Canadian National (CNI) Q3 Earnings Beat, 2019 EPS View Dim

Canadian National Railway Company’s (NYSE:CNI) third-quarter earnings of $1.26 per share (C$1.66) beat the Zacks Consensus Estimate of $1.22. The bottom line also improved year over year.

Despite the earnings beat, shares of the company slipped more than 1% in after-hours trading on Oct 22. This was perhaps due to the company’s downbeat 2019 outlook.

Due to fall in North American rail demand as a result of weak economy, the company now anticipates adjusted earnings per share to grow in high single-digit range compared with C$5.50 reported in 2018. Previously, the same was expected to rise in the low double-digit band.

Results in Detail

Although quarterly revenues of $2,901.1 million (C$3,830 million) increased year over year, the same missed the Zacks Consensus Estimate of $2,938 million. Higher freight rates and Intermodal revenues drove the top line. Also, freight revenues climbed 4% year over year and contributed 94.5% to the top line.

On a year-over-year basis, freight revenues rose in Petroleum and Chemicals (18%), Intermodal (13%) and Automotive (9%). Meanwhile, the same declined in Metals and Minerals (7%), Forest Products (11%), Coal (1%) as well as Grain and Fertilizers (3%). While overall carloads were flat year over year, revenue ton miles (RTMs) dipped 1%. However, freight revenue per carload ascended 4% in the quarter under review. Freight revenue per RTM also increased 6%.

The Petroleum and Chemicals as well as Automotive sub-group performed impressively with respect to carloads with the metric increasing 10% each. At the Metals and Minerals plus Intermodal segments, the same inched up 1% each. While Coal volumes were unchanged year over year, Forest Products and Grain and Fertilizers volumes declined 14% and 7%, respectively.

Adjusted operating income augmented 8.1% year over year to C$1613 million. Adjusted operating ratio (defined as operating expenses as a percentage of revenues) improved to 57.9% from 59.5% in the year-ago quarter. Notably, lower value of this key metric bodes well for the company.

However, operating expenses inched up 1% year over year to C$2,217 million, primarily due to higher purchased services and material expense plus higher depreciation and amortization costs.

Liquidity

This Zacks Rank #3 (Hold) company exited the third quarter with cash and cash equivalents of C$258 million compared with C$266 million at the end of 2018. Free cash flow came in at C$700 compared with C$585 million in the year-ago period. Long-term debt amounted to C$11,587 million as of Sep 30, 2019 compared with C$11,385 million in December 2018. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Dividend Update

The company’s board has declared a quarterly cash dividend of C$0.5375 per share payable Dec 30, 2019 to shareholders of record as of Dec 9.

Bleak 2019 Outlook

RTMs are expected to witness slightly negative volume growth in the current year compared with the earlier prediction of a mid-single-digit volume expansion.

Upcoming Releases

Investors interested in the broader Transportation sector are keenly awaiting third-quarter earnings reports from key players like Expeditors International of Washington, Inc. (NASDAQ:EXPD) , Air Lease Corporation (NYSE:AL) and Hertz Global Holdings, Inc (NYSE:HTZ) . While Hertz will report third-quarter earnings numbers on Nov 4, Expeditors and Air Lease will announce the same on Nov 5 and Nov 7, respectively.

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