The Canadian economy is highly dependent on natural resources, and when conditions in the commodity turned sour in 2015, shares of Canadian National Railway (NYSE:CNI) took a major hit. However, over the past year, Canadian National has done a good job of bouncing back from the difficulties it suffered and making the most of the tough environment. Coming into Tuesday's fourth-quarter financial report, CN investors were hoping for signs of further recovery, and Canadian National's results showed the progress that the railroad has made. Let's look more closely at the latest from Canadian National and what it means looking forward to 2017.

Cni Prince Rupert
Image source: Canadian National Railway.

Canadian National steams ahead

Canadian National Railway's fourth-quarter results were encouraging. Revenue rose by 2% to C$3.22 billion, which was just shy of what most investors were looking to see. However, net income climbed 8% to C$1.02 billion, reaching a new record. That produced adjusted earnings of C$1.23, and that was C$0.02 better than the consensus forecast among those following the stock.

Looking more closely at the numbers, Canadian National's success came from a number of areas. The railroad attributed its sales gains to strength in the Canadian grain market, as well as soybean transport from the U.S., refined petroleum products, finished vehicles, and petroleum coke. However, weakness in crude oil, U.S. thermal coal, and drilling pipe weighed on revenue. CN enjoyed freight rate increases, but fuel surcharges were lower. Revenue from grain and fertilizers jumped 14% from year-ago levels, while declines of 6% for coal and for the metals and minerals segment led decliners.

From an operational standpoint, the company had a mixed performance. Car loadings for the quarter rose 3% to 1.37 million, and revenue ton-miles were up 4% from year-ago levels. However, rail freight revenue per revenue ton-mile fell 3%. Also, higher casualty and other expenses sent operating expenses up 1% for the quarter, although cost-management initiatives and productivity gains had the effect of keeping expenses down somewhat.

For the full year, CN's results weren't quite as pretty. Sales dropped 5% to C$12.04 billion, as coal, metals and minerals, and petroleum and chemicals all suffered double-digit percentage revenue declines. Car loadings were down 5%, and revenue ton-miles fell 5% as well. Still, Canadian National had good performance on its operating ratio, which fell to 55.9% in 2016, improving by more than two percentage from 2015's figures.

CEO Luc Jobin was happy with the results. "Despite facing difficult winter conditions in December," Jobin said, "CN delivered very strong fourth-quarter results and throughout 2016 demonstrated once again its ability to perform well in a mixed economic environment." The CEO noted that volume weakness didn't stop the railroad from adjusting to maximize efficiency and deliver high-quality service.

What's next for Canadian National?

Looking ahead, CN remains optimistic about its future. Jobin acknowledged that the economy remains "challenging" but believes that the railroad will see modest volume growth in 2017.

The question is whether investors will be satisfied with the extent to which Canadian National keeps rebounding. The company gave guidance for earnings-per-share growth in the mid-single digit percentage range for 2017, compared to its final figure of C$4.59 per share for 2016. The current consensus forecast among investors is for an earnings jump of nearly 8%, and so some might be disappointed with the forecast.

Nevertheless, Canadian National approved a 10% dividend increase for the year. Going forward, CN will pay C$0.4125 per share every quarter. That dividend growth is slower than the 20% hike that the railroad gave shareholders last year, but it still represents a nice boost under tough conditions.

Canadian National shareholders didn't respond immediately to the report, leaving shares unchanged in after-hours trading immediately following the announcement. Given how far the railroad's stock has climbed, it wouldn't be surprising to see a brief pause in its upward movement. However, if conditions continue to improve in the industries it serves, then CN could enjoy even greater fundamental business success in the near future.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Canadian National Railway. The Motley Fool has a disclosure policy.