Another stellar performance by Canada's rail companies
Montreal-based Canadian National Railway (TSX:CNR) issued second quarter results today, beating analysts' expectations. The company earned $1.03/share in free cash flow, versus estimates of $0.92/share. Net profits rose 24% year/year on a 17% increase in revenue. The company cited the following factors for its improved performance:
- improved operating efficiency
- record shipment volumes
- a drop in the Canadian dollar
- higher freight pricing.
CNR saw a 17% increase in petroleum shipments and also credits a strong energy market for the profit margin increase. Grain and metals/mineral transport were also particularly strong last quarter, increasing by 35% and 20%, respectively.
The company transports over $250 billion worth of goods annually throughout North America. CNR stock is up almost 400% in the past 10 years (500% factoring in the dividends) and presently yields a 1.4% dividend. The stock is up about 26% year to date.
Calgary-based Canadian Pacific (TSX:CP) also reported a 48% y/y increase in net income last quarter on a revenue increase of 12%. As was the case with CNR, CP reported a significant gain in petroleum transport (+15%) and Canadian grain shipments (+20%). CP stock has gained 650% in the past 10 years (including dividends) and has increased 28% this year alone. The stocks presently yields a 0.6% dividend.
CN and CP have an oligopoly in Canada; this gives them the ability to set market pricing and pass along price increases to its customers. The strong second quarter earnings by both companies reflects the on-going strength of Canada's natural resources sector.