Canadian National Railway (CNI) reported a mixed second quarter 2013. The company’s efficient operating base, improved services and cost-control measures were partially offset by higher costs associated with purchased services, materials and fuel.
Adjusted earnings per share of C$1.66 (approximately $1.62) comfortably beat the Zacks Consensus Estimate of $1.58. The results also increased 11% from adjusted earnings of C$1.50 ($1.47) in the year-ago quarter on higher freight rates and volumes.
Quarterly revenues increased 5% year over year to C$2,666 million (approximately $2,605 million) but failed to meet the Zacks Consensus Estimate of $2,628 million. The year over year growth was attributable to improved performance across most of Canadian National’s commodity segments along with market share gains.
Carloads (volumes) increased 2% year over year and revenue ton miles, which measure the relative weight and distance of rail freight transported by Canadian National, moved up 5% from the year-ago quarter.
On a year-over-year basis, revenues increased 18% for Petroleum and Chemicals, 3% for Intermodal, 4% for Metals and Minerals, 4% for Forest Products and 5% for Grain and Fertilizers. While Automotive business witnessed a drop of 3%, Coal revenues remained flat.
In the second quarter, adjusted operating income improved 6% year over year to C$1,042 million (approximately $1,018 million), despite operating expenses moving up 4% year over year to C$1,624 million (approximately $1,587 million). Operating ratio (defined as operating expenses as a percentage of revenue) was 60.9%, down 40 basis points.
As of Jun 30, 2013, Canadian National had cash and cash equivalents of C$87 million ($85 million). The company had long-term debt (including current portion) of C$7,463 million ($7,292 million), representing debt-to-capitalization ratio of 39.6%. Free cash flow for the quarter was C$437 million ($427 million).
Canadian National expects growth in 2013 to be driven by upward trends in the North American economic scenario, with carload projected to improve 3–4%.
The company expects earnings per share to register high single-digit year-over-year growth in 2013, while free cash flows are expected in the range of C$800 million to C$900 million. The company targets capital expenditure of C$2 billion, of which nearly C$1.1 billion will be directed toward maintenance of track infrastructure and railway network.
Other Railroad Stocks
Rail transportation services firm Union Pacific Corp. (UNP) reported second quarter 2013 adjusted earnings of $2.37 per share, surpassing the Zacks Consensus Estimate of $2.35 and year-ago earnings of $2.10. Better-than-expected earnings were aided by higher pricing and an improvement in operating ratio.
Another transportation firm GATX Corp. (GMT) reported adjusted second-quarter 2013 earnings of 68 cents per share, missing the Zacks Consensus Estimate of 85 cents. The results reflected 15% deterioration from 80 cents reported in the year-ago quarter.
Of the other companies in the sector that are yet to report, Canadian Pacific Railway Limited (CP) will release its financial results on Jul 24, before the opening bell.
Canadian National carries a Zacks Rank #3 (Hold). We expect Canadian National to benefit from favorable demand/supply dynamics. The company’s industry-leading operating ratio, service improvements and expected growth across the board, particularly in Intermodal, Crude and Forest products, bode well for its projected earnings growth over the next few months.
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