Yahoo Finance CN (CNI) Up 7.1% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Canadian National (CNI). Shares have added about 7.1% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is CN due for a pullback? 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 Lag at Canadian National in Q3
Canadian National reported disappointing third-quarter 2023 results, wherein both earnings and revenues lagged the Zacks Consensus Estimate.
Quarterly earnings per share (EPS) of $1.26 (C$1.69) missed the Zacks Consensus Estimate of $1.29 and declined year over year.
Quarterly revenues of $2,972.2 million (C$3,987 million) missed the Zacks Consensus Estimate of $3,013.8 million and dipped year over year. The downfall was owing to a reduction in fuel surcharge revenues as a result of lower fuel prices and lackluster volumes of intermodal, crude oil and forest products.
Reduced demand for freight services hurt volumes. The metric was also hit by the pacific-coast dock workers’ strike and unfavorable crude oil price spreads, among other factors. These were partly offset by freight rate increases, favorable translation impact of a weaker Canadian dollar and higher export volumes of Canadian grain.
Freight revenues (C$3,820 million), which contributed 95.8% to the top line, decreased 13% year over year, wider than our anticipated fall of 5.5%. Freight revenues at the Petroleum and chemicals, Metals and minerals, Forest products, Coal and Intermodal segments fell 11%, 4%, 15%, 6% and 34%, respectively. Revenues at the Grain and fertilizers and Automotive segments increased 16% and 14%, respectively.
Carloads revenues tumbled 10% year over year, greater than our projected dip of 1.4%. Segment-wise, carloads in Petroleum and chemicals, Forest products Coal and Intermodal declined 3%, 12%, 5% and 23%, respectively. The same at Grain and fertilizers, and Automotive grew by 13% each. The metric at Metals and minerals has been kept flat on a year-over-year basis.
Freight revenues per carload inched down 3% from the year-ago reported quarter, while freight revenues per revenue ton-miles were down 8%.
Operating expenses contracted 4% year over year to C$2,470 million due to lower fuel prices partly offset by the negative translation impact of a weaker Canadian dollar.
Adjusted operating ratio (defined as operating expenses as a percentage of revenues) was 62% in third-quarter 2023, up from 57.2% in the year-ago reported quarter. The lower the metric, the better.
Liquidity
Canadian National generated free cash flow of C$581 million during the third quarter compared with C$1,356 million a year ago.
2023 Outlook
For 2023, Canadian National still anticipates flat to slightly negative year-over-year growth in adjusted EPS.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision.
VGM Scores
At this time, CN has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, CN has a Zacks Rank #4 (Sell). We expect a below average 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, Union Pacific (UNP), a stock from the same industry, has gained 8.9%. The company reported its results for the quarter ended September 2023 more than a month ago.
Union Pacific reported revenues of $5.94 billion in the last reported quarter, representing a year-over-year change of -9.5%. EPS of $2.51 for the same period compares with $3.19 a year ago.
For the current quarter, Union Pacific is expected to post earnings of $2.52 per share, indicating a change of -5.6% from the year-ago quarter. The Zacks Consensus Estimate has changed -0.4% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Union Pacific. Also, the stock has a VGM Score of F.
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