Yahoo Finance Why Did Canadian National’s Metals and Minerals Tumble in 1Q16?
Key Takeaways from Canadian National Railway's 1Q16 Results
Canadian National’s metals and minerals
Earlier, we looked at Canadian National’s (CNI) Forest Products’ shipment revenues. In this part, we will take stock of CNI’s Metals and Minerals business. Freight revenues from this segment in 1Q16 fell by 18%, at $310.0 million Canadian from $377.0 million Canadian in the same quarter last year.
Metals and Minerals’ volumes in 1Q16
Canadian National’s (CNI) Metals and Minerals’ carloads in 1Q16 fell by 25% at 178,000 from 237,000 in the corresponding period last year. The decline in revenues was chiefly due to reduced shipments of energy-specific commodities such as fractionating sand, drilling pipe, and semi-finished steel products. This was an outcome of declining energy markets. However, these were somewhat compensated by the favorable translation impact of a weaker Canadian dollar.
Metals and minerals commodities hauled by Canadian National (CNI) mainly include steel, iron ore, non-ferrous base metals and ores, construction materials and machinery, and dimensional loads. In metals, the company ships primarily steel, aluminum, copper, and zinc. The company’s mineral transportation commodities include aggregates, cement, roofing materials, non-ferrous ore concentrates, and empty railcars.
Management outlook
Canadian National’s (CNI) management expects lower volumes in energy-related commodities such as crude and fractionating sand in the remaining 2016. According to the company, crude and fractionating sand constitute than 5% of CN’s total revenue.
The important drivers for this segment are the manufacturing of automobiles, railcars, heavy equipment, aerospace, construction activity, and energy development projects in the oil, gas, wind, and solar space. The business growth for this segment is directly associated with economic growth in Canada and the US. With the slowing of the Canadian economy and the sluggish US economy, production at plants served by CNI has gone down.
While CNI and Canadian Pacific’s (CP) freight prospects depend upon the US as well as the Canadian economies, its southern US counterpart, Kansas City Southern (KSU) relies on growth in the US and Mexican economies. Major Western player Union Pacific’s (UNP) freight prospects are to a limited extent connected with the advancement of the Mexican economy and the US economy.
Investors looking for a pure play in US-specific rail stocks can invest in the Vanguard Dividend Appreciation ETF (VIG). All the US-originated Class I railroads make up the portfolio holdings of VIG.
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