During its 2018 Investor Day, Canadian Pacific Railway on Oct. 4 reported preliminary third-quarter results, updated its 2018 guidance and unveiled the next phase of its long-term strategy, which it said is “focused on driving sustainable, profitable growth.”
CP estimates that its third-quarter revenues will grow by 19% to an all-time record high of approximately C$1.9 billion. The operating ratio is expected to be below 58.5%. Reported diluted earnings per share (EPS) are expected to be approximately C$4.35, and adjusted diluted EPS is expected to be approximately $4.10, the highest in CP’s history.
Due to “a record-setting third quarter and a strong outlook for the remainder of the year,” CP is also raising its 2018 full-year guidance. The railroad expects adjusted diluted EPS to grow more than 20%, increased from earlier guidance of low-double-digit growth. This is based on adjusted diluted EPS of C$11.39 in 2017 (CP expects approximately C$50 million in gains from land sales in 4Q2018).
Key assumptions for CP’s 2018-2020 financial targets include an exchange rate of C$1.30/U.S. dollar; an on-highway diesel price of US$3.20/U.S. gallon; pension income consistent with 2018; and an annualized effective tax rate of approximately 25%, excluding discrete items such as foreign-exchange gains or losses on U.S. dollar-denominated debt and any effects of changes in tax rates.
CP’s financial targets for 2018-2020 include a volume compound annual growth rate (CAGR) in the mid-single digits, measured in revenue ton-miles (RTMs); double-digit CAGR in adjusted diluted EPS; continued margin improvement through cost control and operating leverage; and capital expenditures of approximately C$1.6 billion per year.
“Simply put, we have rebuilt the engine at CP and are leveraging the strengths of our franchise to drive growth,” President and CEO Keith Creel said. “Our continued success comes from our commitment to the Precision Scheduled Railroading (PRS) model, our deep bench of industry-leading railroaders, a disciplined approach to capital investment, network capacity and a focus on sustainable growth.
“Our family of nearly 13,000 CP railroaders is proud to safely and efficiently deliver for our customers, communities and the broader supply chain. We remain committed to the foundations of PRS, across all aspects of the company, and with the rigor the model demands for long-term success.”