Canadian National Railway Co Earnings Call Nuggets: Growing Intermodal Business and Ridley Terminals

Canadian National Railway Co (NYSE:CNI) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

Growing Intermodal Business

Jason Seidl – Dahlman Rose: Wanted to circle on some of the growing intermodal business that you have as well as the expansion at Prince Rupert. Can you talk to us how that business can come on throughout 2013 and the impacts on RTM that you expect?

Markets are at 5-year highs! Discover the best stocks to own. Click here for our fresh Feature Stock Pick now!

Claude Mongeau – President and CEO: The answer will be that Prince Rupert is really part of an overall game plan. Rupert, the terminal itself is expanding. There’s a port train coming up sometime this spring, which will be installed. As Keith mentioned, we’ve installed – expanded our long siding on the Rupert Edmonton Winnipeg Corridor and we are anchoring that with new capacity in Joliet and Indiana while this would come out this summer. So, this is a whole effort to connect all these links to by and large and U.S. Midwest import and export as well as take a fair place in Easter Canada, Montreal and Toronto and obviously, this is long haul business and it has a big impact on RTM. From an RTM point of view, the increase, the mix up. I don’t know if that helps or this is what you were looking for.

Jason Seidl – Dahlman Rose: Can you talk about as you expand this, are there any upfront costs in running additional trains or you guys just going to increase your train lengths at Rupert?

Claude Mongeau – President and CEO: I think we are, as we speak, we are running for the last several weeks now, Keith correct me if I’m wrong, we’ve been able to run two trains a day out of Prince Rupert every day for basically – I mean, the last two to three weeks, because there is very, very strong demand. So, these trains are running at train length capacity subject to weather and our siding capacity. So, we’re already running long trains and we hope to run more of them in the future in line with business growth.

Ridley Terminals

Cherilyn Radbourne – TD Securities: I just wanted to ask a question on Ridley terminals actually. It would seem that in a more subdued outlook for domestic coal and export outlook like that that’s got expansion potentially become all of the more strategically valuable. Could you just give us some kind of color on what length of time you think it may take to fill up the additional capacity that’s just been completed up there?

Jean-Jacques Ruest – EVP and Chief Marketing Officer: Well, the terminal today now has a capacity to be tested just roughly 18 million tons. Some of that will be northern BC coal. So it’s related to the production increase in those mines and their success in the marketplace. By and large, its quality met coal, good quality met coal. Then you have some PRB coal, which is moving today throughput, and I think there is a long term future for PRB coal to Asia by the terminal that will exist. Then, as also as you know is the major project in Alberta the first coal project, which is terminal coal, which is three years from now and that’s a major mine that could be up to 10 million, 12 million tons. So in fact, I think the people who run the railway terminal have plan to going from 18 million to 24 million tons because of the outlook they have on coal. Some of those commitments actually are reserved by people – first coal, actually reserve capacity in the future to make sure that they have access to all of it. So there is a business case, therefore a strong coal business.

Cherilyn Radbourne – TD Securities: What’s the ultimate scale of that footprint from a tonnage perspective?

Jean-Jacques Ruest – EVP and Chief Marketing Officer: From 18 it’s 24. From 24 it is – there is also plans in space and land and water logs will get up to 40.

Claude Mongeau – President and CEO: The short term is to get to 18, the mid-term is 24, and I think the – JJ said and he did not mention (indiscernible) difference, since (indiscernible) which is in the pipeline to reopen hopefully sometime in early 2014. So there’s clear visibility to feel that 18 million to eventually 24 million tons capacity, but the layout and all of the component including the road, rail, utility corridor that we are building as we speak because I think they are about to break ground is lined up to eventually expand all the way to 40 million ton if there is demand for it.