Why Canadian National Railway (NYSE: CNI) is under pressure

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Canadian National Railway (NYSE: CNI) stock lost over 0.8% on 23rd October, 2019 (As of 9:58 am GMT-4; Source: Google finance) on mixed results for the third quarter of FY 19. The Q3 operating ratio is 57.9% or 160 basis point lower than last year. Net income was just shy of CAD1.2 billion or CAD60 million higher than last year.

Meanwhile, the North American rail industry is facing a challenging economic environment. For North American coal segment in the third quarter, there is strong growth in Canadian exports as it is up 80% due to the ramp up of Coalspur’s new mine that opened earlier this year, was partially offset by sluggish US thermal coal exports down 38% as a result of low API to pricing. Looking forward, the company expect to see a sequential increase in run rate for Canadian Coal in Q4 and expect the same for US coal. The Canadian grain crop has been delayed due to poor weather conditions and the company ended the quarter 1% below last year. CNI expect to recoup those volumes in the spring of 2020. The company run longer trains with direct CN to CN service from country elevators to west coast ports. The new G3 grain terminal in Vancouver is projected to be in service in the second half of 2020.

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CNI in the third quarter of FY 19 has reported the adjusted earnings per share of $1.66, beating the analysts’ estimates for the adjusted earnings per share of $1.22, as per analysts polled by Thomson Reuters. The company had reported the adjusted revenue growth of 13 percent to $3.83 billion in the third quarter of FY 19, beating the analysts’ estimates for revenue of $2.92 billion.

Additionally, CNI is on track with the current share buyback program of CAD1.7 billion having repurchased 9.2 million shares at a cost of approximately CAD1.1 billion since the end of January.

In light of the deterioration in North American rail demand, as the economy continues to weaken, CN now expects 2019 adjusted earnings growth in the high single-digit range this year versus last year’s adjusted diluted EPS of $5.50 per share. Analysts currently estimate earnings of $4.60 per share. On the capital front, the company expect to end the year at approximately CAD3.9 billion.

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