Canadian National Railway (CNI) Down 3% Since Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for Canadian National Railway Company CNI. Shares have lost about 3% in the past month, outperforming the market.
Will the recent negative trend continue leading up to its next earnings release, or is CNI due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Recent Earnings
Canadian National's fourth-quarter 2017 earnings per share (excluding $1.79 from non-recurring items) of 94 cents (C$1.20) fell short of the Zacks Consensus Estimate of 98 cents. However, the bottom line inched up 1.1% from the year-ago tally.
Quarterly revenues of $2,573 million (C$3,285 million) also lagged the Zacks Consensus Estimate of $2,612.2 million but increased 7.2% year over year. Rail freight revenues, accounting for bulk of the top line in the reported quarter, improved 2%. The top line got a boost from strong international container traffic via the ports of Prince Rupert and Vancouver and increased volumes of frac sand, freight rate hikes and higher applicable fuel surcharge rates.
Operating Results
On a year-over-year basis, freight revenues rose in segments like Metals and Minerals (20%), Coal (7%), Intermodal (13%) and Automotive (1%). However, the metric declined in Forest Products (2%), Grain and Fertilizers (10%) and Petroleum and Chemicals (5%). Overall, carloads (volumes) expanded 7% and revenue ton miles (RTMs) inched up 1% year over year. However, Rail freight revenues per carload declined 4% in the reported quarter.
The Coal sub-group performed most impressively with respect to car loads that surged 29%. The Metals and minerals segment reported 8% growth. While Forest products and Automotive segments registered an ascent of 4% and 2%, respectively. However, Petroleum and Chemicals segment declined 4% while Grain and fertilizers slid 1%. Also, the intermodal segment volumes fell 5% year over year.
In the quarter under review, operating income reduced 7% year over year to C$1,301 million. Operating ratio (defined as operating expenses as a percentage of revenues) was 60.4% compared with 56.6% in the year-ago quarter. Higher fuel and labor costs contributed to this key metric’s deterioration.
Liquidity
The company exited the fourth quarter with free cash flow of C$457 million compared with C$777 million a year ago. Adjusted debt at the end of the quarter was C$11,306 million compared with C$11,470 million a year ago.
2018 Outlook
The company expects adjusted earnings per share of C$5.25-C$5.40 for 2018 compared with C$4.99 in 2017.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There have been three revisions lower for the current quarter.
Canadian National Railway Company Price and Consensus
Canadian National Railway Company Price and Consensus | Canadian National Railway Company Quote
VGM Scores
At this time, CNI has a nice Growth Score of B, though it is lagging a lot on the momentum front with an F. Charting a somewhat similar path, the stock was also allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for growth based on our styles scores.
Outlook
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, CNI has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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