Volumes and Trade Policies in Focus at Canadian Railroads -- Earnings Preview
April 18 2017 - 2:16PM
Dow Jones News
By David George-Cosh
Canadian railroad earnings begin this week, with first-quarter
results from Canadian Pacific Railway Ltd. due after markets close
on Wednesday. Bigger peer Canadian National Railway Co. follows,
with results on April 24. Here are a few things to watch:
REVENUE FORECASTS: Analysts sees the rail sector's recovery
progressing in the latest period. Calgary, Alberta-based CP's
revenue is expected to come in around 1.59 billion Canadian dollars
($1.19 billion), unchanged from a year earlier, according to
Thomson Reuters estimates. Montreal-based CN is expected to post
revenue of C$3.21 billion, up from C$2.96 billion a year
earlier.
EARNINGS FORECASTS: Analysts expect CP to earn C$2.48 a share in
the quarter, down from C$2.50 a share a year earlier, according to
Thomson Reuters. CN is expected to earn C$1.13 a share, up from
C$1.00 a year earlier.
WHAT TO WATCH:
GROWING VOLUMES: A recent uptick in U.S. industrial production
and manufacturing sales support an increase in rail demand, likely
ending a slide in volumes that has plagued the industry over the
past several quarters. CN is expected to post strong volume growth
over the first quarter following recent automotive and intermodal
customer wins at the expense of CP, according to Desjardins Capital
Markets. CP's shipping volumes are expected to be flat in the
quarter, added Desjardins. Additionally, both railroads are likely
to reaffirm guidance that volumes for the rest of the fiscal year
will continue to improve thanks to stronger intermodal, grain and
frac sand shipments.
GRAIN UPDATE: Investors will likely cast a close eye on CN and
CP's grain business during the quarter. Canada's grain harvest,
traditionally one of the railroad's biggest revenue drivers, has
seen yields soften due to poor weather conditions over the past
several weeks. Desjardins expects both CN and CP to post grain
volume increases during the next quarter, with grain revenue to
grow significantly over the rest of the year. CN has also
highlighted its grain business in unconventional ways after
launching a podcast series last month that showcases how the
railroad moves its product from farm to port.
TRADE POLICIES: The biggest risk to both Canadian railroads
remains south of the border. Any policy decisions related to a U.S.
border tax or realignment of trade patterns could affect volume
growth, particularly in international shipments, said RBC Capital
Markets. While overall sentiment remains strong, any impact from
reopening Nafta or policies that would lead to a stronger U.S.
dollar could affect the U.S. manufacturing sector and spark a
decline in the global economic outlook. Investors also will be
eager to hear any clarity from railroads on forestry-related
shipments ahead of the U.S. Department of Commerce preliminary
determination for countervailing softwood lumber duties. While
forestry shipments represent about 5% of total revenue for both CN
and CP, U.S. home-building expansion has been a boon to both
railroads in recent years. Any tariff may put pressure on the
Canadian dollar, which could be positive for exports in
general.
Write to David George-Cosh at david.george-cosh@wsj.com
(END) Dow Jones Newswires
April 18, 2017 14:01 ET (18:01 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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