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CN (CNI) Up 3% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Canadian National (CNI - Free Report) . Shares have added about 3% 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 Q3 Earnings and Revenues Beat Estimates

The company’s earnings of $1.15 per share (C$1.50) outpaced the Zacks Consensus Estimate of $1.12. Moreover, the bottom line improved significantly from the prior-year quarter’s figure.

Quarterly revenues also increased year over year to $2,822 million (C$3,688 million) and beat the Zacks Consensus Estimate of $2,722.4 million. Rail freight revenues improved 14.8% year over year and contributed 93.9% to the top line.

Operating Results

On a year-over-year basis, freight revenues rose in Petroleum and Chemicals (25%), Metals and Minerals (15%), Forest Products (15%), Coal (25%), Grain and Fertilizers (15%), Intermodal (8%) as well as Automotive (3%). Overall, carloads (volumes) and revenue ton miles (RTMs) expanded 3% and 4%, respectively. Moreover, rail freight revenue per carload improved 12% in the quarter under review. Additionally, rail freight revenue per RTM increased 10%.

The Grain and Fertilizers sub-group performed impressively with respect to car loads. In fact, the metric expanded 8%. In Petroleum and Chemicals, Metals and Minerals, Forest Products, Coal as well as Intermodal, the same expanded 5%, 3%, 1%, 4% and 2%, respectively. However, the carloads contracted 3% in the Automotive segment.

Operating income increased 8.2% year over year to C$1,492 million. Operating ratio (defined as operating expenses, as a percentage of revenues) was 59.5% compared with 57.2% in the year-ago quarter. Higher fuel, labor and material costs as well as negative impact of softness in Canadian dollar led to the deterioration of the key metric.

Liquidity

The company exited the third quarter with free cash flow of C$585 million compared with C$662 million in the year-ago period. As of Sep 30, 2018, adjusted debt was C$12,847 million compared with C$11,330 million a year ago.

Dividend

The board of directors approved a dividend of 45.5 cents (C$0.4550) for the fourth quarter, payable on Dec 28, 2018 to shareholders of record as of Dec 7.

2018 Earnings Outlook

Canadian National reaffirmed adjusted earnings per share of C$5.30-C$5.45 for 2018. Moreover, it anticipates RTMs to grow around 5%.

How Have Estimates Been Moving Since Then?

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

VGM Scores

At this time, CN has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. However, 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 #2 (Buy). We expect an above average return from the stock in the next few months.




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