It has been about a month since the last earnings report for Canadian National (CNI). Shares have added about 3.7% 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 catalysts.
Canadian National's Revenue Miss in Q3
Canadian National’s third-quarter 2020 earnings of $1.04 per share (C$1.38) missed the Zacks Consensus Estimate by 5 cents. Moreover, the bottom line declined 17.5% year over year.
Quarterly revenues of $2,558.6 million (C$3,409 million) missed the Zacks Consensus Estimate of $2,661 million and declined 11.8% year over year. The downside was primarily caused by COVID-19-induced lower volumes across most commodity groups and lower fuel surcharge rates.
Lackluster freight demand also had a negative impact on the top line. Freight revenues (C$3,249), which contributed 95.3% to the top line, fell 10% year over year. On a year-over-year basis, freight revenues declined across all segments. Freight revenues in Petroleum and Chemicals, Metals and Minerals, Forest Products and Coal segment declined 25%, 20%, 6% and 30%, respectively. Moreover, the same also declined in the Automotive (18%) and Intermodal segment (3%). Nevertheless, revenues in the Grain and Fertilizers segment inched up 10%.
While overall carloads declined 6% year over year, revenue ton miles (RTMs) dropped 7%. Segment-wise, carloads declined in the Petroleum and Chemicals, Metals and Minerals, Forest Products, Coal by 22%, 13%, 10%, and 21%, respectively. Nevertheless, carloads in the Grain and Fertilizers segment moved up 12%. While the metric fell 13% in the Automotive segment, the same remained flat in Intermodal segment. Moreover, freight revenue per carload dropped 5% in the reported quarter. Freight revenue per RTM also fell 3%.
Operating expenses for the third quarter decreased 8% to C$2,043 million, due to lower fuel and labor costs, as well as decreased purchased services and material expense. Adjusted operating income declined 15% year over year to C$1,366 million. Adjusted operating ratio (defined as operating expenses as a percentage of revenues) deteriorated to 59.9% from the year-ago quarter’s figure of 57.9%. Notably, a smaller value of the metric is desirable.
The company exited the September-end quarter with cash and cash equivalents of C$285 million compared with the C$64 million recorded at the end of 2019. The company generated free cash flow of C$506 during the third quarter of 2020 compared with the year-ago quarter’s C$700 million. Long-term debt amounted to C$12,915 million as of Sep 30, 2020 compared with C$11,866 million at 2019-end.
The company's board maintains its quarterly dividend of C$0.575 per share, which will be paid out on Dec 30 to shareholders of record at the close of business on Dec 9.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month.
Currently, CN has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, CN has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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