Canadian National’s 3Q16 Grain Revenue Bucks the Trend, Rises 4%

28.10.2016

Now let’s discuss Canadian National’s (CNI) grain revenue. This segment accounts for the third-largest share of CNI’s total freight revenue.

In 3Q16, the company’s grain and fertilizer revenue rose 4% to 497.0 million Canadian dollars, compared to $479.0 million dollars in 3Q15.

Canadian National’s 3Q16 Grain Revenue Bucks the Trend, Rises 4%
3Q16 grain and fertilizer volumes

CNI’s grain and fertilizer carloads rose 5% in 3Q16, compared to 3Q15. Canadian grain revenue fell 5% in 3Q16, mainly due to low inventory and a delayed harvest in 2016. US grain revenue rose 8% in 3Q16 due to higher exports of corn and soybean.
Management’s outlook

Canadian National expects higher shipments of Canadian grain going forward. The company anticipates higher shipments of wheat and canola in the coming quarters. CNI believes that both US and Canadian 2016 and 2017 grain crops will be higher in volume than their respective five-year averages.

According to CNI, the Brazilian harvest will be poor, providing more shipping opportunities to US grain producers. It foresees a negative impact related to revenue cap pricing due to lower fuel prices. However, CNI expects opportunities to come from potash exports due to stability in oil prices. The company is upbeat about the coming US crop harvest.
Peers’ agriculture revenues

A strong US dollar and a robust crop outside the United States and Canada have negatively impacted railroad companies’ agriculture freights in recent quarters. A quick look at the above graph will vouch for CNI. However, the company surprised its US peers by posting a 4% rise in its Canadian grain and fertilizers business in 2015. CNI’s rival Canadian Pacific (CP) posted a rise of 6.7% in the category in the same period.

Let’s take a look at the growth in agricultural revenues for CNI’s peers in 2015 compared to 2014:

    Union Pacific’s (UNP) agricultural revenue fell 5%.
    Norfolk Southern’s (NSC) agricultural revenue rose 1.2%.
    CSX Corporation’s (CSX) agricultural revenue fell 5%.
    Kansas City Southern’s (KSU) agricultural revenue fell 4%.

Investors interested in the transportation and logistics space can opt for the iShares US Industrials ETF (IYJ). This ETF holds 5.6% in major US railroad companies.

In the next article, we’ll consider CNI’s operating margins in 3Q16.


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