Shares of Canadian National Railway Company (CNI) took a 2.2% hit despite reporting robust performance in the fourth quarter of 2023, with an earnings and revenue beat against Zacks Consensus Estimates. The market, however, appears unmoved by these favorable results, leaving many investors scratching their heads.
Earnings and Revenue Performance
The company delivered quarterly earnings per share (EPS) of $1.48 (C$3.29) (excluding 94 cents from non-recurring items), surpassing the Zacks Consensus Estimate of $1.46, albeit showing a 4.5% year-over-year decline. Meanwhile, quarterly revenues totaled $3,284.4 million (C$4,471 million), beating the Zacks Consensus Estimate of $3,247.3 million but marking a 1.8% drop from the previous year.
Factors Affecting Revenue
A slump in fuel prices led to a reduction in shipments of intermodal and grain, along with a decline in container storage fees and fuel surcharge revenues. This, in turn, contributed to the decline in overall revenues. The negative impact of these factors was partially offset by freight rate increases, a favorable translation effect due to a weaker Canadian dollar, and higher export volumes of Canadian grain. The company also faced challenges such as the Pacific-coast dock workers’ strike and unfavorable crude oil price spreads.
Segment-wise Revenue Breakdown
Freight revenues contributed significantly to the top line, constituting 96.2% of the total, amounting to C$4,303 million. This marked a 2% drop from the previous year, which was less than what analysts had anticipated. Despite the decline, certain segments, including Petroleum and chemicals, Metals and minerals, Coal, Grain and fertilizers, and Automotive, exhibited growth in freight revenues, showcasing resilience in the face of adversity.
Operational Metrics
Carload revenues decreased by 1% year over year, a milder decline than initially projected, highlighting the company’s ability to weather the storm. However, operating expenses witnessed a 1% increase due to higher labor and fringe benefits expenses stemming from general wage increases and an increase in the average headcount, along with personal injury and legal claim provisions.
2024 Outlook
Looking ahead, Canadian National remains optimistic, with an anticipated 10% growth in adjusted EPS for the year 2024. This forward-looking stance reflects the company’s confidence and strategic initiatives to navigate challenges and capitalize on growth opportunities.
Market Comparison
In comparison to other transportation companies, the market showed varying reactions. J.B. Hunt Transport Services, Inc. and Delta Air Lines reported mixed results, with earnings and revenues exhibiting different trends. This serves as a reminder that market dynamics can play a significant role in determining stock performance.
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