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Canadian National Railway Beats Q3 Estimates, Initiates Buyback

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CNI’s third-quarter earnings

On October 23, Canada’s number one freight rail, Canadian National Railway (CNI), announced its third-quarter results after the market closed. The railroad company’s adjusted EPS came in at 1.50 Canadian dollars in the quarter, ~2% higher than Reuters-surveyed analysts’ estimate of 1.47 Canadian dollars.

On a YoY (year-over-year) basis, CNI’s adjusted EPS rose 14.5% in the quarter from 1.31 Canadian dollars in the third quarter of 2017.

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On October 23, Canadian National Railway stock closed at $82.44 on the NYSE, down 2.95% from its closing price of $84.95 on October 22. Today, the company’s shares opened at $83.52 and touched $85.06 in the first hour of trading. However, the stock fell to $82.68 by the end of the second hour of trading. On October 23, CNI announced a stock buyback of up to 5.5 million common shares, representing 0.9% of its 611.3 million common shares issued and outstanding not held by insiders as of October 16.

Third-quarter revenue and key metrics

Canadian National Railway surpassed analysts’ revenue estimate of 3.58 billion Canadian dollars by 2.8% in the quarter with revenue of 3.68 billion Canadian dollars. CNI’s revenue was up 14.5% YoY (year-over-year) in the third quarter from 3.22 billion Canadian dollars. Its revenue ton miles expanded 4% YoY, and its carloads rose 3% YoY in the quarter.

CNI’s operating profit rose 8% to 1.492 billion Canadian dollars in the third quarter. However, its operating margin deteriorated in the quarter. The company reported a 230-basis-point contraction in its operating margin to 38.2% from 40.5% in the third quarter of 2017.

Management’s outlook

On its third-quarter earnings call, Canadian National Railway reiterated that it expected to report 2018 adjusted diluted EPS of between 5.30 Canadian dollars and 5.45 Canadian dollars. In the last year, the company has reported adjusted diluted EPS of 4.99 Canadian dollars. It expects YoY revenue ton mile growth of ~5% in 2018.

In the third quarter, major Class I railroad companies (XLI) CSX Corporation (CSX), Canadian Pacific (CP), Kansas City Southern (KSU), and Norfolk Southern (NSC) have reported a double-digit YoY adjusted EPS growth.

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