Canadian National Railway Looks to Invest in Its Future

By Markets Fool.com


Source: Canadian National.

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The railroad industry has been one of the biggest beneficiaries of lower energy prices, as the reduction in fuel costs makes a huge difference in how much railroads must spend to transport goods across their rail networks. For Canadian National Railway , the prospect of higher profits holds promise for the company to take some much-needed initiatives to provide for its future. As the company prepares to release its first-quarter financial report on Monday, investors expect to hear more about what Canadian National has in store for the rest of 2015. Let's take an early look at what Canadian National has done recently and what you should prepare to see in its quarterly report.

Stats on Canadian National Railway

Analyst EPS Estimate

$0.85

Change From Year-Ago EPS

29%

Revenue Estimate

$3.06 billion

Change From Year-Ago Revenue

13.5%

Earnings Beats in Past 4 Quarters

3

Source: Yahoo! Finance.

How will Canadian National fare?
In recent months, investors have boosted their views on Canadian National earnings, raising their first-quarter projection by $0.03 per share and adding about 2% to their views for 2015 and 2016. The stock, though, hasn't made much progress lately, climbing just 1% since mid-January.

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Overall, Canadian National has given investors fairly solid results in recent quarters. In January, the company reported fourth-quarter results that included a 17% jump in revenue, 33% higher net income, and a new record for shipment volumes. Operational efficiency improved markedly, and a big 25% dividend boost reflected the railroad's belief in its future.

Source: Canadian National.

Over the past few months, Canadian National has done some much-needed work to shore up its internal prospects. Just yesterday, the railroad reached a new collective bargaining agreement with its locomotive engineers, as the union representing those employees ratified a tentative agreement that provides wage increases and improved benefits for its members. As COO Jim Vena noted, Canadian National got through the negotiations without any strikes or other disruptive events, and the agreement ends the current round of Canadian collective bargaining, allowing the company to focus on other strategic needs.

Canadian National now intends to focus on improving its infrastructure. The company said it would invest $500 million on its rail lines in western Canada, including $100 million for the northern Alberta branch lines that serve Canada's oil sands region and other energy interests. With freight volume in the region having climbed by 50% in the past five years, Canadian National will also look at key routes including its Edmonton-to-Winnipeg main line corridor in an effort to address some safety concerns raised by outside analysts. With the company having suffered another derailment earlier this month -- albeit with no injuries for the grain-carrying train involved -- the need to emphasize safety is paramount at Canadian National right now.

Source: Canadian National.

The big wild card for Canadian National is what will happen in the energy industry. The railroad has obvious ties to oil and gas exploration and production companies; with prices remaining low, any reduction in activity could lower demand for the materials that those companies have had shipped by rail. With Canada's economy being more dependent on natural resources than the U.S. economy, Canadian National could be more vulnerable to economic disruptions based on commodity prices than its U.S. railroad counterparts.

In Monday's earnings report from Canadian National, take a close look at the railroad's various segments to see where overall growth is coming from. As long as the trends supporting that growth continue, Canadian National should be in good shape to improve its internal operations and become more profitable as fuel costs drop.

The article Canadian National Railway Looks to Invest in Its Future originally appeared on Fool.com.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Canadian National Railway. The Motley Fool owns shares of Canadian National Railway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.