(The following story appeared on the National Post website on June 2.)
OTTAWA — The lag in fuel cost recovery and lower than expected volumes are expected to weigh heavily on Canadian National Railway Co.’s second quarter earnings.
CN’s volumes are down 2.3% this year and the rapid rise in diesel fuel prices is likely to pose such a challenge to country’s largest railroad that Walter Spracklin, RBC Capital Markets analyst, says he doesn’t believe CN will meet the Street’s earnings forecast of 98¢ a share in the second quarter.
“On a relative basis, CNR shares remain as one of our preferred names in the freight transportation sector and, from a long-term perspective, we consider it to be a core holding,” Mr. Spracklin said in a note to clients Monday, noting he was keeping his “outperform” rating on the stock. “Given however the recent share price appreciation and potentially disappointing [second quarter] results, investors may want to consider taking profits at current levels.”
Mr. Spracklin said he was reducing his full year estimate on higher-than-expected fuel prices. He said he now expects earnings per share at the railway of $3.50, down from $3.63, for 2008 and $4, down from $4.07, next year. He also reduced his price target to $60 from $61 a share.