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Canadian National (CNI) Beats on Q4 Earnings, Hikes Dividend

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Canadian National Railway Company’s CNI fourth-quarter 2020 earnings of $1.10 per share (C$1.43) surpassed the Zacks Consensus Estimate by 2 cents. Moreover, the bottom line increased 15.8% year over year.

Quarterly revenues of $2,805.5 million (C$3,656 million) missed the Zacks Consensus Estimate of $2,815 million but increased 3.3% on a year-over-year basis. The upside was primarily driven by record shipments of Canadian grain, increased shipments of U.S. grain, higher international container traffic and freight rate increase.

Canadian National Railway Company Price, Consensus and EPS Surprise

Canadian National Railway Company Price, Consensus and EPS Surprise
Canadian National Railway Company Price, Consensus and EPS Surprise

Canadian National Railway Company price-consensus-eps-surprise-chart | Canadian National Railway Company Quote

Impressive freight demand also had a positive impact on the top line. Freight revenues (C$3,507), which contributed 95.9% to the top line, inched up 3% year over year. On a year-over-year basis, freight revenues increased across all segments. Freight revenues in Petroleum and Chemicals, Metals and Minerals, Coal and Automotive segment declined 12%, 1%, 16% and 17%, respectively. Nevertheless, revenues in the Forest Products, Grain and Fertilizers and Intermodal segment increased 4%, 19% and 12%, respectively.

While overall carloads increased 7% year over year, revenue ton miles (RTMs) inched up 10%. Segment-wise, carloads declined in the Petroleum and Chemicals, Coal and Automotive segment by 8%, 8%, 18%, respectively. Nevertheless, carloads in the Metals and Minerals, Forest Products Grain and Fertilizers and Intermodal segment moved up 3%, 1%, 20% and 15%, respectively. However, freight revenues per carload dropped 4% in the reported quarter. Freight revenues per RTM also fell 6%.

Operating expenses for the fourth quarter declined 5% to C$2,245 million, due to lower fuel costs as well as declined purchased services and material expenses. Adjusted operating income declined 13% year over year to C$1,411 million. Adjusted operating ratio (defined as operating expenses as a percentage of revenues) improved to 61.4% from the year-ago quarter’s figure of 65.2%. Notably, a smaller value of the metric is desirable.

Liquidity

This Zacks Rank #3 (Hold) company exited the December-end quarter with cash and cash equivalents of C$569 million compared with the C$64 million recorded at the end of 2019. The company generated free cash flow of C$1,140 during the fourth quarter of 2020 compared with the year-ago quarter’s C$493 million. Long-term debt amounted to C$11,996 million as of Dec 31, 2020 compared with C$11,866 million at 2019-end.

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

Dividend Hike

The company's board approved a 7% increase in its quarterly dividend to C$0.615. The new dividend will be paid out on Mar 31, to its shareholders of record as on Mar 10, 2021. In fact, the current increase marks the 25th consecutive year, wherein the company resorted to a dividend hike.

In addition, the company’s board of directors approved the repurchase of its shares under a new normal course issuer bid (NCIB) that permits Canadian National to purchase, for cancellation, over a 12-month period up to 14 million common shares. The bid will commence on Feb 1, 2021, and end on Jan 31, 2022 at the most. Notably, the company expects to resume its share repurchases in the first quarter of 2021 under the new NCIB.

2021 Outlook

Volumes are expected to witness mid-single digit growth in terms of RTMs as the company sees growth opportunities despite weakness in freight environment. Moreover, the company aims at 2021 earnings per share (adjusted) growth in the high single-digit range compared with the C$5.31 reported in 2020. The company aims to generate free cash flow of C$3.0-3.3 billion this year compared with the prior year’s figure of C$3.2 billion. Capital expenditures in 2021 are targeted at C$3 billion.

Sectorial Snapshots

Let’s take a look at some of the other recently released earnings reports from companies within the Zacks Transportation sector.

United Airlines UAL incurred a loss (excluding 6 cents from non-recurring items) of $7 per share in the fourth quarter of 2020, wider than the Zacks Consensus Estimate of a loss of $6.56. Further, operating revenues of $3,412 million lagged the Zacks Consensus Estimate of $3,420.4 million.

J.B. Hunt Transport Services JBHT reported earnings of $1.44 per share, which beat the Zacks Consensus Estimate of $1.27. Total operating revenues of $2,737.7 million also surpassed the Zacks Consensus Estimate of $2,514.3 million.

Delta Air Lines DAL incurred a loss (excluding $1.34 from non-recurring items) of $2.53 per share in the fourth quarter of 2020, wider than the Zacks Consensus Estimate of a loss of $2.43. Total revenues of $3,973 million topped the Zacks Consensus Estimate of $3,754.5 million.

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