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Canadian National (CNI) Q1 Earnings Lag, Revenues Top Mark

Zacks Equity Research
Higher rail freight revenues lift Canadian National's (CNI) Q1 results. However, rise in operating expenses partly mar results.

Canadian National Railway Company’s CNI adjusted earnings of 88 cents per share (C$1.17) missed the Zacks Consensus Estimate by a penny. However, the bottom line improved double digits on a year-over-year basis owing to higher revenues.

Moreover, quarterly revenues came in at $2,666 million (C$3,544 million), edging past the Zacks Consensus Estimate of $2,612 million. The top line also improved on a year-over-year basis on the back of strong freight revenues and positive foreign currency impact. Also, rail freight revenues improved 11.3% year over year and contributed 96.3% to the top line.

Operating Results

On a year-over-year basis, freight revenues rose in Petroleum and Chemicals (30%), Metals and Minerals (9%), Forest Products (8%), Coal (15%), Grain and Fertilizers (7%), Intermodal (4%) as well as Automotive (7%). Overall, carloads (volumes) and revenue ton miles (RTMs) inched up 1% and 3%, respectively. Moreover, rail freight revenue per carload ascended 11% in the quarter under review. Additionally, rail freight revenue per RTM increased 8%.

The Petroleum and Chemicals sub-group performed impressively with respect to carloads with the metric increasing10% year over year. In Grain and Fertilizers, volumes rose 3%. Carloads also expanded 3% at the Automotive segment. However, the metric contracted 3% and 4% at the Metals and Minerals and the Forest Products segments, respectively. Meanwhile, it remained flat at the Coal and Intermodal units.

Adjusted operating income increased 13% year over year to C$1,164 million. Adjusted operating ratio (defined as operating expenses as a percentage of revenues) improved to 67.2% from 76.8% in the year-ago quarter. Notably, lower value of this key metric bodes well for the company.

However, operating expenses rose 14% year over year to C$2,464 million. This downside was mainly due to high labor costs, elevated costs as a result of severe weather conditions and other factors.

Liquidity

The company exited the first quarter with cash and cash equivalents of C$339 million compared with C$266 million at the end of 2018. Free cash flow came in at C$286 million compared with C$322 million in the year-ago period. Long-term debt amounted to C$11,692 million as of Mar 31, 2019 compared with C$11,385 million in December 2018.

Dividend Update

The company’s board has declared a quarterly cash dividend of C$0.5375 per share, payable to shareholders on Jun 28, 2019 of record as of Jun 7.

2019 Outlook Reaffirmed

For 2019, Canadian National still anticipates adjusted earnings per share to grow in the range of low double-digits compared with C$5.50 in the prior-year period. RTMs are expected to witness a high single-digit volume expansion on the back of significant growth opportunities along with a favorable economy.

Upcoming Releases

Investors interested in the broader Transportation sector are keenly awaiting first-quarter earnings reports from key players like Expeditors International of Washington, Inc. EXPD, Air Lease Corporation AL and Hertz Global Holdings, Inc HTZ. While Hertz Global will report first-quarter earnings on May 6, Expeditors and Air Lease will announce the same on May 7 and May 9, respectively.

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