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Canadian National Railway Company (CNI) |
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WIKI ANALYSIS
Canadian National Railway Company (or CN) operates the largest rail network in Canada and the only transcontinental network in North America. The company operates approximately 20,300 route miles in 8 Canadian provinces and 16 U.S. states. CN's business strategy is guided by five core principles: providing good service, controlling costs, focusing on asset utilization, committing to safety, and developing people. CN's efforts to increase speed, efficiency, and reliability through the execution of its precision railroading concept are ongoing.
Business Segments
CN's revenue is derived from seven business units engaged in the movement of a diversified and balanced portfolio of goods, which positions it well to face economic fluctuations and enhance its potential to grow revenue. These goods include petroleum and chemicals (chemicals, plastics, sulfur, petroleum, and gas products) metals and minerals (steel, aluminum, other non-ferrous metals, equipment & parts, and construction materials) forest products (lumber, fibers, paper, and panels) coal (thermal grades of bituminous coal and Canadian metallurgical coal) grains and fertilizers (food grains, oilseeds & oilseed products, and feed grains) intermodal (the transportation of freight using two or more modes of transportation) and automotive (finished vehicles and automotive parts). In 2006, forest products contributed 22% to total revenue, intermodal 18%, grains and fertilizers 16%, petroleum and chemicals 15%, metals and minerals 10%, other 8% (nonfreight revenue derived from third parties), automotive 6%, and coal 5%. On a geographic basis, approximately 32% of revenues came from transborder traffic, 25% from offshore traffic, 23% from Canadian domestic traffic, and 20% from U.S. domestic traffic. CN has the lowest operating ratio among Class I railroads.
Financials
CN's financial performance, when measured on the basis of profit margin, balance sheet strength, and free cash flow, has been among the best in the industry since 1999. To maintain this position, CN has focused on strategies to grow its businesses profitably. Such profitable growth is driven by high-quality service, continuous pursuit of productivity improvement, containing and reducing costs, and increasing revenue. Since 1995, CN has successfully increased revenue through organic growth and well-executed acquisitions or alliances.
Trends and Forces
High Profit Magins
Canadian National Railway is enjoying a high profit margin of approximately 26%, which is at or near the top in the industry. The company states that it has many more short-term than long-term freight contracts, which gives them the ability to adjust rates to accommodate current economic conditions. Investors who follow the rails know that CNI benefits from the huge Price Rupert Terminal, which is projected to bring in approximately $110m to CNI coffers this year.
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