CP: “Improved Performance Measures”

Canadian Pacific (CP) announced record third-quarter revenues of C$1.98 billion, and reported diluted earnings per share (EPS) of C$4.46, or C$4.61 on an adjusted diluted EPS basis. The Class I railroad also achieved a record-low quarterly operating ratio of 56.1%.

“After a record second-quarter that included strong operating metrics including train speed and terminal dwell, we continue to see those performance measures be improved upon,” said Keith Creel, CP President and CEO. “Our disciplined approach to precision scheduled railroading and the commitment of our 13,000-strong CP family puts us in a position to control what we can as we navigate softer volumes, macroeconomic challenges and geopolitical tensions into the fourth quarter.”

3Q19 Highlights:

• Strong operational performance in train speed, terminal dwell, fuel efficiency and record car-miles per car day.
• Revenues increased by 4% to C$1.98 billion, a record, from C$1.90 billion last year.
• Reported diluted EPS of C$4.46, a 3% increase from C$4.35 last year, and adjusted diluted EPS of C$4.61, a 12% increase from C$4.12 last year.
• Operating ratio of a record-low 56.1%, a 220-basis-point improvement over last year’s third-quarter operating ratio of 58.3% and a 40-basis-point improvement over the Q418 record of 56.5%.

“Our operating model allows us to quickly adapt in a changing environment,” said Creel. “By controlling our costs real-time, we continue to drive margin improvements. While we now expect low-single digit volume growth for the year, we remain confident in our guidance to deliver full-year double-digit adjusted diluted EPS growth.”

Cowen Insight

“CP’s adjusted EPS of $C4.61 was above our $C4.52 estimate and consensus’ $C4.53 expectation,” according to Cowen and Company analysts Jason H. Seidl (Managing Director and Railway Age Wall Street Contributing Editor), Matt Elkott and Adam Kramer. “CP’s non-adjusted EPS, which doesn’t include adjustments for foreign exchange and other one-time tax items, was $C4.46. Revenue of $C1.98 billion was just below our C$2.01 billion forecast and consensus’ C$1.99 billion estimate.”

“Operating income of $C869 million outpaced our $C857 million forecast and consensus’ expectations of $C856 million,” the analysts added. “CP notched a record Operating Ratio of 56.1%, which was 230bps improved year-over-year, 120bps better than our estimate, and 100bps better than consensus. CP‘s core pricing figure for the quarter was again in the range of 3-4%, well above rail inflation.

“We are slightly adjusting our 2019 EPS estimate to $C16.50 from $C16.55 On a U.S. Dollar basis, our 2019 EPS estimate goes to $12.45 from $12.60. Our 2020 EPS estimate remains at C$18.05 or US$13.88. Continuing to apply a 18.5x multiple on our 2020 EPS estimate, our price target remains at $257.”

CP’s entire 3Q19 earnings presentation can be found here.