Canadian National Railway
) reported a mixed second quarter 2013. The company's efficient
operating base, improved services and cost-control measures were
partially offset by higher costs associated with purchased
services, materials and fuel.
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Adjusted earnings per share of C$1.66 (approximately $1.62)
comfortably beat the Zacks Consensus Estimate of $1.58. The
results also increased 11% from adjusted earnings of C$1.50
($1.47) in the year-ago quarter on higher freight rates and
Quarterly revenues increased 5% year over year to C$2,666 million
(approximately $2,605 million) but failed to meet the Zacks
Consensus Estimate of $2,628 million. The year over year growth
was attributable to improved performance across most of Canadian
National's commodity segments along with market share gains.
Carloads (volumes) increased 2% year over year and revenue ton
miles, which measure the relative weight and distance of rail
freight transported by Canadian National, moved up 5% from the
On a year-over-year basis, revenues increased 18% for Petroleum
and Chemicals, 3% for Intermodal, 4% for Metals and Minerals, 4%
for Forest Products and 5% for Grain and Fertilizers. While
Automotive business witnessed a drop of 3%, Coal revenues
In the second quarter, adjusted operating income improved 6% year
over year to C$1,042 million (approximately $1,018 million),
despite operating expenses moving up 4% year over year to C$1,624
million (approximately $1,587 million). Operating ratio (defined
as operating expenses as a percentage of revenue) was 60.9%, down
40 basis points.
As of Jun 30, 2013, Canadian National had cash and cash
equivalents of C$87 million ($85 million). The company had
long-term debt (including current portion) of C$7,463 million
($7,292 million), representing debt-to-capitalization ratio of
39.6%. Free cash flow for the quarter was C$437 million ($427
Canadian National expects growth in 2013 to be driven by upward
trends in the North American economic scenario, with carload
projected to improve 3-4%.
The company expects earnings per share to register high
single-digit year-over-year growth in 2013, while free cash flows
are expected in the range of C$800 million to C$900 million. The
company targets capital expenditure of C$2 billion, of which
nearly C$1.1 billion will be directed toward maintenance of track
infrastructure and railway network.
Other Railroad Stocks
Rail transportation services firm
Union Pacific Corp.
) reported second quarter 2013 adjusted earnings of $2.37 per
share, surpassing the Zacks Consensus Estimate of $2.35 and
year-ago earnings of $2.10. Better-than-expected earnings were
aided by higher pricing and an improvement in operating ratio.
Another transportation firm
) reported adjusted second-quarter 2013 earnings of 68 cents per
share, missing the Zacks Consensus Estimate of 85 cents. The
results reflected 15% deterioration from 80 cents reported in the
Of the other companies in the sector that are yet to report,
Canadian Pacific Railway Limited
) will release its financial results on Jul 24, before the
Canadian National carries a Zacks Rank #3 (Hold). We expect
Canadian National to benefit from favorable demand/supply
dynamics. The company's industry-leading operating ratio, service
improvements and expected growth across the board, particularly
in Intermodal, Crude and Forest products, bode well for its
projected earnings growth over the next few months.