Canadian National (CNI) Beats On Q4 Earnings, Hikes Dividend

Canadian National Railway Company (NYSE:CNI) delivered impressive fourth-quarter 2018 results, with earnings and revenues beating the Zacks Consensus Estimate.

The transportation company’s earnings (excluding 5 cents from non-recurring items) of $1.13 per share (C$1.49) outpaced the Zacks Consensus Estimate of $1.11. Moreover, the bottom line improved double digits on a year-over-year basis. The figures were aided by higher revenues.

Quarterly revenues came in at $2,881.7 million (C$3,808 million), edging past the Zacks Consensus Estimate of $2,842.2 million. The top line improved on a year-over-year basis on the back of strong freight revenues and positive foreign currency impact. Also, rail freight revenues improved 16% year over year and contributed 94.6% to the top line.

Operating Results

On a year-over-year basis, freight revenues rose in Petroleum and Chemicals (50%), Metals and Minerals (5%), Forest Products (7%), Coal (21%), Grain and Fertilizers (13%), Intermodal (9%) as well as Automotive (5%). Overall, carloads (volumes) and revenue ton miles (RTMs) expanded 5% and 12%, respectively. Moreover, rail freight revenue per carload improved 11% in the quarter under review. Additionally, rail freight revenue per RTM increased 4%.

The Coal as well as Petroleum and Chemicals sub-group performed impressively with respect to carloads with the metric up 24% and 19%, respectively. In Grain and Fertilizers, revenues rose 5%. Also, carloads expanded 3% in each of the Intermodal and Automotive segments. However, the metric contracted 1% in the Metals and Minerals as well as the Forest Products segments.

Adjusted operating income increased 20.7% year over year to C$1,479 million. Adjusted operating ratio (defined as operating expenses, as a percentage of revenues) improved to 61.2% from 62.7% in the year-ago quarter. Notably, lower value of this key metric bodes well.

However, operating expenses rose 14% year over year to C$2,356 million. The increase was mainly due to high labor costs, costs related to increased traffic volumes and other factors.

Liquidity

This Zacks Rank #3 (Hold) company exited 2018 with cash and cash equivalents of C$266 million compared with C$70 million at the end of 2017. Free cash flow came in at C$633 million compared with C$457 million in the year-ago period. Long-term debt amounted to C$11,385 million compared with C$8,748 million in December 2017. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Dividend Hike

The board of directors hiked quarterly cash dividend by 18% to C$0.5375. The dividend is payable on Mar 29, 2019 to shareholders of record as of Mar 8.

Share Repurchases

The board of directors cleared the buyback of shares under a new normal course issuer bid. The buyback program enables the company to buy, for cancellation, up to 22 million shares of common stock. The bid will commence on Feb 1, 2019 and terminate by Jan 31, 2020.

2019 Outlook

For 2019, Canadian National anticipates adjusted diluted earnings per share to grow in the range of low double-digits. RTMs are expected to witness high single-digit volume growth on the back of significant growth opportunities along with a favorable economy.

Upcoming Releases

Investors interested in the Zacks Transportation Sector are keenly awaiting fourth-quarter 2018 earnings reports from key players like Air Lease Corporation (NYSE:AL) , Expeditors International of Washington, Inc. (NASDAQ:EXPD) and Copa Holdings, S.A. (NYSE:CPA) . While Copa Holdings is scheduled to report fourth-quarter earnings on Feb 13, Expeditors and Air Lease will release the same on Feb 19 and Feb 21, respectively.

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