Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.
Key Morningstar Metrics for Canadian National Railway
What We Thought of Canadian National Railway’s Earnings
Canadian National’s first-quarter top line grew 3.5% year over year due to favorable foreign exchange, mix-related yield gains (longer lengths of haul), and higher core carload pricing. Total volume was down, partly because of winter weather disruption, though profitability improved slightly.
Why it matters: Revenue was mostly in line with our forecast as higher-than-anticipated all-in yield offset lower-than-expected total carload and intermodal activity. Profitability missed our forecast slightly, probably because of foreign exchange noise and lost leverage from the volume shortfall.
Consolidated volume fell 2%, while all-in yield (revenue per carload) rose 6%. Cold weather restrictions and lower metals (soft demand and a mine outage) hit carloads, while intermodal is still in the process of clawing back business lost ahead of painful port and rail work stoppages last year.CN’s operating ratio (expenses/revenue; lower is better) improved 20 basis points year over year to 63.4%, with help from good cost control. Management still expects 10%-15% adjusted EPS growth in 2025, but we suspect that will prove challenging if economic conditions soften in the second half.
The bottom line: More importantly, we now anticipate a tariff-induced US economic slowdown for wide-moat CN and its peers. As a result, we temper our 2025 and 2026 revenue and margin assumptions and expect to lower our USD 104 per share fair value estimate by 2%-4%.
We’ve been expecting an uptick in industrial production to drive 1%-plus carload growth this year, while assuming stable consumer spending and pricing recovery across the competing truckload sector support intermodal rate recovery and mid-single-digit container volume gains.We no longer expect an intermodal rate rebound, and we look for intermodal volumes to soften in the second half of 2025 as West Coast imports ease and retail end markets soften. We also expect industrial production to remain sluggish, constraining carload growth.
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