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What to Expect from Canadian National Railway’s Q1 Earnings

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First-quarter expectations

Canadian National Railway (CNI) is scheduled to release its first-quarter results on April 29. The largest Canadian freight railroad company has an impressive record of beating earnings estimates. The company has beat analysts’ consensus estimates in the last four quarters with an average positive surprise of 3.3%.

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Canadian National Railway will likely continue its trend of beating analysts’ earnings expectations. The company is expected to report strong double-digit growth in the first quarter. For the first quarter, analysts expect an adjusted EPS of $1.18, which implies a YoY (year-over-year) rise of 18%.

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Factors driving the optimism

Analysts expect increased revenues and the implementation of the PSR (precision scheduled railroading) system to drive Canadian National Railway’s first-quarter earnings. For the first quarter, the company is expected to report revenues of $3.5 billion—9.4% higher than the first quarter of 2018.

The YoY revenue growth will likely be driven by increased pricing and higher volumes. According to the rail traffic data released by the company on April 3, it saw a 0.9% YoY increase in the total traffic during the first quarter.

The implementation of the PSR system will likely help Canadian National Railway improve its operating ratio, which is measured as operating expenses as a percentage of revenues. The lower the rate, the better it is for the company.

The PSR principle helps railroad companies (IYT) reduce network complexity and improve operational efficiency. In the fourth quarter of 2018, Canadian National Railway’s operating ratio fell by 150 basis points to 61.2% from 62.7% in the fourth quarter of 2017.

Peers’ performance

Various railroad stocks including CSX (CSX), Kansas City Southern (KSU), and Union Pacific (UNP) have already reported their first-quarter results. CSX, Kansas City Southern, and Union Pacific recorded growth of 31%, 18%, and 15% YoY in their respective first-quarter EPS.

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