Canadian National Railway Company ( CNI ) reported third-quarter 2014 adjusted earnings per share of C$1.04 (approximately 96 cents), beating the Zacks Consensus Estimate of 92 cents. Results also increased 23.8% year over year on record volumes in several of its core markets and solid execution.
Quarterly revenues increased 15.6% year over year to C$3,118 million (approximately $2,777 million) but missed the Zacks Consensus Estimate of $2,860 million. The year-over-year growth was attributable to favorable currency fluctuations, higher freight pricing, record volumes, strong energy market and market share gains.
On a year-over-year basis, revenues increased 29% for Grain and Fertilizers, 17% for Metals and Minerals, 14% each for Intermodal and 21% for Petroleum and Chemicals, 17% for Automotive, 8% for Forest Products. Coal revenues registered a decline of 3% year over year.
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 13% from the year-ago quarter.
Operating Statistics
In the third quarter, adjusted operating income improved 18.6% year over year to C$1,286 million (approximately $1182.1 million), despite operating expenses increasing 13.5% year over year to C$1,832 million (approximately $1,684 million). Operating ratio (defined as operating expenses as a percentage of revenues) was 58.8%, down 100 basis points.
Liquidity
As of Sep 30, 2014, Canadian National had cash and cash equivalents of C$176 million (approximately $161.8 million). The company had long-term debt of C$7,356 million (approximately $6,761.6 million), representing a debt-to-total capitalization ratio of 36.3%, down from 39.3% in the year-ago quarter. Free cash flow was C$775 million (approximately $712.4 million) in the third quarter.
Dividend and Share Repurchase
Canadian National paid C$204 million ($187.5 million) in dividend to its shareholders during the third quarter of 2014. In the same quarter, the company repurchased 4.9 million shares under its current share repurchase program. As of Sep 30, 2014, the company had 814.7 million common shares outstanding under its existing program.
Our Analysis
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 from peers like Canadian Pacific Railway Limited ( CP ), Union Pacific Corporation ( UNP ) and Kansas City Southern ( KSU ), and higher expenses dampen our optimism regarding the company.
Canadian National currently has a Zacks Rank #3 (Hold).
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
