Canadian National Railway (TSE:CNR) Posts Strong Third Quarter Earnings

Canadian National Railway (TSE:CNR) reported third quarter earnings after the bell on Tuesday, and despite a softening economy here in Canada, investors should be happy with the results.

So how did the company fare? Lets look at some highlights from the transportation giant’s third quarter.

CN Rail (TSX:CNR) third quarter highlights

  • The company posted revenue of $3.8 billion, which is an increase of $142 million compared to the same period in 2018. This is an increase of four percent, and the company attributes most of that increase to freight rate increases and higher intermodal revenue.
  • Operating expenses were up approximately 1%, and would have been up higher if not for lower fuel costs and fuel productivity. CN Rail attributes higher operating costs to increased purchased services and other material expenses.
  • The company posted a debt-to-adjusted EBITDA of less than 2.0x. This is a bright spot, and shows strength in the company’s balance sheet moving forward.
  • Diluted earnings per share came in at $1.66, which is an increase of 11% compared to one year ago today.

Overall, investors in CN Rail should be happy with the result. Although there is some things investors should be looking out for, and revised guidances from one of the biggest transportation companies in the country could signal a looming recession.

Lower demand for rail and poor economic conditions could hurt Canadian National Railway

Demand for shipments via rail are going down, visible by CN Rail’s reduction in RTM (Revenue Ton Miles) of 1% compared to one year ago today. The company has also reduced its overall guidance on its RTM numbers. At first, the company declared possible growth in the mid single digits, and has now guided down to RTM’s being slightly down from last years results.

The company has also reiterated guidance on its EPS growth. In July, the company stated EPS growth should be in the low double-digit range, and has now stated due to the weakening economy it expects to post high single-digit growth. This isn’t the end of the world, but it could be a sign of weaker economic times ahead.

Overall, earnings hit the mark for the Canadian rail giant, but I may look elsewhere right now

Analysts expected revenue in the $3.8 billion range, and CNR delivered exactly that. In terms of earnings, EPS of $1.66 beat by $0.05. At a quick glance, the company looks to be moving along quite nicely, with earnings beats in its last three quarters. But with guidances being reiterated toward the low end, I’d expect rough times from the rail giant moving forward. There’s better bargains out there right now for cheaper, as CNR isn’t exactly cheap trading at nearly 20 times forward earnings and 5 times book value.

If you’re looking for a transportation stock that has been quietly impressing, have a look at TFI International (TSX:TFII).

**Daniel Kent is long TFII.TO