A month has gone by since the last earnings report for Canadian National (CNI Quick QuoteCNI - Free Report) . Shares have lost about 2.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is CN due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Canadian National's Earnings Miss Estimates in Q1

Canadian National’s first-quarter 2021 earnings (excluding 11 cents from non-recurring items) of 97 cents per share (C$1.23) missed the Zacks Consensus Estimate of 99 cents. However, the bottom line increased year over year on lower costs.

Quarterly revenues of $2,791.6 million (C$3,535 million) lagged the Zacks Consensus Estimate of $2,813.1 million. The top line, however, benefited from higher intermodal volumes and shipments of Canadian grain, and freight rate increases amid coronavirus-led weakness in other segments.

Freight revenues (C$3,423 million), which contributed 96.8% to the top line, were flat year over year. Freight revenues in Petroleum and chemicals, Metals and minerals, Forest products, Coal and Automotive declined 16%, 9%, 1%, 12% and 18%, respectively, in the first quarter. The same increased 17% and 14% in Grain and fertilizers, and Intermodal segments, respectively.

While overall carloads increased 7% year over year, revenue ton miles (RTMs) inched up 5%. Segment-wise, carloads in the Petroleum and chemicals, Metals and minerals, Forest products, Coal and Automotive declined 13%, 7%, 2%, 10% and 12%, respectively. Meanwhile, carloads in Grain and fertilizers, and Intermodal segments increased 17% and 23%, respectively. However, freight revenues per carload dropped 7% in the reported quarter. Freight revenues per RTM also fell 5%.

Operating expenses for the first quarter decreased 5% to C$2,208 million owing to a favorable currency impact among other factors. Adjusted operating income dipped 2.1% year over year to C$1,190 million. Adjusted operating ratio (defined as operating expenses as a percentage of revenues) deteriorated to 66.3% from the year-ago quarter’s figure of 65.7%. Notably, a smaller value of the metric is desirable.

Liquidity

This company exited the first quarter of 2021 with cash and cash equivalents of C$518 million compared with C$569 million recorded at the end of 2020. The company generated free cash flow of C$539 million during the March quarter compared with the year-ago quarter’s C$573 million.  Long-term debt amounted to C$12,252 million as of Mar 31, 2021 compared with C$11,996 million at December 2020-end.

2021 Outlook

Canadian National anticipates earnings per share to grow in double-digits during 2021 from adjusted earnings of C$5.31 in 2020. Additionally, volumes, measured in revenue ton miles (RTMs), are expected to increase in high-single digits during 2021. Further, the company estimates free cash flow of C$3-C$3.3 billion in 2021 compared with C$3.2 billion in 2020.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

VGM Scores

Currently, CN has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, CN has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.