oil prices

CANADIAN NATIONAL RAILWAY CO. $44 (Toronto symbol CNR; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 464.9 million; Market cap: $20.5 billion; Price-to-sales ratio: 2.5; SI Rating: Above Average) operates the largest freight-rail network in Canada, and serves 16 U.S. states. It hauls consumer and industrial goods, which accounted for 21% of its 2008 revenue, forest products (19%), grain and fertilizers (18%), petroleum products (18%), metals and minerals (12%), coal (6%) and autos (6%). CN’s revenue rose from $6.5 billion in 2004 to $8.5 billion in 2008, partly due to acquisitions. Earnings grew from $1.3 billion, or 2.17 a share, in 2004 to $1.8 billion, or $3.40 a share, in 2006. CN’s earnings slipped to $1.7 billion, or $3.40 a share, in 2007. U.S. and cross-border traffic accounts for about half of CN’s revenue, and the higher Canadian dollar hurt the contribution from its American businesses. But thanks partly to a lower Canadian dollar, 2008 earnings improved to $1.8 billion, or $3.71 a share. Despite higher fuel costs in 2008, CN is still one of the most efficient railways in North America. In 2008, its operating ratio worsened to 65.9% from 63.6% in 2007. (Operating ratio is calculated by dividing a company’s regular operating costs by its revenue. The lower the ratio, the better.) Falling oil prices should lower CN’s operating costs in 2009, and new investments in locomotives and rail yards should also help improve its overall efficiency....

Canadian Natural Resources, $46.30, symbol CNQ on Toronto (Shares outstanding: 541 million; Market cap: $25 billion), is Canada’s second-largest independent oil-and-gas producer (only EnCana Corp. is larger). Calgary-based Canadian Natural operates in western Canada, where its 100%-owned, $9.7-billion Horizon Oil Sands Project is located, the North Sea and off the coast of west Africa. Canadian Natural’s product mix is about 57% oil (32% heavy, 25% light) and 43% natural gas. Canadian Natural’s production is set to increase in 2009 with the planned first-quarter commissioning of the Horizon Oil Sands Project. When it reaches full capacity, Horizon will produce 110,000 barrels of oil per day (15% to 20% of the company’s total production). Canadian Natural’s conventional North American oil-and-gas properties are located in B.C., Alberta and Saskatchewan. Canadian Natural’s North American oil-and-gas production represents about 88% of its total production. Heavy oil operations are also located in Alberta’s Athabasca region, at Pelican Lake, and at Primrose North, Primrose South and Primrose East....

Suncor Energy, $25.29, symbol SU on Toronto (Shares outstanding: 935.5 million; Market cap: $23.7 billion), is a Calgary-based integrated energy company with a focus on oil-sands production. Suncor runs Canada’s second-largest oil-sands operation and operates refineries in Sarnia, Ontario, and Colorado. Suncor’s oil-sands business, located near Fort McMurray, Alberta, recovers bitumen from the oil sands and upgrades it to refinery-ready feedstock and diesel fuel. In Ontario, aside from its 70,000-barrel-per-day refinery in Sarnia, Suncor operates 280 gas stations under the Sunoco brand. (Sunoco Canada is not related to Philadelphia-based refiner Sunoco Inc., symbol SUN on New York.) In the U.S., Suncor operates a 90,000 barrel-per-day refinery in Denver, Colorado, and retail sales (also in the Denver area) under the Phillips 66 brand....

NOVA CHEMICALS CORP., $1.99, Toronto symbol NCX, fell sharply after it renegotiated the conditions of its lending agreements. To avoid breaching certain covenants, which would require Nova to repay all of its loans immediately, the company must now raise $100 million U.S. in new financing by February 28, 2009, plus an additional $100 million U.S. by June 1, 2009. To meet these conditions, the plastic and chemical maker may have to issue new shares at depressed prices. (Demand for plastics is highly cyclical, and the slowing economy has hurt Nova’s sales and earnings.) This could substantially dilute the current value of its shares. As well, if Nova needs to borrow more money, it would likely have to pay much higher rates, which would drive its interest costs up. Nova has significant operations in Alberta, so it may receive temporary assistance from the Alberta government. As part of any refinancing plan, Nova would probably have to suspend its quarterly dividend payments of $0.10 (Canadian) a share. The dividend now yields a high 20.1%, and cost Nova $31 million U.S. in 2008....

ALIMENTATION COUCHE-TARD, $13.20, symbol ATD.B on Toronto, is the largest convenience store operator in Canada, with over 2,000 outlets. The company has agreed to buy 13 convenience stores/gas stations in central Quebec from privately held Group Therrien for an undisclosed price. All 13 stores sell gas under either the Petro-T or Esso brands. Four of the stores have fast-food outlets (two A&W and two Subway), and three have car washes. Couche-Tard will lease the land and buildings at market value for 40 years and buy the stores’ equipment and inventory. The stores will continue to sell Esso and Petro-T gas, but will operate under the Alimentation Couche-Tard banner. Aside from its extensive network of stores in Canada, Alimentation Couche-Tard has more than 3,000 U.S. stores in 28 states. The Canadian stores operate under the Couche-Tard and Mac’s banners, while the U.S. stores mainly use the Circle K banner. The company sells fuel at 66% of its stores....

