CN Rail makes $1.4 billion in fourth quarter but warns of tougher times in 2023

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Canadian National Railway Co. on Tuesday it warned of tougher times in 2023, even though the company is celebrating double-digit earnings in the fourth quarter of 2022.

The Montreal-based railroad reported Tuesday that fourth-quarter earnings grew 23 percent year over year to $1.42 billion for the three months ended Dec. 31, 2022 — from $1.2 billion for the fourth quarter of 2021.

CN said its earnings in the fourth quarter were $2.10 per share. It also reported revenue of $4.54 billion for the fourth quarter, an increase of $789 million, or 21 percent.

The railroad said the increase in revenue was primarily due to higher fuel surcharge revenue resulting from higher fuel prices, the positive translation effects of a weaker Canadian dollar, rate increases of cargo and higher US grain volumes.

For the full year 2022, CN reported net income of $5.12 billion, up from $4.90 billion in 2021.

But CEO Tracy Robinson warned analysts in a conference call on Tuesday that 2023 could be much more challenging. With the possibility of a recession looming, CN expects North American industrial production to be negative in the coming year, according to Robinson. This means less shipping volume of essential products such as wood, metals and minerals, and consumer goods.

Robinson said CN’s 2023 guidance calls for single-digit earnings per share growth, but added that the company needs to remain nimble as there are still many unknowns.

“Without a doubt, we are in uncertain economic times. And like many others, we expect a mild recession this year,” said Robinson. “In this company, like others in the past, we have dealt with recessions and we will deal with this one too.”

Already in 2022, NM has seen some moderation in demand in some categories including Intermodal, Wood, Chemicals and Plastics. However, higher volumes of Canadian coal exports from West Coast ports and greater volumes of US grain exports were recorded.

For the 2022/2023 crop year, the wheat harvest in Canada exceeded the three-year average and the US wheat harvest was in line with its three-year average. NM expects the 2023-2024 wheat harvest in Canada and the US to be in line with their respective three-year averages (excluding the 2021-2022 crop year significantly lower of Canada).

This would help offset the effects of the recession, Robinson said.

“We have modeled a specific wheat harvest, but the crop is not yet in the ground. So he still has to see how it looks,” she said. “And we’re hearing, like you, a range of different scenarios about what inflation might do and how quickly volumes might recover. As I said before, our forecast is based on the best information currently available to us.”

CN intends to host an investor day in early May and will provide updated guidance at that time.

In a research note, Raymond James analyst Steve Hansen pointed out that while Canadian rail transportation showed momentum in the fourth quarter of 2022, CN’s dramatic revenue growth for the period was partly due to the fact that the fourth quarter of 2021 ended major weather events. such as flooding has been severely affected in BC and extreme cold in parts of the continent.

“While we admire Canada’s long-term track record, it’s hard for us to get excited about these short bursts of ‘artificial’ growth,” Hansen said, adding that he expects growth to dissipate among expected weak economic growth.

This report by The Canadian Press was first published on January 24, 2023.

Companies in this story: (TSX:CNR)

Amanda Stephenson, The Canadian Press

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