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Canadian National Railway Company (NYSE:CNI) has warned downwards citing a longish strike, bad weather and neglecting to point out derailment problems). If you follow this stock and could not figure out that Q1 was going to stink you have a perception deficit problem.

Having said that listen to what management is saying. They still claim that for the year earnings will grow 10%. Read this quote from E. Hunter Harrison, president and chief executive officer

"CN has an exceptional team of railroaders dedicated to recovering delayed traffic on its network. We expect a tough first quarter, but our recovery program is ongoing and we will continue to make every effort to deliver diluted earnings per share growth of 10 per cent-plus for the full-year 2007."

This means that the next nine months will move at an above average tempo to catch up. How is management going to do this? They have a serious union problem. Workers were forced back to work and may be overthrowing their existing union and signing up with the Teamsters. Expect at best a passive aggressive decreased productivity issue.

Management has been criticized by regulators and safety experts over derailment issues. The fix requires cap ex to go up. Watch financial statements for the strategy. If they do not spend now they will continue to derail in the future. Of course you need to take a view on future economic activity and how much shipping/rail activity it will generate.

Once management starts to warn there is a tendency to wash out an assortment of other problems under the guise of previously announced problems. Right now in the executive suite you have both forward momentum pressure and increasing operational friction. This will eventually cause financial brake failure.

When QI is released listen to how any forward statements are hedged. Unless they are complete kamikaze pilots they will start loading up the caveats and looking for cover.

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