Transportation is an extremely important part of the economy. It provides critical links at all stages and all geographic scales in the production-consumption cycle. When more goods are moving via the transportation network, it’s a sign that economic conditions are improving.

Results from two significant North American transport companies–Canadian National Railway (TSX: CNR, NYSE: CNI) and TransForce (TSX: TFI, OTC: TFIFF)–confirm that more goods are moving through the continental network. Their respective quarterly numbers also suggest that company-specific efforts to deal with short-term challenges and simultaneously position for long-term growth are paying off.

One of the best measures of freight traffic is the Association of American Railroads’ (AAR) weekly “railcar loadings” data. Our colleague Elliott Gue, editor of Personal Finance, is a big fan of this indicator, a highly useful, real-time gauge of the health of several sectors as well as the economy as a whole.

Data are updated by the AAR every Thursday for the week ending the previous Saturday. The weekly report details the numbers of railcars loaded by major US and Canadian railroad companies. It reveals whether a railroad is shipping more, less or similar quantities over time.

During the most recently reported period US volume reached its highest level since the week ended Dec. 6, 2008. US railroads originated 296,599 carloads during the week ended Apr. 17, 2010, up 16.1 percent from the comparable week in 2009. For the first 15 weeks of 2010, US railroads reported cumulative volume of 4,175,722 carloads, up 4 percent from 2009, 3,040,683 trailers or containers, up 9.2 percent from 2009.

Canadian railroads reported volume of 74,029 cars for the week, up 24.3 percent from last year, and 47,550 trailers or containers, up 14.8 percent from 2009. For the first 15 weeks of 2010, Canadian railroads reported cumulative volume of 1,082,458 carloads, up 17.3 percent from last year, and 660,333 trailers or containers, up 8.6 percent from last year.

Canadian National’s first-quarter report drew a mixed response from Bay Street analysts. The headline earnings number beat expectations, inspiring buy-target increases and quips to the effect that “it’s not too late to hop on the train.” Ratings cuts had more to do with the fact that the share price has run too far for particular analysts’ tastes than with the quality of operating results.

During the first quarter CN’s carload volume–its internal equivalent of railcar loadings–rose 16 percent. CN posted double-digit volume increases in metals and minerals, coal, automotive, Canadian grain and fertilizer.

Foreign demand for metallurgical coal, in particular, has kept CN busy; the railroad moved record coal volume from mine to vessel for shipment overseas in the first quarter. Strong volume trends continued into the second quarter, as carloads reached 90,000 in April for the first time since the fall of 2008.

Overall revenue grew 6 percent (17 percent if you adjust for currency effects); automotive (48 percent), coal (28 percent), intermodal (10 percent), metals and minerals (6 percent) and grain and fertilizers (4 percent) generated increases. Revenues declined 6 percent for petroleum and chemicals, 5 percent for forest products.

CN’s operating ratio–operating expenses as a percentage of revenue–came down to 69.3 percent from 71.7 percent a year ago, well below the 80 percent considered desirable in the railroad industry.

On-the-rail results, as CEO Claude Mongeau noted in his remarks opening the company’s first-quarter conference call, also suggest Canada’s economy is growing faster than most observers anticipated. Based on the first 12 weeks of the year Canadian National, one of North America’s largest transportation companies, boosted its full-year cash flow guidance from CAD700 million to CAD1 billion.

CEO Alain Bedard wasn’t as eager to hail the impact of economic recovery on TransForce’s results. His company’s modest first-quarter improvement was built on “disciplined efforts to contain costs and increase efficiencies.”

TransForce, which operates in the less-than-truckload, truckload and package courier segments and also provides a range of logistics services to the oil and gas exploration industry, among others, reported first-quarter total revenues of CAD466.1 million, a 3 percent year-over-year increase from CAD452.4 million in the first quarter of 2009; excluding fuel surcharges revenue was up 2 percent, to CAD429.2 million from CAD422.2 million.

The acquisition of the retail business of ATS had a significant impact on results, basically turning what would have been a 3 percent revenue decline into a 3 percent increase.

Operating expenses increased in line with higher revenue, though the company continued to reduce its fixed costs and general and administrative expenses. Interest expense decreased to CAD8.4 million from CAD9.9 million a year earlier on lower rates and reduced debt.

Cash flow from operations increased 30 percent to CAD43.5 million from CAD33.3 million. Net income was CAD26.6 million (CAD0.28 per share), up from CAD3.1 million (CAD0.04 per share) in the first quarter of 2009. TransForce paid a dividend of CAD0.10 per share during the quarter.