MOTOROLA INC., $3.88, New York symbol MOT, reported that its 2008 sales fell 17.7%, to $30.1 billion from $36.6 billion in 2007. The drop was mainly caused by a 36% sales decline at Motorola’s cellphone business, which accounted for 40% of the company’s overall 2008 sales. Losses ballooned to $4.2 billion, or $1.84 a share, from $105 million, or $0.05 a share. If you exclude unusual items, including costs related to Motorola’s current restructuring, it would have earned $0.02 a share in 2008. The restructuring, mainly job cuts, should save the company $1.5 billion in 2009. To conserve cash, Motorola has suspended its quarterly dividend of $0.05 a share. Motorola’s other businesses, wireless infrastructure and home equipment, remain profitable. The company also holds $7.0 billion in cash, or roughly $3.05 a share, and has $4.2 billion in debt. This should help it cope with the economic downturn. Motorola is a hold....

Newell and Tupperware have fallen sharply in the past few months on fears that weaker consumer confidence will hurt their sales and earnings. However, they own some of the world’s best-known brands, and this is helping them expand overseas. They both use oil to make their products, so they also stand to gain from falling oil prices. This should let them continue to pay above-average dividends. NEWELL RUBBERMAID INC. $9.21 (New York symbol NWL; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 277.2 million; Market cap: $2.6 billion; Price-to-sales ratio: 0.3; WSSF Rating: Average) makes a wide variety of household products, such as plastic storage bins, tools and pens. International markets account for 30% of its revenue. The company’s total term debt was $2.9 billion as of December 31, 2008, which is a high 110% of its market cap. Of that total, $752.7 million is due within one year. Newell generated $546.6 million in cash flow in 2008, so it should have little trouble meeting its obligations. The company also held cash of $275.4 million, or $1.00 a share. Newell aims to conserve cash by accelerating its current restructuring plan, which includes temporarily shutting down some of its plants to reduce inventory levels....

CANADIAN PACIFIC RAILWAY LTD., $37.22, Toronto symbol CP, earned $631.5 million in 2008, down 6.1% from $672.8 million in 2007. Per-share earnings fell 6.0%, to $4.06 from $4.32. These figures exclude foreign-exchange losses and other one-time items. The drop was largely caused by higher fuel and labour costs. Revenue, however, rose 4.8%, to $4.9 billion from $4.7 billion as higher rates offset lower freight volumes. CP’s operating ratio rose to 78.6% from 75.3% a year earlier. (Operating ratio is calculated by dividing a company’s regular operating costs by its revenue. The lower the ratio, the better.) Falling oil prices and temporary layoffs should help lower CP’s costs in 2009. The company plans to issue up to 13.9 million new common shares at $36.75 each. The gross proceeds of $510.8 million will help CP cover its pension costs, which will rise from $95 million in 2008 to between $150 million and $195 million in 2009. In 2010, CP estimates its pension obligations will continue to climb, to between $295 million and $345 million. To conserve cash, the company plans to cut capital spending by $200 million in 2009....

NOVA CHEMICALS CORP., $4.76, Toronto symbol NCX, fell 20% this week on fears that the credit crisis will hurt its ability to refinance part of its debt, particularly as the slowing economy has lowered demand for its industrial plastics. Nova’s long-term debt at September 30, 2008 was $1.5 billion U.S., which is equal to 4.7 times its current market cap. This figure excludes a $250-million U.S. bond due in April 2009. Nova has $575 million U.S. in cash and untapped credit lines, so it can easily meet this obligation. The company aims to negotiate better terms for its remaining debt, which includes over $1 billion U.S. due over the next two years. Due to the current economic slowdown, Nova is expanding its cost-cutting program, including reducing its workforce by 15%. These moves should save it $100 million U.S. in 2009 and help Nova pay down its debt....

BANK OF AMERICA CORP. $7.18, New York symbol BAC, moved down this week as losses from recently acquired brokerage firm Merrill Lynch & Co. were higher than originally anticipated. In the fourth quarter of 2008, Merrill lost $15.3 billion due to writedowns of securities backed by mortgages and other loans. Bank of America completed its $19 billion all-stock purchase of Merrill on January 1, 2009. Fears over rising loan losses also weighed on Bank of America. In 2008, Bank of America’s earnings fell 73.3%, to $4.0 billion or $0.55 a share from $15.0 billion or $3.30 a share in 2007. The drop was mostly because of an $18.4 billion rise in loan loss provisions. These earnings figures do not include Merrill Lynch. The U.S. Treasury has now agreed to buy $20 billion of new preferred shares from Bank of America. These new shares carry an annual dividend of 8%. In 2008, Bank of America sold $25 billion of preferred shares (5% dividend) to the U.S. Treasury, as part of the federal government’s Troubled Asset Relief Program....