It has been about a month since the last earnings report for Canadian National (CNI Quick QuoteCNI - Free Report) . Shares have lost about 4.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is CN due for a breakout? 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 catalysts.

Earnings Lag at Canadian National in Q2

Canadian National  reported disappointing second-quarter 2023 results, wherein both earnings and revenues lagged the Zacks Consensus Estimate.

Quarterly earnings per share (EPS) of $1.31 (C$1.76) missed the Zacks Consensus Estimate of $1.37 and declined year over year.

Quarterly revenues of $3,020.5 million (C$4,057 million) missed the Zacks Consensus Estimate of $3,129.4 million and decreased year over year. The downfall was owing to lower volumes of intermodal, crude oil, U.S. grain exports and forest products. These factors resulted due to lower demand for freight services to move consumer goods and customer outages caused by Canadian wildfires, lower ancillary services, including container storage and lower fuel surcharge revenues as a result of lower fuel prices. These were partly offset by freight rate increases, the favorable translation impact of a weaker Canadian dollar and higher export volumes of Canadian grain.

Freight revenues (C$3,894 million), which contributed 95.9% to the top line, decreased 7% year over year. Freight revenues at the Petroleum and Chemicals; Forest products; and Intermodal segments fell 10%, 6%, and 26%, respectively. Revenues at the Metals and minerals; Coal; Grain and fertilizers; and Automotive segments increased 7%, 6%, 14% and 13%, respectively.

Carloads revenues fell 7% year over year. Segment-wise, carloads in Petroleum and chemicals; Forest products; and Intermodal fell 7%, 10%, and 17%, respectively. The same at Metals and minerals; Coal; Grain and fertilizers and Automotive grew by 5%, 2%, 7% and 7%, respectively.

Freight revenues per carload were almost in line with the year-ago reported quarter, while freight revenues per revenue ton-miles improved 1%.

Operating expenses fell by 5% year over year to C$2,457 million due to lower fuel prices, partly offset by higher labor and fringe benefits expenses, mainly driven by higher average headcount and general wage increases and the negative translation impact of a weaker Canadian dollar.

Adjusted operating ratio (defined as operating expenses as a percentage of revenues) was 60.6% in the second quarter of 2023, up from 59% in the year-ago reported quarter.

Liquidity

Canadian National generated free cash flow of C$1,100 million during the second quarter compared with the year-ago quarter’s C$997 million.

2023 Outlook

For 2023, Canadian National is updating its full-year outlook and now anticipates flat to slightly negative year-over-year growth in adjusted EPS (compared with the prior expectation of growth in the mid-single digits).

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

Currently, CN has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, CN has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.