Revenues declined by about 3 percent in three of its four operating segments. Parcels and courier grew 34 percent, mainly because of the ATS acquisition, which added CAD25.4 million to overall revenue. The firm noted increased activity in the western oil patch, Ontario’s automotive sector and retail, which accounts for 19 percent of its overall business.

Though Bedard admitted encouragement by the first quarter’s results, TransForce stuck with a largely cautious tone it set during its fourth-quarter and full-year 2009 call. In February management forecast 2010 would be “only slightly better” than 2009, with the back half of the year showing more improvement. Bedard reiterated that view with the first-quarter release.

“While we saw some signs of economic improvement in the first quarter, most of the improvement was due to the actions we have taken. We do not expect to see a sustained recovery or increased volumes for our industry until later in 2010,” said Bedard.

Management’s ability to cut costs while pursuing a growth-through-acquisitions strategy bodes well for the long-term sustainability of its dividend; TranForce currently yields around 4 percent after a healthy rally off its March 2009 low below USD3. Still a solid bet for conservative growth and income amid weak economic conditions, TransForce is poised for explosive growth as conditions improve.

You Cruise, You Win

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For those of you lucky enough to have sailed with this keen crew in the past, you know you are in for a meticulously planned journey into the business, investment and cultural offerings of the region. KCI in partnership with Joseph H. Conlin Travel Management is offering this journey solely to KCI subscribers and their friends.

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The Roundup

TransForce (TSX: TFI, OTC: TFIFF), as detailed above, became the first Canadian Edge Portfolio holding to report first-quarter earnings results. A cautious management team continues to tread lightly in this still-shaky environment, but cost-cutting, debt-shedding TransForce is well positioned to further consolidate its position in Canada’s fragmented transportation industry. TransForce is a buy on dips below USD9.

An Aggressive Holding is raising cash through an equity offering, while a Conservative Holding is issuing new debentures at a decent spread. And a favorite construction company adds even more to its backlog. That’s what’s up around the Portfolio, along with first-quarter earnings announcement dates.

Scroll down further for How They Rate updates–including news of another distribution increase by an income trust and the reinstatement of a semi-annual dividend by a resource company.

Aggressive Holdings

Peyto Energy Trust (TSX: PEY-U, OTC: PEYUF) is raising CAD65 million via a new equity offering to pay down debt and free up capital as it prepares to convert to a corporation before December 31. Peyto is offering 4.84 million units at CAD13.45 per; net proceeds will be CAD61.8 million, as much as CAD71 million if underwriters exercise over-allotment options.

Management intends to use the proceeds to pay down part of its CAD450 million of outstanding bank debt (as of March 31) to free up capacity to fund its 2010 capital program. Peyto Energy Trust is a buy up to USD15.

• Ag Growth International (TSX: AFN, OTC: AGGZF)–May 7
• ARC Energy Trust (TSX: AET-U, OTC: AETUF)–May 5 (confirmed)
• Chemtrade Logistics Income Fund (TSX: CHE-U, OTC: CGIFF)–May 10 (confirmed)
• Daylight Resources Trust (TSX: DAY-U, OTC: DAYYF)–May 6
• Enerplus Resources Fund (TSX: ERF-U, NYSE: ERF)–May 7 (confirmed)
• Newalta Income Fund (TSX: NAL, OTC: NWLTF)–May 11
• Paramount Energy Trust (TSX: PMT-U, OTC: PMGYF)–May 7
• Penn West Energy Trust (TSX: PWT-U, NYSE: PWE)–May 5 (confirmed)
• Peyto Energy Trust (TSX: PEY-U, OTC: PEYUF)–May 13
• Provident Energy Trust (TSX: PVE-U, NYSE: PVX)–May 13 (confirmed)
• Trinidad Drilling (TSX: TDG, OTC: TDGCF)–May 6
• Vermilion Energy Trust (TSX: VET-U, OTC: VETMF)–May 7

Conservative Holdings

Artis REIT (TSX: AX-U, OTC: ARESF) closed a previously announced offering of convertible debentures, raising CAD86.25 million after underwriters exercised their over-allotment options to the fullest. Artis is paying 6 percent on the 10-year debentures. The REIT intends to use the net proceeds to fund future acquisitions, for repayment of existing mortgage debt and for general working capital purposes. Artis REIT is a buy up to USD12.

Bird Construction Income Fund (TSX: BDT-U, OTC: BIRDF) has signed a deal with Green Timbers Limited Partnership to design and build the RCMP E Division Headquarter Relocation Project in Surrey, British Columbia. Bird, in a joint venture with Bouygues Building Canada, will design and build the facility. Bird’s part of the construction, worth CAD100 million, will begin “shortly” and will be completed in late 2012. The value of Bird’s share of the design and construction contract is approximately $100 million.

