It has been about a month since the last earnings report for Canadian National (CNI Quick QuoteCNI - Free Report) . Shares have added about 1.9% 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 its most recent earnings report in order to get a better handle on the important drivers.

Earnings Beat at Canadian National in Q2

Canadian National’s earnings (excluding 2 cents from non-recurring items) of $1.21 per share (C$1.49) edged past the Zacks Consensus Estimate of $1.20. The bottom line increased year over year on lower costs.

Quarterly revenues of $2,929 million (C$3,598 million) lagged the Zacks Consensus Estimate of $2,988.6 million. The top line, however, improved year over year, driven by volume growth in almost every business unit. Particularly, industrial products, and international and domestic intermodal sub-groups performed very well.

Freight revenues (C$3,452 million), which contributed 95.9% to the top line, increased 14% year over year as economic activities gather pace. Freight revenues in all segments apart from grain and fertilizers, which declined 6%, improved year over year. Freight revenues at the petroleum and chemicals, metals and minerals, forest products, coal, intermodal and automotive units increased 17%, 22%, 9%, 13%, 19% and 96%, respectively.

While overall carloads (volumes) increased 14% year over year, revenue ton miles (RTMs) rose 13%. Segmentwise, carloads in the Petroleum and chemicals, metals and minerals, forest products, coal, intermodal and automotive improved 9%, 11%, 8%, 41%, 13% and 100%, respectively. Carloads at the grain and fertilizer segment were flat year over year. Freight revenues per carload were flat year over year in the reported quarter. Freight revenues per RTM inched up 1%.

Operating expenses for the second quarter decreased 9% to C$2,216 million owing to a favorable currency impact among other factors. Adjusted operating income increased 8.7% year over year to C$1,382 million. Adjusted operating ratio (defined as operating expenses as a percentage of revenues) deteriorated to 61.6% from the year-ago quarter’s 60.4%. Lower value of the metric is desirable.

Liquidity

The company generated free cash flow of C$741 million during the June quarter compared with the year-ago quarter’s C$1,008 million.  Adjusted debt amounted to C$14,643 million as of Jun 30, 2021 compared with C$15,136 million at December 2020 end.

2021 Outlook

Canadian National still anticipates earnings per share to grow in double-digits during 2021 from adjusted earnings of C$5.31 in 2020. Volumes, measured in revenue ton miles (RTMs), are again expected to increase in high-single digits during the current year. The company estimates free cash flow of C$3-C$3.3 billion for 2021 compared with C$3.2 billion in 2020.

How Have Estimates Been Moving Since Then?

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

VGM Scores

At this time, CN has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

CN has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.