Canadian Pacific Surpasses - Analyst Blog

Canadian Pacific Railway Ltd.’s (CP) fourth-quarter earnings came in at 94 Canadian cents per share, substantially ahead of the Zacks Consensus Estimate of 83 Canadian cents per share. Strong operating performance and continued focus on cost management drove the result.

Total revenues were C$1.1 billion, down 16% from C$1.3 billion in the prior-year quarter, reflecting lower volumes and fuel surcharge revenues.

Operating expenses were C$853 million, down 17% from C$1.0 billion in the prior-year quarter, due to lower compensation and benefit expenses, lower fuel prices and lower materials.

Cost saving and improved efficiencies led to an improvement of 190 basis points in the operating ratio, which improved to 76.0%.

For full year 2009, total revenues declined 13% year-over-year to C$4.3 billion due to lower volumes and fuel prices, partially offset by gains in foreign currency. Operating expenses were down 17% with productivity gains, cost management initiatives, improved fuel efficiencies and lower fuel prices driving the reduction.

On a year-over-year basis, hedging provided a C$9 million benefit. Canadian Pacific has hedged between 10% and 12% of the total 2010 fuel consumption. 

During the reported quarter, the company chose to accelerate the funding of future pension obligations through a voluntary prepayment of approximately $500 million to its defined benefit pension plans. The 2010 pension contributions are currently estimated to be between $150 and $200 million.

For Canadian Pacific, 2009 was extraordinary in volume reduction and volatility. In some months, volumes were down as much as 25% to 30%. The company strengthened its balance sheet despite the tough economic environment and continued to execute on both structural and variable cost initiatives. Free cash flow at the end of the year was $483 million. Productivity gains and aggressive cost management continue to be a priority, with demand picking up gradually. However, the company faces continued uncertainty in the economy and considerable headwinds in pension expenses and foreign currency.

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