Bird Construction Income Fund, which continues to add public and private projects to its backlog, is a buy any time it dips below USD33.

• AltaGas Income Trust (TSX: ALA-U, OTC: ATGFF)–April 29 (confirmed)
• Artis REIT (TSX: AX-U, OTC: ARESF)–May 12 (confirmed)
• Atlantic Power Corp (TSX: ATP, OTC: ATLIF)–May 14 (confirmed)
• Bell Aliant Regional Communications Income Fund (TSX: BA-U, OTC: BLIAF)–May 4 (confirmed)
• Bird Construction Income Fund (TSX: BDT-U, OTC: BIRDF)–May 13
• Brookfield Renewable Power Fund (TSX: BRC-U, OTC: BRPFF)–May 12 (confirmed)
• Canadian Apartment Properties REIT (TSX: CAR-U, OTC: CDPYF)–May 11 (confirmed)
• CML Healthcare Income Fund (TSX: CLC-U, OTC: CMHIF)–May 7
• Colabor Group (TSX: GCL, OTC: COLFF)–April 29
• Davis + Henderson Income Fund (TSX: DHF-U, OTC: DHIFF)–May 4 (confirmed)
• Innergex Renewable Energy (TSX: INE, OTC: INGXF)–May 13
• Just Energy Income Fund (TSX: JE-U, OTC: JUSTF)–May 14
• Keyera Facilities Income Fund (TSX: KEY-U, OTC: KEYUF)–May 12 (tentative)
• Macquarie Power & Infrastructure Income Fund (TSX: MPT-U, OTC: MCQPF)–May 11 (confirmed)
• Northern Property REIT (TSX: NPR-U, OTC: NPRUF)–May 12
• Pembina Pipeline Income Fund (TSX: PIF-U, OTC: PMBIF)–May 6 (confirmed)
• RioCan REIT (TSX: REI-U, OTC: RIOCF)–April 29 (confirmed)
• TransForce (TSX: TFI, OTC: TFIFF)–April 23 (confirmed)
• Yellow Pages Income Fund (TSX: YLO-U, OTC: YLWPF)–May 6 (confirmed)

Oil and Gas

EnCana Corp (TSX: ECA, NYSE: ECA), helped by a CAD912 million hedging gain, reported first-quarter net income of CAD1.48 billion (CAD1.97 per share), up from CAD477 million (CAD0.63 per share) a year ago. Operating income, which excludes most one-time and unusual items like hedging gains and losses, fell 23 percent to CAD418 million (CAD0.56 per share) from CAD544 million (CAD0.72 per share), reflecting persistently weak natural gas prices.

Management said it will sell CAD500 million of non-core assets and use the proceeds to buy back shares in 2010.

First-quarter production rose 1.9 percent to 3.27 billion cubic feet equivalent per day. Revenue fell 4 percent to CAD3.55 billion, while cash flow fell 15 percent to CAD1.17 billion.

Natural gas averaged USD5.17 per million British thermal units in the first quarter, up 11 percent from the first quarter of 2009 but well below long-term norms. Nevertheless, EnCana is sticking to its plan to double production over the next five years and remains committed to a 2010 capital budget of CAD4.5 billion, a 20 percent increase over 2009 levels. EnCana Corp, now essentially a play on natural gas, is a buy up to USD40.

Electric Power

Primary Energy Recycling (TSX: PRI, OTC: PENGF) reported first-quarter revenue of CAD15.3 million, an increase of 4.3 percent from year-ago levels on improving conditions in the steel-making industry.

Operating and maintenance expenses were flat, while general and administrative expenses declined 17.8 percent. Interest expenses were CAD2.8 million, down from CAD4.6 million for the first quarter of 2009 on reduced debt, which was offset by increased deferred finance fees. Operating income was CAD1.7 million, up from CAD400,000 a year ago. Primary Energy recorded a net loss of CAD700,000 for the quarter, compared to a loss of CAD5.1 million a year ago. Primary Energy Recycling, still a long way from paying a dividend, is a sell.

Natural Resources

Canfor Pulp Income Fund (TSX: CFX-U, OTC: CFPUF) announced that Canfor Pulp Limited Partnership, of which the income fund owns 49.8 percent, reported sales of CAD239.5 million and net income of CAD32.5 million (CAD0.46 per unit). The fund reported net income of CAD16.5 million, its share of the partnership’s net income and a future income tax recovery of CAD300,000.

The partnership generated adjusted distributable cash of CAD41 million (CAD0.57 per unit), and the partnership and the fund declared distributions of CAD0.32 per unit.

