Canadian National Railway Company
) reported second-quarter 2014 adjusted earnings per share of
C$1.03 (approximately 96 cents), beating the Zacks Consensus
Estimate of 92 cents. Results also increased 24.1% year over year
on record volumes in several of its core markets and solid
Quarterly revenues increased 16.9% year over year to C$3,116
million (approximately $2,867 million) and surpassed the Zacks
Consensus Estimate of $2,830 million. The year-over-year growth was
attributable to favorable currency fluctuations, higher freight
pricing, record volumes, strong energy market and market share
On a year-over-year basis, revenues increased 35% for Grain and
Fertilizers, 20% for Metals and Minerals, 17% each for Intermodal
and Petroleum and Chemicals, 15% for Automotive, 9% for Forest
Products, and 5% for Coal.
Carloads (volumes) increased 11% year over year and revenue ton
miles (RTMs), which measures the relative weight and distance of
rail freight transported by Canadian National, moved up 14% from
the year-ago quarter.
In the second quarter, adjusted operating income improved 20.7%
year over year to C$1,258 million (approximately $1,157.4 million),
despite operating expenses increasing 14.4% year over year to
C$1,858 million (approximately $1,709.4 million). Operating ratio
(defined as operating expenses as a percentage of revenues) was
59.6%, down 130 basis points.
As of Jun 30, 2014, Canadian National had cash and cash
equivalents of C$127 million (approximately $119.4 million). The
company had long-term debt of C$7,661 million (approximately
$7,201.3 million), representing a debt-to-total capitalization
ratio of 36.5%, down from 39.6% in the year-ago quarter. Free cash
flow was C$776 million (approximately $729.4 million) in the second
Canadian National revised its 2014 outlook owing to strong
growth opportunity within Intermodal and bulk and merchandise
This time, the company expects to deliver solid double-digit
earnings growth in 2014 over its 2013 diluted earnings of $3.06 per
share, compared to its earlier forecast of aiming for double-digit
earnings growth in 2014.
Moreover, the company anticipates free cash flow in the range of
C$1.8-C$2.0 billion, compared to its previous expectation of
Canadian National expects carload growth in the mid-single-digit
range. However, capital expenditure is projected at around C$2.25
billion, higher than previously estimated $2.21 billion.
For 2014, Canadian National projects a 3-4% year-over-year
increase in industrial production in North America as compared to
the previous guidance of year-over-year growth of 3%. It also
expects U.S. housing starts at around 1 million units, down from
the previous expectation of 1.1 million. Meanwhile, U.S. motor
vehicles sales will remain around 16 million units.
The company expects U.S. 2013/2014 grain crop to remain above
the five-year average and also projects similar growth for Canadian
2013/2014 grain crop. In addition, 2014/2015 grain crops will see
high single-digit carload growth as opposed to the previous
expectation of mid-single-digit carload growth. Canadian National
also expects pricing to remain above inflation.
Further, Canadian National expects CAD/USD exchange rate of
approximately $0.90-$0.95 and the price of crude oil (West Texas
Intermediate) in the $95-$105 per barrel range.
Canadian National paid $206 million in dividend to its
shareholders during the second quarter of 2014. The company's board
of directors approved quarterly dividend payment of 25 Canadian
cents, to be paid on Sep 30, 2014, to shareholders of record at the
close of business on Sep 9.
We believe strong demand across most of its businesses with
improvements in consumer confidence in the U.S. and domestic retail
markets bodes well for Canadian National. The company 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 and grain, should drive its projected earnings growth
over the next few months.
However, low shipments of export coal for Canadian National in
addition to competitive pressure and higher expenses dampen our
optimism regarding the company. Canadian National currently has a
Zacks Rank #3 (Hold).
On July 17 2014, Canadian National's competitor
Canadian Pacific Corp.
) reported adjusted earnings per share of C$2.11 (approximately
$1.31) in the second quarter of 2014, up 48% year over year but
below the Zacks Consensus Estimate of $1.38.
Upcoming Earnings Releases
Some of the upcoming earnings releases within the railroad
sector include those of
Norfolk Southern Corp.
Union Pacific Corporation
), scheduled on July 23 and 24, respectively.
Want the latest recommendations from Zacks Investment Research?
Today, you can download 7 Best Stocks for the Next 30 Days.
Click to get this free report
UNION PAC CORP (UNP): Free Stock Analysis
CDN NATL RY CO (CNI): Free Stock Analysis
NORFOLK SOUTHRN (NSC): Free Stock Analysis
CDN PAC RLWY (CP): Free Stock Analysis Report
To read this article on Zacks.com click here.