Canadian National Railway Beats 1Q16 Earnings Estimate

Key Takeaways from Canadian National Railway's 1Q16 Results

CNI’s 1Q16 earnings

Canadian National Railway (CNI), the only transcontinental freight railroad in North America, announced its 1Q16 earnings on April 25, 2016. Wall Street analysts estimated a quarterly GAAP EPS (earnings per share) of $0.92 Canadian, whereas the company delivered a GAAP EPS of $1.00 Canadian.

The company’s 1Q16 earnings rose by 16% from $0.86 Canadian in 1Q15. Considering the almost flat movement in CNI’s stock, it seems that market has already priced in CNI’s financial performance in 1Q16.

Rail stocks since 2016

Railroad stocks started on a negative note in the beginning of 2016. However, as the year progressed, indications of some positive sentiments beginning in February 2016 boosted railroad shares. Rail stocks have seen buoyant price movement, and Canadian National is a no exception.

Since the beginning of 2016 until April 25, 2016, Canadian National Railway returned 17.9% to the investors. We’ll go through where its peers fare in terms of returns to investors:

• Canadian Pacific (CP) returned 13.3%

• Kansas City Southern (KSU) returned 29.8%

• CSX (CSX) returned 4.5%

• CSX’s Norfolk Southern (NSC) delivered a return of 8.0%

• Union Pacific (UNP) returned 12.0%

• Genesee & Wyoming (GWR) returned 19.3%

Investors looking for a pure play in US-specific rail stocks can invest in the Vanguard Dividend Appreciation ETF (VIG). All the US-originated Class I railroads make up the portfolio holdings of VIG.

2016 outlook

Canadian National Railway’s (CNI) management has issued a downward revision of the company’s financial outlook in 2016. This was mainly due to weaker-than-anticipated freight demand in some markets and the strengthening of the Canadian dollar relative to the US dollar.

According to the company, “CN now aims to deliver 2016 EPS in line with last year’s adjusted diluted EPS of C$4.44 (compared with its Jan. 26, 2016, financial outlook calling for mid-single digit EPS growth this year).”

Series overview

The entire railroad industry is reeling under the pressure of plummeting coal volumes. In some cases, the carriers saw coal volumes being swept away by almost 50%. In the light of this environment, investors should know that CNI’s exposure to coal business is very limited compared with the peer group, including rival CP. Plus, the company has upped its proposed capital spending in 2016, an exception among all the Class I railroads in the US.

In this series, we’ll cover Canadian National Railway’s (CNI) main freight segments’ performance in 1Q16 and the management’s outlook. We’ll also provide conference notes and Wall Street analysts’ perception toward CNI after its 1Q16 earnings.

Continue to Next Part

Browse this series on Market Realist:

• Part 2 - Canadian National’s Intermodal: Domestic Shines, International Slumps

• Part 3 - Why Did CNI’s Petroleum and Chemicals Revenues Slump in 1Q16?

• Part 4 - Why Did Canadian National’s Grain Revenues Derail in 1Q16?