Is the Canadian National Railway Making Money?

Bill Gates’ favorite railroad the Canadian National (NYSE: CN) has run into some trouble.

Net income, revenues, operating income, and free cash flows were down for 1st Quarter 2018, while operating expenses were up. A CN press release indicates that net income fell by 16% to $741 CND, operating income fell by 16% $1.03 billion CND, and revenues fell by $12 million CND to $3.194 billion.

Meanwhile operating expenses grew by 9% to $2.164 billion. Revenue ton miles (the money CN makes for hauling a ton of cargo) fell by 4%, even though car loadings increased by 3%.

In plain English, that means CN is hauling more freight but making less money from it. Such figures call the Microsoft founder’s faith in CN into serious question.

Despite its problems, Gates is supposedly a big fan of the CN. Some news reports indicate that he might own as much as 15% of the railroad. The Canadian government even hiked the CN’s foreign ownership limits to 25% so Bill can buy more.

How safe is the Canadian National?

Fluctuating revenues are not a new story at the Canadian National. The railroad reported $12.037 billion in revenues for 2016, down from $12.611 billion in 2016, Statista calculated.

Those revenues grew to $13.041 billion in 2017, yet they appear to be falling again. It must be noted that there have been dramatic changes at the CN in recent years. As recently as 2013 the railway reported $10.575 billion in revenues that grew to $12.134 billion in 2014.

The likely explanation for the revenue shifts is oil traffic related to Alberta’s Athabasca oil sands or Tar Sands, and the fracking boom in the United States. The tar or oil sands are a mixture of sand, clay, oil, and water in Alberta.

The sands can be mined for oil, a controversial process. The oil sands are in the area crossed by the Canadian National. Therefore, dropping and stagnant oil prices can affect the CN.

The exchange rate between the US and Canadian dollars affects the CN because it operates a large amount of track in the United States. The Canadian National’s own accounts admit the railway lost $24 CND million or 3¢ CND a share because of exchange rates in 1st Quarter 2018.

Those figures indicate that the CN is not a safe or reliable investment. Skeptics will wonder if Gates should have bought into the Union Pacific (NYSE: UP) instead.

Pluses for the Canadian National

The Canadian National has a lot of great assets including 23 intermodal terminals and 20,000 miles of track.

That track reaches the Gulf of Mexico at New Orleans and Mobile, the Atlantic at Halifax and St. John, and the Pacific at Prince Rupert and Vancouver. The CN connects to the Union Pacific’s transcontinental line at Omaha, which provides another route to the Pacific.

The intermodal terminals are important because they are facilities where trucks and cargo containers are loaded onto trains. That allows the CN to cash in on China’s manufacturing boom by hauling merchandise from Chinese factories in cargo containers.

Additionally, the Canadian National serves many of North America’s largest cities including Toronto, Chicago, Vancouver, Minneapolis-St. Paul, St. Louis, Detroit, Montreal, and Edmonton. This covers much of the industrial Midwest and provides connections to American railways; such as the BNSF, CSX, Kansas City Southern, Norfolk Southern, and Union Pacific.

It is this entire transportation infrastructure that gives railroads like the CN their value. That infrastructure is valuable as a railway, as a route for cables and pipelines, and as a right-of-way for next generation transportation systems like the Hyperloop.

Yes Canadian National is Still a Value Investment

The infrastructure and the relatively low price; $90.17 on July 26, 2018, make CN a partial value investment.

Adding to the value was a dividend of 35.1¢ paid on June 29, 2018. That was down slightly from 35.2¢ paid on March 29, 2018, but still very respectable. The dividend has also grown significantly in the past year, it was just 30.6¢ on April 25, 2017.

If you are looking for a low-cost North American stock the Canadian National is still a good deal. Bill Gates appear to be right about this railroad.

Bill Gates’ favorite railroad the Canadian National (NYSE: CN) has run into some trouble.

Net income, revenues, operating income, and free cash flows were down for 1st Quarter 2018, while operating expenses were up. A CN press release indicates that net income fell by 16% to $741 CND, operating income fell by 16% $1.03 billion CND, and revenues fell by $12 million CND to $3.194 billion.

Meanwhile operating expenses grew by 9% to $2.164 billion. Revenue ton miles (the money CN makes for hauling a ton of cargo) fell by 4%, even though car loadings increased by 3%.

In plain English, that means CN is hauling more freight but making less money from it. Such figures call the Microsoft founder’s faith in CN into serious question.

Despite its problems, Gates is supposedly a big fan of the CN. Some news reports indicate that he might own as much as 15% of the railroad. The Canadian government even hiked the CN’s foreign ownership limits to 25% so Bill can buy more.

How safe is the Canadian National?

Fluctuating revenues are not a new story at the Canadian National. The railroad reported $12.037 billion in revenues for 2016, down from $12.611 billion in 2016, Statista calculated.

Those revenues grew to $13.041 billion in 2017, yet they appear to be falling again. It must be noted that there have been dramatic changes at the CN in recent years. As recently as 2013 the railway reported $10.575 billion in revenues that grew to $12.134 billion in 2014.

The likely explanation for the revenue shifts is oil traffic related to Alberta’s Athabasca oil sands or Tar Sands, and the fracking boom in the United States. The tar or oil sands are a mixture of sand, clay, oil, and water in Alberta.

The sands can be mined for oil, a controversial process. The oil sands are in the area crossed by the Canadian National. Therefore, dropping and stagnant oil prices can affect the CN.

The exchange rate between the US and Canadian dollars affects the CN because it operates a large amount of track in the United States. The Canadian National’s own accounts admit the railway lost $24 CND million or 3¢ CND a share because of exchange rates in 1st Quarter 2018.

Those figures indicate that the CN is not a safe or reliable investment. Skeptics will wonder if Gates should have bought into the Union Pacific (NYSE: UP) instead.

Pluses for the Canadian National

The Canadian National has a lot of great assets including 23 intermodal terminals and 20,000 miles of track.

That track reaches the Gulf of Mexico at New Orleans and Mobile, the Atlantic at Halifax and St. John, and the Pacific at Prince Rupert and Vancouver. The CN connects to the Union Pacific’s transcontinental line at Omaha, which provides another route to the Pacific.

The intermodal terminals are important because they are facilities where trucks and cargo containers are loaded onto trains. That allows the CN to cash in on China’s manufacturing boom by hauling merchandise from Chinese factories in cargo containers.

Additionally, the Canadian National serves many of North America’s largest cities including Toronto, Chicago, Vancouver, Minneapolis-St. Paul, St. Louis, Detroit, Montreal, and Edmonton. This covers much of the industrial Midwest and provides connections to American railways; such as the BNSF, CSX, Kansas City Southern, Norfolk Southern, and Union Pacific.

It is this entire transportation infrastructure that gives railroads like the CN their value. That infrastructure is valuable as a railway, as a route for cables and pipelines, and as a right-of-way for next generation transportation systems like the Hyperloop.

Yes Canadian National is Still a Value Investment

The infrastructure and the relatively low price; $90.17 on July 26, 2018, make CN a partial value investment.

Adding to the value was a dividend of 35.1¢ paid on June 29, 2018. That was down slightly from 35.2¢ paid on March 29, 2018, but still very respectable. The dividend has also grown significantly in the past year, it was just 30.6¢ on April 25, 2017.

If you are looking for a low-cost North American stock the Canadian National is still a good deal. Bill Gates appear to be right about this railroad.