A month has gone by since the last earnings report for Canadian National (CNI). Shares have lost about 2.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is CN due for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Earnings Beat at Canadian National in Q1
Canadian National reported better-than-expected first-quarter 2023 results, wherein both earnings and revenues outperformed the Zacks Consensus Estimate.
Quarterly earnings of $1.35 per share (C$1.82) beat the Zacks Consensus Estimate of $1.26 and improved 29.8% year over year.
Quarterly revenues of $3,189.8 million (C$4,313 million) outperformed the Zacks Consensus Estimate of $3,152.3 million and increased year over year. The uptick was driven by higher fuel surcharge revenues as a result of higher fuel prices, higher export volumes of Canadian grain, freight rate increases and the positive translation impact of a weaker Canadian dollar. These were partly offset by lower intermodal volumes.
Freight revenues (C$4,219 million), which contributed 97.8% to the top line, increased 17% year over year. Freight revenues at Petroleum and Chemicals; Metals and minerals; Forest products; Coal; Grain and fertilizers; and Automotive segments increased 10%, 30%, 20%, 35%, 43%, and 30%, respectively. Revenues at the Intermodal segment fell 4%.
Carloads revenues grew 1% year over year. Segment-wise, carloads in Petroleum and Chemicals; Metals and Minerals; Forest Products; Coal; Grain and Fertilizers and Automotive grew 1%, 13%, 4%, 10%, 23% and 13%, respectively. The same at Intermodal decreased by 13%.
Freight revenues per carload climbed 16% year over year in the reported quarter, while freight revenues per revenue ton-miles improved 10%.
Operating expenses rose 7% year over year to C$2,651 million due to the negative translation impact of a weaker Canadian dollar, increased purchased services and material expenses and higher labor and fringe benefits expenses (backed by a higher average headcount).
Adjusted operating income increased 34.4% year over year to C$1,662 million. Adjusted operating ratio (defined as operating expenses as a percentage of revenues) came in at 61.5% in the first quarter of 2023, down from 66.6% in the year-ago reported quarter.
Liquidity
Canadian National generated a free cash flow of C$593 million during the first quarter compared with the year-ago quarter’s C$571 million.
2023 Outlook
Given its solid first-quarter results, Canadian National now anticipates delivering earnings growth in the mid-single digits (prior view: low-single-digit range).
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
VGM Scores
At this time, CN has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren’t focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, CN has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
CN is part of the Zacks Transportation – Rail industry. Over the past month, CSX (CSX), a stock from the same industry, has gained 2.3%. The company reported its results for the quarter ended March 2023 more than a month ago.
CSX reported revenues of $3.71 billion in the last reported quarter, representing a year-over-year change of +8.6%. EPS of $0.48 for the same period compares with $0.39 a year ago.
CSX is expected to post earnings of $0.49 per share for the current quarter, representing a year-over-year change of -2%. Over the last 30 days, the Zacks Consensus Estimate has changed +0.2%.
CSX has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of B.
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