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Why Is Canadian National Railway (CNI) Down 2.7% Since the Last Earnings Report?

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It has been about a month since the last earnings report for Canadian National Railway Company (CNI - Free Report) . Shares have lost about 2.7% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it 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 drivers.

Canadian National Q2 Earnings in Line, Revenues Beat

Canadian National Railway’s second-quarter 2017 earnings per share (on an adjusted basis) of $1.00 (C$1.34) were in line with the Zacks Consensus Estimate. Adjusted earnings climbed 16.28% from the year-ago figure.

Quarterly revenues of $2474.1 million (C$3,329) surpassed the Zacks Consensus Estimate of $2440.1 million and climbed 12.20% year over year. Rail freight revenues, accounting for bulk of the top line in the quarter, improved 18%. The top line got a boost from increased volumes in segments namely, Canadian Grain and Fertilizers, Overseas Intermodal Traffic, Frac Sand, Coal and Petroleum Coke exports, Crude oil and Finished vehicles. 

Operating Results

On a year-over-year basis, freight revenues increased in all the segments, 12% at Petroleum and chemicals, 33% at Metals and minerals and Coal, 6% at Forest products, 23% at Grain and fertilizers, 17% at Intermodal and 20% at Automotive. Overall, carloads (volumes) also expanded 14% and revenue ton miles (RTMs) rallied 18% year over year. Rail freight revenues per carload inched up 3% in the reported quarter.

The Metals and minerals sub group performed most impressively with respect to car loads that surged 32%. The other two segments to report double-digit volume growth is Grain and fertilizers, and Intermodal, both showing a 16% increase. However, Coal and Forest products volumes decreased 3% and 2% respectively.

In the quarter under review, operating income climbed 16% year over year to C$1,495 million. Operating ratio (defined as operating expenses as a percentage of revenues) was 55.1% compared with 54.5% in the year-ago quarter. Higher fuel costs contributed to the deterioration in this key metric.

Liquidity

Canadian National exited the second quarter with free cash flow of C$811 million compared with C$585 million a year ago. Adjusted debt at the end of the quarter was C$11,045 million compared with C$10,883 million a year ago.

Guidance

Canadian National continues to expect full-year 2017 earnings per share in the band of C$4.95-C$5.10 compared with C$4.59 a year ago.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There have been four revisions higher for the current quarter, while looking back an additional 30 days, we can see even more upward momentum.

Canadian National Railway Company Price and Consensus

 

VGM Scores

At this time, the stock has a subpar Growth Score of D, however its Momentum is doing a lot 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for momentum investors than value investors.

Outlook

Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. It comes with little surprise that the stock has a Zacks Rank #1 (Strong Buy). We are expecting an above average return from the stock in the next few months.




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