Key Takeaways
- CN reported lower adjusted EPS for both Q4 and full year of 2023, but expects sequential improvement in volumes.
- The company forecasts a 10% EPS growth and continued economic improvement for 2024.
- Operational metrics for Q4 showed improved car velocity and dwell time.
- CN anticipates mid-single-digit growth in revenue ton-miles (RTMs) and a 7% dividend increase for 2024.
- The company announced a new share buyback program of up to 32 million shares.
- CN faces $200 million in cost headwinds, but aims to offset with operating efficiency and capacity leverage.
- The company is hiring to match anticipated volume recovery and aims for pricing to be above rail inflation.
Company Outlook
- CN forecasts a more constructive 2024 compared to 2023, with slight positive industrial production growth and stabilizing interest rates.
- The company predicts mid-single-digit RTM growth and 10% EPS growth for 2024.
- Capital expenditure for 2024 projected to be around $3.5 billion with a targeted return on invested capital (ROIC) of 15% to 17%.
- CN expects a gradual recovery in sectors such as intermodal, international, and forest products, aiming to stabilize to pre-pandemic levels.
Bearish Highlights
- The company acknowledges the volatile environment due to monetary policy and geopolitical risks.
- CN anticipates cost headwinds related to depreciation, incentive compensation, and pensions.
- Weak sectors like intermodal, international, and forest products are gradually recovering but have affected recent performance.
Bullish Highlights
- CN is confident in its strong balance sheet and financial flexibility to seize opportunities.
- The company has delivered seven consecutive quarters of strong operating and financial performance.
- CN is focused on improving margins in 2024 despite anticipated cost headwinds.
Misses
- The company did not provide specific revenue forecasts but is satisfied with the overall forecast.
- CN finished 2023 slightly below leverage target due to a long-term approach.
- Grain volumes declined in Q4 2023 due to Canadian farmers withholding sales in response to lower global prices.
Q&A Highlights
- Labor costs are being examined in light of new hours of service regulations.
- CN is working on improving destination performance and reducing gaps between launch and land.
- The company is cautious about share repurchases but is open to opportunistic approaches.
- While fuel surcharges had a favorable lag in Q4, they are not expected to significantly impact yield moving forward.
Insights
Canadian National Railway Co. remains a formidable name in the transportation sector, and recent data from InvestingPro provides insights that may interest investors looking at the company’s financial health and market performance.
Data indicates a robust Market Cap of 79.14B USD, reflecting the company’s significant presence in the market. The P/E Ratio stands at 22.57, suggesting investors are willing to pay a higher price for earnings, which might be due to the company’s stable track record and future growth prospects.
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Full transcript – Canadian National Railway (CNI) Q4 2023
CN reported its Q4 and full-year financial and operating results for 2023. Despite lower adjusted EPS, the company highlighted sequential improvement in volumes and a 10% growth in EPS for 2024. The company also announced strategic acquisitions, a dividend increase, and a new share buyback program. The full transcript is available for more details about CN’s financial performance and strategic outlook.
Conclusion
CN’s Q4 and full-year results showed lower adjusted EPS but envisioned growth opportunities in 2024. The company expects sequential improvement in volumes and aims for a 10% EPS growth. CN highlighted its focus on operational efficiency, strategic acquisitions, and strong customer service. Investors can benefit from discounted InvestingPro subscriptions to gain comprehensive insights into CN’s financial landscape and market position.
Analyst comment
Neutral news.
As an analyst, the market is expected to have a slight positive reaction to CN’s strong operational metrics, planned share buyback program, and the company’s positive outlook for 2024. However, the cost headwinds and weaknesses in certain sectors could limit the market’s enthusiasm. Overall, the market will likely take a cautious approach and closely monitor CN’s ability to execute its growth strategies.
