Canadian Pacific's (CP) Shares Down On Q1 Earnings Miss

Canadian Pacific Railway Limited (NYSE:CP) reported lower-than-expected earnings but better-than-expected revenues in the first quarter of 2019.

The earnings miss displeased investors. Consequently, shares of the company dipped 1.3% in after-hours trading on Apr 23.

The transportation company’s earnings (excluding 23 cents from non-recurring items) of $2.09 per share (C$2.79) lagged the Zacks Consensus Estimate of $2.25. Higher operating expenses caused this downside.

Quarterly revenues came in at $1,329 million (C$1.77 billion), beating the Zacks Consensus Estimate of $1,321.7 million. Also, the top line improved year over year. Strong freight revenues boosted the top line.

Freight revenues rose 6% year over year and contributed 97.7% to the top line. Notably, the company’s freight segment consists of Grain (up 6%), Coal (up 5%), Potash (up 2%), Fertilizers and sulfur (down 7%), Forest products (up 11%), Energy, chemicals and plastics (up 23%), Metals, minerals and consumer products (down 5%), Automotive (up 7%) and Intermodal (up 4%). In the reported quarter, total freight revenues per revenue ton-miles (RTMs) were up 7% year over year. Also, total freight revenues per car load increased 9% from the year-ago quarter’s figure.

Operating income inched up 3% in the quarter under review. Operating ratio (operating expenses as a percentage of revenues on an adjusted basis) deteriorated to 69.3% from 67.5% in the prior-year quarter. Notably, lower value of this key metric bodes well. Operating expenses rose 9% year over year.

Liquidity

This Zacks Rank #3 (Hold) company exited the first quarter with cash and cash equivalents of C$352 million compared with C$61 million at the end of 2018. Long-term debt amounted to C$8,427 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.

Share Repurchases

As part of the buyback program announced on Oct 19, 2018, Canadian Pacific repurchased around 7.1 million shares worth approximately C$185 million at a weighted average price of C$261.73 per share in the quarter under discussion.

2019 Outlook

Canadian Pacific expects revenue ton mile (RTM) to rise in mid-single digit while adjusted earnings per share are anticipated to grow in double digits. With enhancement in service, productivity and safety of the network, the company estimates approximately $1.6 billion investment in capital programs. Meanwhile, effective tax rate is projected to be 25.5-26% in the current year.

Upcoming Releases

Investors interested in the Zacks Transportation sector are keenly awaiting first-quarter 2019 earnings reports from key players, namely Southwest Airlines Co. (NYSE:LUV) , Canadian National Railway Company (NYSE:CNI) and Genesee & Wyoming, Inc. (NYSE:GWR) . While Southwest and Canadian National will report first-quarter financial numbers on Apr 25 and Apr 29, respectively, Genesee & Wyoming will announce the same on Apr 30.

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