A month has gone by since the last earnings report for Canadian National (CNI Quick QuoteCNI - Free Report) . Shares have added about 7.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is CN due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Canadian National's Revenue Miss in Q2

Canadian National's earnings (excluding 36 cents from non-recurring items) of 92 cents per share (C$0.77) meet the Zacks Consensus Estimate. However, the bottom line declined 28.7% year over year.

Quarterly revenues of $2,315 million (C$3,209 million) missed the Zacks Consensus Estimate of $2,407.6 million and declined 21.8% year over year. The downtick was primarily caused by COVID-19-induced lower volumes across most commodity groups and lower fuel surcharge rates.

Lackluster freight demand also had a negative impact on the top line. Freight revenues, which contributed 94.7% to the top line, fell 19.2% year over year. On a year-over-year basis, freight revenues declined across all segments. Freight revenues in Petroleum and Chemicals, Metals and Minerals, Forest Products and Coal segment declined 25%, 30%, 15% and 21%, respectively. Moreover, the same also declined in the Automotive (72%) and Intermodal segment (12%). Nevertheless, revenues in the Grain and Fertilizers segment inched up 1%.

While overall carloads declined 15.9% year over year, revenue ton miles (RTMs) slipped 18.4%. Segment-wise, carloads declined in the Petroleum and Chemicals, Metals and Minerals, Forest Products, Coal and Grain and Fertilizers segment by 25%, 19%, 17%, 21% an 3%, respectively. The metric also fell in the Automotive and Intermodal segment by 72% and 8%, respectively.  Moreover, freight revenue per carload dropped 3.9% in the reported quarter. Freight revenue per RTM also fell 1%.

Operating expenses for the second quarter rose 6% to C$2,424 million, primarily due to loss on assets held for sale. Adjusted operating income declined 24% year over year to C$1,271 million. Adjusted operating ratio (defined as operating expenses as a percentage of revenues) deteriorated to 60.4% from the year-ago quarter’s figure of 57.5%. Notably, a smaller value of the metric is desirable.

Liquidity

The company exited the June end quarter with cash and cash equivalents of C$375 million compared with the C$64 million recorded at the end of 2019. The company generated free cash flow of C$1,008 during the second quarter of 2020 compared with the year-ago quarter’s C$513 million. Long-term debt amounted to C$13,107 million as of Jun 30, 2020 compared with C$11,866 million at 2019-end.

Dividend

The company's board maintains its quarterly dividend at C$0.575, which will be paid out on Sep 30 to shareholders of record at the close of business on Sep 9.

How Have Estimates Been Moving Since Then?

It turns out, estimates review flatlined during the past month.

VGM Scores

At this time, CN has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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.

Outlook

CN has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.