Canadian Pacific (CP) Q3 Earnings Beat Estimates, Rise Y/Y

Canadian Pacific Railway Limited’s (NYSE:CP) third-quarter 2019 earnings (excluding 11 cents from non-recurring items) of $3.48 per share (C$4.61) surpassed the Zacks Consensus Estimate of $3.41. Quarterly earnings also increased year over year. The bottom line was aided by the company’s prudent cost management, courtesy of the precision scheduled railroading model.

Although quarterly revenues of $1,495.5 million (C$1,979 million) increased year over year, the same fell short of the Zacks Consensus Estimate of $1,504.5 million. Rise in freight revenues led to the year-over-year top-line improvement.

Freight revenues rose 4.2% year over year and contributed 97.6% to the top line. Notably, the company’s freight segment consists of Grain (up 6.5%), Coal (up 7%), Potash (down 10%), Fertilizers and sulfur (up 20%), Forest products (up 2.6%), Energy, chemicals and plastics (up 12.7%), Metals, minerals and consumer products (down 3.4%), Automotive (up 2.4%) and Intermodal (up nearly 1%). In the reported quarter, total freight revenues per revenue ton-miles (RTMs) were up 6% year over year. Also, total freight revenues per carload climbed 3% from the year-ago reported figure.

Operating income increased 10% in the quarter under review. Operating expenses inched up marginally year over year. Operating ratio (operating expenses as a percentage of revenues on an adjusted basis) improved to 56.1% from 58.3% in the prior-year quarter, driven by this railroad operator’s efforts to control costs. Notably, lower the value of this key metric bodes well. Capital spending at the end of the first nine months of 2019 was C$1.15 billion.

Liquidity

This Zacks Rank #4 (Sell) company exited the third quarter with cash and cash equivalents of C$145 million compared with C$61 million at the end of 2018. Long-term debt amounted to C$8,308 million compared with C$8,190 million in December 2018.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Outlook

Amid macroeconomic headwinds and geopolitical tensions, Canadian Pacific sees weak volumes in the fourth quarter.

For 2019, the company expects revenue ton mile (RTM) to increase in low-single digits. Moreover, adjusted earnings per share are projected to rise in double digits year over year compared with C$14.51 per share reported in 2018. Capital expenditures are still estimated around C$1.6 billion for the current year.

Upcoming Releases

Investors interested in the broader Transportation sector are keenly awaiting third-quarter earnings reports from key players like Expeditors International of Washington, Inc. (NASDAQ:EXPD) , Air Lease Corporation (NYSE:AL) and Hertz Global Holdings, Inc (NYSE:HTZ) . While Hertz will report third-quarter earnings numbers on Nov 4, Expeditors and Air Lease will announce the same on Nov 5 and Nov 7, respectively.

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