Why Canadian National Railway (NYSE: CNI) Stock Is Under Pressure

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Canadian National Railway (NYSE: CNI) stock lost over 3.4% on 21st October, 2020 (as of  10:00 am GMT-4; Source: Google finance) after the company missed analysts’ estimates for third-quarter profit driven by lower crude shipment during the COVID-19 pandemic. Rail operators, which moved record-high Canadian oil volumes at the beginning of the year, witnessed a fall in crude volumes as energy companies cut production in the face of falling demand due to coronavirus-driven lockdowns. Net income fell to C$985 million ($750.36 million), in the quarter ended Sept. 30 from C$1.20 billion, a year earlier.

Moreover, Canadian coal was negatively affected by the temporary closure of CST and Coal Valley mines and the permanent closure of TECK Cardinal River mine. Forest products ramped up sharply in Q3 as the customers brought back idled capacity to take advantage of strong construction activity. Crude, frac sand and refined petroleum products, which are long-haul heavy tonnage segments, were the weak outliers in Q3, contributing to the shift in the overall business mix for the quarter. The positive momentum CNI saw in Q3 will help the company finish the year out strong and position the company well for 2021.

CNI in the third quarter of FY 20 has reported the adjusted earnings per share of C$1.38, missing the analysts’ estimates for the adjusted earnings per share of C$1.46, according to IBES data from Refinitiv. The company had reported 11 percent fall in the adjusted revenue to C$3.41 billion in the third quarter of FY 20. The decline in revenues was mainly due to lower volumes across most commodity groups caused by the ongoing effects of the COVID-19 pandemic and lower applicable fuel surcharge rates, partly offset by freight rate increases as well as increased shipments of Canadian grain. RTMs, measuring the relative weight and distance of freight transported by CN, declined by 7% from the year-earlier period. Freight revenue per RTM decreased by 3% over the year-earlier period. Operating expenses for the third quarter decreased by 8% to C$2,043 million, mainly due to lower fuel and labor costs, as well as decreased purchased services and material expense. The company reported 15% fall in the operating income to C$1,366 million. The company generated free cash flow for the first nine months of 2020 was C$2,087 million, which represents an increase of C$588 from the prior period.

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