Canadian National (CNI) Q4 Earnings Beat Estimates, Down Y/Y

Canadian National Railway Company’s (NYSE:CNI) fourth-quarter earnings (excluding 3 cents from non-recurring items) of 95 cents per share (C$1.22) beat the Zacks Consensus Estimate by 4 cents. The bottom line, however, declined 15.9% year over year.

Although quarterly revenues of $2,715.5 million (C$3,584 million) surpassed the Zacks Consensus Estimate of $2,690 million, the same declined 5.8% year over year, primarily due to reduced volumes being shipped across all segments following the eight-day rail strike (Nov 19- 26). Lackluster freight demand also negatively impacted the top line. Notably, freight revenues, which contributed 95.1% to the top line, declined 5.4% in the quarter under review.

On a year-over-year basis, freight revenues declined across all segments apart from Intermodal where the same increased 4%. Freight revenues in Petroleum and Chemicals, Metals and Minerals and Forest Products segments declined 7%, 10% and 11%, respectively. Meanwhile, the same also declined in the Coal (14%), Grain and Fertilizers (6%) and Automotive (8%) units. While overall carloads declined 7% year over year, revenue ton miles (RTMs) slipped 13%. However, freight revenue per carload ascended 4% in the reported quarter. Freight revenue per RTM also increased 9%.

Segment-wise, carloads declined in the Petroleum and Chemicals, Metals and Minerals and Forest Products segments by 8%, 8% and 15%, respectively. The metric also dropped in the Coal (16%), Grain and Fertilizers (7%), Intermodal (4%) and Automotive (8%) units. However, operating expenses remained flat in the fourth quarter at C$2,356 million. Adjusted operating income declined 16% year over year to C$1,249 million. Adjusted operating ratio (defined as operating expenses as a percentage of revenues) deteriorated to 65.2% from the year-ago quarter’s 61.2%. Notably, a lower value of this key metric is desirable.

Liquidity

This Zacks Rank #5 (Strong Sell) company exited the year with cash and cash equivalents of C$64 million compared with the C$266 million recorded at the end of 2018. The company generated free cash flow of C$493 during the final quarter of 2019 compared with the year-ago period’s C$633 million. Long-term debt amounted to C$11,866 million as of Dec 31, 2019 compared with C$11,385 million at 2018-end.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Dividend Increased

The company's board approved a 7% increase in its quarterly dividend to C$0.575. The new dividend will be paid on Mar 31, to its shareholders of record on Mar 10, 2020. In fact, the current increase marks the 24th consecutive year, where the company has resorted to a dividend hike.

Decent 2020 Outlook

RTMs are expected to witness single-digit volume growth in the current year despite the lackluster freight scenario. Moreover, the company aims at 2020 earnings per share (adjusted) growth in the mid-single-digit range compared with the C$5.80 reported in 2019. The company aims to generate free cash flow of C$3-3.3 billion this year compared with the prior year’s C$2 billion.

Capital expenditure in 2020 is targeted at C$3 billion. In addition, the railroad operator aims to buy back up to 16 million shares in a 12-month period, starting Feb 1, 2020.

Upcoming Releases

Investors interested in the broader Transportation sector are awaiting fourth-quarter 2019 earnings reports from key players like Air Lease Corporation (NYSE:AL) , Expeditors International of Washington (NASDAQ:EXPD) and Hertz Global Holdings (NYSE:HTZ) .

Air Lease and Expeditors will announce results on Feb 14 and Feb 18, respectively. Hertz will release fourth-quarter earnings numbers on Feb 24.

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