CANADIAN NATIONAL RAILWAY CO. (Toronto symbol CNR; www.cn.ca) operates Canada’s largest railway. Its 32,350-kilometre network stretches across the country and through the U.S. Midwest to the Gulf of Mexico.
Manufacturers are shipping more goods by rail, thanks to the improving North American economy. At the same time, a lack of pipeline capacity is prompting oil producers to ship more of their product by train.
As a result, CN’s earnings rose 9.0% in the three months ended September 30, 2013, to $724 million from $664 million a year earlier. Due to fewer shares outstanding, earnings per share gained 13.2%, to $0.86 from $0.76 (all per-share amounts adjusted for a 2-for-1 stock split in December 2013; see more below).
Revenue rose 9.0%, to $2.7 billion from $2.5 billion. CN reported revenue gains from shipping petroleum (up 16.6%), intermodal containers (up 13.1%), metals and minerals (up 10.6%), forest products (up 7.7%) and automotive goods (up 7.1%). These increases offset declines in grain and fertilizers (down 3.0%) and coal (down 0.5%).
Canadian dividend stocks: CN installs new safety devices in wake of Lac Megantic explosion
Higher labour costs and depreciation charges pushed up CN’s operating expenses by 6.7% in the latest quarter. But thanks to the higher revenue, its operating ratio improved to 59.8% from 60.6% a year ago. (Operating ratio is calculated by dividing a company’s regular operating costs by its revenue. The lower the ratio, the better.)
In response to new rail-safety regulations following last July’s explosion of a train hauling crude oil in Lac-Mégantic, Quebec, CN will install devices next to its tracks that can detect overheated wheels and other mechanical problems. This gear will cost $10 million.
CN split its outstanding shares 2-for-1, effective December 2, 2013. When a stock splits, your percentage ownership of the company is unchanged—you hold more shares, which are each worth less, but you still own the same percentage of the firm. The company also plans to buy back up to 4.1% of its outstanding common shares by October 23, 2014.
CN’s $0.86 dividend yields 1.5%.
In the latest edition of The Successful Investor, we look at CN’s long-term outlook and assess its earnings forecast for 2014. We conclude with our clear buy-sell-hold advice on the stock.
If you’re a member of Pat’s Inner Circle and you’d like to ask a question about today’s article, please go to the question page reserved for you (be sure you’re logged in first). Click here to ask your question.
COMMENTS PLEASE—Share your investment knowledge and opinions with fellow TSINetwork.ca members
There has been increasing debate over the relative safety of shipping oil by pipeline or by rail (some opponents appear to want neither). What do you think about this debate? Given that oil production is increasing no matter how this debate shakes out, which do you think will be the better investment in the next few years—rail stocks or pipeline stocks?
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Bill Gates seems to like CN and has had it in his portfolio for years.
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Bill Gates seems to like CN and has had it in his portfolio for years.