Canadian Pacific Misses on Q1 Earnings, Up Y-o-Y - Analyst Blog

Canadian Pacific Railway Limited CP, Canada's second largest railway carrier, reported adjusted earnings per share of C$1.44 (approximately $1.31) in the first quarter, missing the Zacks Consensus Estimate of $1.38. However, the results improved 16.1% from C$1.24 per share (approximately $1.21) in the year-ago quarter. Shareholders reacted positively to the year-over-year earnings growth as the stock gained 5.25% on Tuesday trade on NYSE.

Quarterly revenues nudged up 0.9% year over year to C$1,509 million (approximately $1,369.4 million) but missed the Zacks Consensus Estimate of $1,390 million. The company delivered a decent performance despite the severe winter that affected the first quarter.

Carloads (volume) decreased 6.2% year over year, while revenue ton-miles (RTMs), which measure the relative weight and distance of rail freight transported by Canadian Pacific, grew 7.7% year over year.

Operating Income and Expenses

Operating income improved 16.9% year over year to C$423 million (approximately $383.9 million). Operating expenses decreased 4.1% year over year to C$1,086 million (approximately $985.5 million). Operating ratio (defined as operating expenses as a percentage of revenues) improved 380 basis points year over year to 72.0% on continued focus on maintaining asset efficiencies, safety measures and productivity increase.

Liquidity

Canadian Pacific exited the first quarter with cash and cash equivalents of C$279 million (approximately $253.2 million), down from C$476 million (approximately $462 million) at the end of 2013. Long-term debt increased to C$4.774 billion (approximately $4.332 billion) from C$4.687 billion (approximately $4.552 billion) at year-end 2013.

Dividend

The company paid C$61.0 million ($55.4 million) in dividend during the reported quarter.

Share Repurchase

Canadian Pacific repurchased 567,750 shares worth C$87.0 million ($78.95 million) in the first three months of 2014.

Our Analysis

Canadian Pacific remains focused on volume expansion, operational efficiency, pricing revision and network capability upgrade. We believe that strength in the Merchandize segment and Canadian Coal exports will lead to higher revenues and earnings in the coming quarters. The company is expected to benefit from its coal agreement with Teck Resources Ltd TCK and draw synergies from its agreements with Canpotex and Canadian Tire.

However, a weak domestic coal business, commodity risks related to the purchase of diesel fuel and competition from other Canadian and U.S. companies are headwinds to the company's performance.

Canadian Pacific currently has a Zacks Rank #3 (Hold).

Peer Performance

While another railroad company CSX Corp. CSX reported a year-over-year drop in first quarter earnings, Kansas City Southern KSU posted significant earnings growth.