The improvement over the first quarter of 2009 was driven by better prices for pulp and paper products, lower costs and increased shipments; a stronger Canadian dollar somewhat offset these positives. A factory shutdown reduced production by approximately 22,000 tonnes and reduced EBITDA by approximately CAD11.0 million. Mitigating the production loss was a record quarter at the Northwood Pulp Mill for both total tonnes and average daily rate.

Tight markets allowed producers to boost prices during the quarter. North American northern bleached softwood kraft pulp (NBSK) prices were USD830 per tonne in December 2009, rose to USD910 in March and will be USD1,000 in May.

Management expects favorable supply-demand conditions to continue through the second quarter because producers’ and customers’ inventories are still below “what is considered to be a balanced market.”

Last week management announced a monthly distribution of CAD0.12 per unit for April 2010, to be paid on May 14, 2010. Along with its earnings announcement Canfor boosted, again, its monthly distribution, to CAD0.20 per unit for May 2010, to be paid on June 15 to unitholders of record on May 31.Hold Canfor Pulp Income Fund.

Teck Resources (TSX: TCK.B, NYSE: TCK) eliminated its CAD0.50 per share semi-annual dividend in late 2008 as it coped with the impact of the recession on its debt-heavy balance sheet. After announcing solid first-quarter results last week, including the total elimination of all debt incurred in the Fording Canadian Coal acquisition, Teck announced it will once again pay its semi-annual dividend, at a more modest rate of CAD0.20 per share.

Teck reported earnings of CAD908 million, a figure pumped up by non-recurring gains from asset sales. What Teck calls “comparative net earnings” were CAD205 million, down slightly from CAD214 million in 2009. Revenues from operations were CAD1.9 billion, up from CAD1.7 billion a year ago, driven by a combined increase from the copper and zinc businesses of CAD315 million.

Operating profit from the copper business increased to CAD367 million from CAD168 million; copper averaged USD3.27 per pound in the first quarter of 2010 compared, up from USD1.56 per pound a year ago. Sales volumes were 15 percent lower due to timing of shipments and slightly lower production levels.

Coal generated an operating profit of CAD313 million, down from CAD519 million on lower realized prices. Coal averaged CAD150 per tonne, down from CAD237 a year ago. Sales were 5.3 million tonnes in the first quarter, reflecting strong demand from China for seaborne coking coal and increased deliveries to our traditional contract customers, up from 3.7 million tonnes a year ago. Management expects coal costs to remain at around CAD55 per ton; margin expansion will come as Teck rolls out from under contracted rates negotiated last year that are well below current spot prices. Zinc turned a CAD155 million profit, up from CAD60 million a year ago on higher prices.

The company produced 72,000 tonnes of copper, down from 75,000 tonnes a year ago. Coal production totaled 5.7 million tonnes, up from nearly 4 million tonnes in the first quarter of 2009. Zinc amounted to 163,000 tonnes, down from 167,000 tonnes a year ago, while refined zinc production totalled 68,000 tonnes, up from 58,000 tonnes.

Teck’s debt at the end of the quarter was CAD5.79 billion, down from CAD8 billion at the end of 2009. The company has reduced total debt by CAD7.6 billion since it acquired Fording in October 2008. Teck Resources is a buy up to USD40.

Energy Services

Precision Drilling Trust’s (TSX: PD-U, NYSE: PDS) rising utilization rates during the first quarter reflects the up-tick in oil and gas-liquids drilling activity that commenced last summer. This activity requires complex rigs that generate favorable margins for Precision; customer plans suggest Precision will enjoy day-rate leverage for the balance of 2010 as activity in the Bakken Shale and the Alberta Cardium plays continues to pick up.

Drilling activity in Canada surpassed management expectations, as did the emphasis of explorers on oil. Precision averaged 38 percent more rigs working in the first quarter of 2010 than during the same period in 2009, led by an increase in oil-related activity. Because pricing for Precision’s services are negotiated prior to the winter drilling season, rates for Canadian drilling services for the 2010 quarter were approximately 16 percent below 2009 levels. Precision’s active US rig count in the first quarter of 2010 was up 19 percent over the fourth quarter of 2009, and day-rates have improved from the mid-2009 bottom.

Precision has about CAD400 million–including CAD132 in cash, the remainder through credit facilities–to use to put more rigs to work as conditions warrant. Management continued to pay down debt during the first quarter; over the past 12 months Precision has paid down CAD577 million in long-term debt.

Revenue for the first quarter was CAD373 million, down from CAD448 million for the first quarter of 2009. EBITDA was CAD118 million, down from CAD169 million. Net earnings were CAD62 million (CAD0.22 per unit), compared to CAD57 million (CAD0.28 per unit) a year ago. Precision Drilling Trust is a buy up to USD6.