Canadian National Railway
) reported fourth-quarter 2013 adjusted earnings per share of 76
Canadian cents (approximately 72 cents), beating the Zacks
Consensus Estimate by a penny. The results also increased 7% year
over year on higher freight rates and volumes.
Quarterly revenues increased 8% year over year to C$2,745
million (approximately $2,617 million) and surpassed the Zacks
Consensus Estimate of $2,511 million. The year-over-year growth
was attributable to higher freight carloads based on strong
energy markets, market share gains, as well as gradual recovery
in the North American economy.
In 2013, the company reported adjusted earnings per share of
C$3.06 ($2.97), up 9% year over year on revenues which came in at
C$10,575 million (approximately $10,270 million), up 7% year over
On a year-over-year basis, revenues increased 22% for
Petroleum and Chemicals, 12% for Metals and Minerals, 11% each
for Intermodal and Forest Products, 4% for Automotive and 2% for
Grain and Fertilizers in the fourth quarter. Coal registered a
revenue decline of 9% year over year.
Carloads (volumes) increased 3% year over year and revenue ton
miles (RTMs), which measures the relative weight and distance of
rail freight transported by Canadian National, moved up 5% from
the year-ago quarter. For 2013, carloads increased 3% and RTMs
was up 4% year over year.
In the fourth quarter, adjusted operating income improved 5%
year over year to C$967 million (approximately $921 million),
despite operating expenses increasing 10% year over year to
C$1,778 million (approximately $1,695 million). Operating ratio
(defined as operating expenses as a percentage of revenues) was
64.8%, up 120 basis points.
For 2013, operating income rose 5% year over year to C$3,873
million (approximately $3,761 million). Operating expenses
increased 7% year over year to C$6,702 million (approximately
$6,509 million), resulting in an operating ratio of 63.4%, 50 bps
higher year over year.
As of Dec 31, 2013, Canadian National had cash and cash
equivalents of C$214 million (approximately $208 million). The
company had long-term debt of C$6,819 million (approximately
$6,623 million), representing a debt-to-total capitalization
ratio of 37.7%, down from 38.5% in 2012. Free cash flow was
C$1,623 million (approximately $1,576 million) in 2013.
Canadian National expects double-digit earnings growth in 2014
from adjusted earnings of 2013 and free cash flow in the range of
C$1.6 - C$1.7 billion.
Canadian National expects carload growth in the mid-single
digit range. Capital expenditure for 2014 is projected around
C$2.1 billion, of which over C$1.2 billion will be directed
toward track infrastructure as well as enhancement of
productivity and network fluidity.
For 2014, Canadian National projects a 3% year-over-year
increase in industrial production in North America. It also
expects U.S. housing starts to be around 1.1 million units and
U.S. motor vehicles sales to be approximately 16 million
The company expects U.S. 2013/2014 grain crop to remain above
the five-year average and also projects Canadian 2013/2014 grain
crop to witness similar growth. In addition, 2014/2015 grain
crops in both the countries are anticipated to be in line with
Further, Canadian National expects CAD/USD exchange rate to be
approximately C$0.95 and the price of crude oil (West Texas
Intermediate) to be in the $95-$105 per barrel range.
Canadian National's board of directors approved a 16% hike in
its quarterly dividend payment to 25 Canadian cents, representing
an annualized dividend payment of C$1.00 per share. The increased
dividend will be paid on Mar 31, 2014, to shareholders of record
at the close of business on Mar 10, 2014.
We believe Canadian National is well poised to reap benefits
from improving demand and pricing trends. The company's
industry-leading operating ratio, service improvements and
expected growth across the board, particularly in Intermodal,
Crude and Automotive, bode well for its projected earnings growth
over the next few months. However, several headwinds such as
competitive threats from
Canadian Pacific Railway Limited
Union Pacific Corp.
Kansas City Southern
), uncertainties in the market condition of some of the product
lines and downturn in the economy may limit the upside potential
of the stock.
Canadian National currently has a Zacks Rank #3 (Hold).
CDN NATL RY CO (CNI): Free Stock Analysis
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