MONTREAL — North American railways and truckers continue to feel the negative effects of the economic recession ahead of a recovery that isn’t expected to be in place until 2011, industry analysts say.
Significant drops in carload and freight volumes should result in lower revenues and earnings when the companies report their quarterly results starting next week.
Canadian rail volumes were down seven per cent, with increases in coal and autos offsetting weakness in paper and forest products and metals. Intermodal shipping was down.
In the U.S., volumes were off 17 per cent, with notable weakness in metals, building materials, paper and forest products and coal.
While Canadian National Railway (TSX:CNR) is expected to outperform its rivals, analysts have reduced their estimates for the North American giant.
David Newman of National Bank Financial said CN will continue to face near-term pressure because of the slow pace of the economic recovery and has cut his third-quarter earnings forecast by 10 cents per share to 86 cents. The average analyst estimate is 90 cents, down from $1.07 posted a year ago.
Volumes are expected to come in down 17 to 19 per cent in 2009, followed by six per cent growth in 2010.
“Longer term, we believe CN is well placed to realize significant benefit as volumes pick up during the recovery due to improvements from permanent cost reductions, leading to lower operating ratios,” he wrote in a report.
Walter Spracklin of RBC Capital Markets said he expects CN’s earnings to fall 18 per cent during the quarter, compared to a 25 per cent drop overall for railways. He lowered his 2009 and 2010 forecasts by four and three per cent respectively.
While 2010 will be a recovery year, normalcy should return in 2011, he wrote.
Consumer products are less likely to return to pre-recession levels, but those goods less affected by the overall economy — grain, potash and coking coal — should return to historical averages.
Rising fuel costs should be mostly offset by surcharges. However, the increasing loonie could pose another challenge for the transportation companies.
Trucking firms, for the most part, will continue to feel the full force of the recession, Spracklin wrote.
“Compared to their rail counterparts, trucking companies are more likely to suggest that business levels continue to be slow with few signs of recovery.”