Canadian Pacific (CP) Q2 Earnings Beat, Revenues Miss

Railroad operator Canadian Pacific Railway Limited (NYSE:CP) reported mixed results in the second quarter of 2016, with earnings beating the consensus estimate and revenues missing the same. The company’s earnings (on an adjusted basis) of C$2.05 per share (approximately $1.59 per share) beat the Zacks Consensus Estimate by 3 cents. The beat can be attributed to lower costs. Earnings however deteriorated from the year-ago figure of $1.99 per share.

Quarterly revenues declined year over year to $1,125 million and also missed the Zacks Consensus Estimate of $1,136 million. The top line was hurt by a decline in freight revenues. Soft freight revenues primarily from coal, Canadian grain and potash hurt the results. Apart from soft commodity volumes, a stronger Canadian dollar also hurt the top line.

Operating expenses contracted significantly on the back of low fuel costs. Operating ratio (defined as operating expenses as a percentage of revenues) came in at 62% in the reported quarter compared with 60.9% a year ago. The company’s net income (on an adjusted basis) declined 23% to $312 million in the quarter.

Liquidity

Canadian Pacific exited the second quarter with cash and cash equivalents of C$92 million compared with C$650 million at the end of 2015.

Long-term debt totaled C$8,430 million compared with C$8,927 million at the end of 2015. We note that Canadian Pacific had scrapped its plans to buy peer Norfolk Southern Corp. (NYSE:NSC) earlier in the year. The cash, which was to be utilized for the Norfolk Southern takeover, has been used to fund shareholder friendly activities such as buybacks/dividends. Consequently, during the quarter the company announced an increased dividend of C$0.50 per share.

Another Notable Release

Railroad operator Union Pacific Corp. (NYSE:UNP) is slated to release its second-quarter results on Jul 21.

Zacks Rank & A Key Pick

Currently, Canadian Pacific carries a Zacks Rank #3 (Hold). A better-ranked stock in the broader transportation space is United Parcel Services Inc. (NYSE:UPS) , carrying a Zacks Rank #2 (Buy).