Sept. 30, with a net income of C$485 million including a C$14 million benefit from favourable tax adjustments. Net income was down 2% from the same quarter of 2006.

Operating income declined 9% to C$768 million, while CN’s operating ratio increased by 3.5 points to 62%.

“CN’s third-quarter results are a solid achievement given the challenges we faced during the period, said E. Hunter Harrison, CN president and CEO. Revenues in our forest products segment – CN’s largest commodity group by revenue – declined 13% as a result of weak market conditions and mill closures, the impact of a stronger Canadian dollar and lower fuel surcharge revenues.

“The stronger Canadian dollar not only affected forest products but also our other businesses, Harrison continued. Clearly, few of us expected that the Canadian dollar would surge beyond parity with the US dollar during the quarter. Despite these challenges, we are fortunate to have a diversified portfolio of businesses and we were able to register volume and revenue growth in Canadian coal, grain and fertilizers, petroleum and chemicals, and automotive.

Harrison is anticipating continued weak market conditions in a number of segments, particularly forest products and construction materials. He also predicts a continued struggled with the exchange rate because of the surging Canadian dollar.

However, as a result of anticipated gains from the closing of our Central Station Complex and English Welsh and Scottish Railway transactions during the fourth quarter, CN expects to achieve full-year 2007 diluted earnings per share growth of about 5%, Harrison said. Excluding these transaction gains, 2007 adjusted diluted earnings per share are expected to be flat versus 2006.

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