Canadian National Railways Hopes of Rail Industry Capturing Market Share From Trucking

Canadian National Railways reported a modest Q3 earnings beat. $CNI is not seeing labor issues and is in good shape from a labor standpoint which was a concern with investors after JB Hunt reported earnings. Fellow Canadian rail giant Canadian Pacific recently beat out CNI in merging with Kansas City Southern $KSU.

Canadian National Railways reported a modest Q3 earnings beat. $CNI is not seeing labor issues and is in good shape from a labor standpoint which was a concern with investors after JB Hunt reported earnings. Fellow Canadian rail giant Canadian Pacific recently beat out CNI in merging with Kansas City Southern $KSU.

North American Railway Map CNNorth American Rail Routes courtesy CN

Earnings

Canadian National Railways reported Q3 adjusted EPS of C$1.52, C$0.10 ahead of consensus. Revenues also grew, but at a slower pace of 5.3% yr/yr to C$3.59 bln, still topping consensus. Hammered by the COVID 19 lockdown last year where CNI had one of its worst quarters of the past five years, where revenues fell 11.0% on a two-year stack, revenues are still down 5.7%.

Marker Reaction: Canadian National Railway Co NYSE: CNI $131.90 $+7.58 +6%

Highlights

  • CNI’s volumes on an RTM (revenue ton miles) basis declined 1% in Q3 due to forest fires in July and supply chain constraints.
  • The decline was less significant than Canadian Pacific’s (CP) 4% decline in RTM for its quarter ending September 30.

CNI CEO Retiring

CEO Jean-Jacques Ruest, who took the helm in 2018, will retire at the end of January 2022.

Labor shortages affect on Intermodal shipping

The had been concerns after J.B. Hunt (JBHT) reported earnings last week that CNI and the other railway stocks would miss expectations. JBHT is the largest intermodal shipping company in the US. The trucking company reported that labor shortages and rail restrictions in its intermodal segment hurt volumes during its earnings report last week, the expectations were rail stocks could be negatively affected.

JBHT stated that labor shortages weren’t exclusive to the trucking industry and believed that the rail industry was similarly affected. US railway company Kansas City Southern ($KSU) did report a 3% decline in volumes yr/yr in its earnings report yesterday it did not the company did not view labor shortages as a direct cause. KSU attributed the falle to chip shortages and some rail blockages.Today CNI gave a similar picture of not seeing labor issues and that it is in good shape from a labor standpoint. This factor in these times could lead to the rail industry capturing market share from the trucking industry.

CNI’s intermodal segment helped drive revenue growth as well as offset lower volumes of Canadian grain from the drought sweeping the nation. With the shortage of drivers in trucking industry there is an opportunity where intermodal should remain strong, transit us shifting toward railways. JBHT mentioned that the company reached all-time highs for drivers across its segments in the past year. 30 per cent of the Canadian railways’ revenues are derived from cross-border trade. Of that 60 to 70 per cent of that being Canadian exports to the U.S.

Kansas City Southern Merger with Canadian Pacific Railway Sees Canadian National Railways Focus

The market was pleased with the CNI earnings result and appears relieved that CNI can get back to focusing on executing its strategic plans now that the KSU/CNI merger is off the table. Kansas City Southern (KSU) or KCS said on September 13 that it determined that Canadian Pacific Railway Limited’s (CP, CP.TO) revised proposal constitutes a ‘Company Superior Proposal’ as defined in KCS’s merger agreement with Canadian National Railway Company (CNI, CNR.TO) or ‘CN’.

Per the terms of CP’s proposal, each share of KCS common stock would be exchanged for 2.884 CP common shares and $90 in cash. In addition, holders of KCS preferred stock would receive $37.50 in cash for each share of KCS preferred stock held. The proposal is binding on CP and may be accepted by KCS at any time prior to on September 20, 2021.

Kansas City Southern said it has notified CN that it intends to terminate KCS’s merger agreement with CN and enter into the definitive agreement with CP, subject to CN’s right to negotiate amendments to the merger agreement for at least five business days and the KCS Board’s further determination as to whether any such amendments would cause the CP proposal no longer to constitute a ‘Company Superior Proposal.’

For More: Kansas City Southern Railway Bidding Wars With Canadian Pacific and Canadian National

Outlook

CNI reaffirmed its FY21 earnings guidance of +10%, with just Q4 guidance left in the fiscal year. CNI’s long-term growth forecasts has CNI focused on delivering 20% EPS growth over the long term

Prior to Covid Canada’s railways companies had been recovering from a healthier global economy and higher demand to move crude oil as the price reaches levels not seen since 2014.

Source: CN, CP, TC

From The TradersCommunity Research Desk

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