Canadian National Railway
) reported adjusted earnings per share of C$1.52 (approximately
$1.53) in the third quarter of 2012, in line with the Zacks
Consensus Estimate. Adjusted earnings increased 10% from the
adjusted earnings of C$1.38 ($1.41) in the year-ago quarter,
aided by strong freight volume and pricing.
Revenues increased 8% year over year to C$2,497 million
(approximately $2,508 million) but missed the Zacks Consensus
Estimate of $2,521 million.
The company gained significantly from growth across most of
its commodity segments, mostly from Petroleum and Chemicals, Coal
as well as Grain and Fertilizers.
Carloads (volumes) increased 3% year over year and revenue ton
miles, which measure the relative weight and distance of rail
freight transported by Canadian National, grew 2% from the
On a year-over-year basis, revenues increased 15% for
Petroleum and Chemicals
, 13% for
, 10% for Grain and Fertilizers, 9% for
, 7% for
Metals and Minerals
, 6% for
and 3% for
Operating income increased 5% year over year to C$985 million
(approximately $989 million). Operating expenses climbed 10% year
over year to C$1,512 million (approximately $1,519 million) due
to steeper fuel costs, increased purchased services and material
expenses, higher labor and fringe benefits expense and increased
fuel costs related to shipments. Operating ratio (defined as
operating expenses as a percentage of revenue) was 60.6%,
deteriorating 130 basis points.
Canadian National exited the third quarter with cash and cash
equivalents of C$175 million ($176 million), which was much lower
than C$192 ($196 million) in the same quarter of 2011. Free cash
flow declined to C$1,036 million ($1,040 million) from C$1,328
million ($1,359 million) in the comparable year-ago quarter. The
decline was primarily due to higher pension plan contributions
that amounted to C$450 million.
Long-term debt decreased to C$5,770 million at the end of
third quarter from C$6,441 million at year-end 2011 and C$5,878
million in the year-ago quarter. Debt-to-total capitalization
ratio was 36.3% in the third quarter versus 35.5% in the year-ago
Canadian National's board of directors announced a quarterly
dividend of 37.5 Canadian cents per share to shareholders of
record on December 10, payable on December 31.
Canadian National repurchased 16.7 million shares worth $1.4
billion in the third quarter under its current share repurchase
program. The company announced a new 18 million share
repurchase program worth C$1.4 billion.
The company maintains its 2012 adjusted earnings per share
growth estimate of approximately 15% from C$4.84 in fiscal 2011.
Pension expense estimates remain unchanged at C$100.
Free cash flows are expected to be C$1 billion. The company
expects voluntary pension contribution consideration of C$250
million in the fourth quarter.
The company maintains its investment plan of C$1.8 billion for
2012, of which C$1 billion will be dedicated to track
infrastructure development, railway safety along with network
The company expects carloads to remain in the mid single-digit
range in 2012 and pricing will continue to trade above
Canadian National expects 2012 and 2013 U.S. grain crop to be
lower than the five-year average, and Canadian grain crop in 2012
and 2013 will be slightly higher than the five-year average. In
addition, the company expects North American industrial
production to increase by about 3% in 2012.
The company also expects U.S. housing starts to be
approximately 750,000 units, and U.S. automotive sales to be
approximately 14.5 million units this year. Crude oil prices
(West Texas Intermediate) for 2012 are expected to be
approximately US$95 per barrel.
We believe Canadian National is poised to benefit from the
improving demand and pricing trends. The company's service
improvements and expected growth across all segments bode well
for the projected double-digit earnings growth in 2012. However,
several headwinds such as competitive threats from its peers like
Canadian Pacific Railway Limited
) , exchange rate fluctuations, and volatilities in market
conditions limit the upside potential of the stock.
Accordingly, we have maintained our long-term Neutral rating
on Canadian National. The stock holds a Zacks #3 Rank (Hold).
CDN NATL RY CO (CNI): Free Stock Analysis
CDN PAC RLWY (CP): Free Stock Analysis Report
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