By Robb M. Stewart


Canadian National Railway Co.'s shares were under pressure after the rail operator forecast weaker-than-anticipated earnings growth this year as the economy weakens.

In morning trading, the shares were 4.8% lower at C$157.96, a sharper retreat than the broader Toronto market and the 3.3% decline in Canadian Pacific Railway Ltd.

CN said it expects to deliver per-share earnings growth in the low single-digit range in 2023, undershooting the roughly 8% growth penciled in by analysts and the 7.8% rise in earnings per share recorded for 2022.

The guidance, driven in part by CN management's forecast for a mild recession this year, overshadowed what many analysts said was a solid final quarter to last year for CN.

Konark Gupta, an analyst at Scotia Capital, said he believes CN is being prudent in flagging modest earnings growth this year given macro-economic uncertainty, though there may be some conservatism in the outlook since the company's management has been executing well since Tracy Robinson took the helm as chief executive in the first quarter of last year. Scotia is now modeling for 5% EPS growth in 2023.

For the fourth quarter of 2022, CN recorded earnings of 2.10 Canadian dollars ($1.57) a share, up 24% from a year earlier and modestly above the consensus forecast of analysts polled by FactSet. Revenue for the quarter rose 21% to C$4.54 billion, topping the C$4.49 billion expected.

CN's board approved an 8% increase in the quarterly cash dividend for 2023, as well as a new buyback program that will run through the end of January 2024.

The quarterly performance was in line with RBC Capital Markets' expectations, which it said was impressive given it had cut estimates before the quarter for all rail companies except CN. Analysts at RBC said they saw nothing of concern in CN's guidance, and won't make any changes to their own estimates for high single-digit EPS growth this year, supported by company-specific factors including continued operating improvements, growth on the east coast and strength in bulk commodities.

Jonathan Chappell, an analyst at Evercore, said that unless the global economy completely collapses, pricing gains fully halt, or severe weather reverses large operational improvements, CN's proposed buyback of up to 32 million shares alone should result in low-single-digit EPS growth in 2023.


Write to Robb M. Stewart at robb.stewart@wsj.com


(END) Dow Jones Newswires

01-25-23 1050ET