CP: Record Q1 results, and a share repurchase

Despite a 4% drop in revenues, Canadian Pacific Railway Ltd. posted its lowest-ever first-quarter operating ratio of 58.9% and reported diluted earnings per share of $3.51, or $2.50 on an adjusted diluted earnings per share basis, for first-quarter 2016.

CP’s operating ratio improved by 430 basis points year-over-year and for a third straight quarter was below 60%. “At 58.9%, the OR is the lowest-ever when compared to adjusted operating ratios in previous quarters,” CP said.

Reported diluted EPS increased 83% to C$3.51 from C$1.92 and adjusted diluted EPS grew 11% to C$2.50 from C$2.26. Revenues were down 4% to C$1.59 billion from C$1.67 billion, but operating income increased 7% to C$653 million from C$612 million. Net income rose 69% to C$540 million from C$320 million, and adjusted income was up 2% to C$384 million from C$375 million.

“The precision railroading model works in all economic environments,” said CP CEO E. Hunter Harrison. “Despite weakness in the economy and volume headwinds, we focused on what we can control—our costs and our commitment to providing reliable service—and delivered a record performance. I am proud of what the team continues to produce quarter after quarter in these difficult times and we remain optimistic in our outlook given signs of stabilization within the Canadian economy and in key global markets. As market conditions improve and volumes increase, our team of professional railroaders will be ready. Furthermore, we are confident in our plan to deliver shareholder value, which includes a new share repurchase program that demonstrates our continued confidence over the long-term.”

CP said it intends to seek Toronto Stock Exchange (TSX) acceptance of a new normal course issuer bid. Subject to TSX acceptance, CP’s board of directors has authorized the repurchase of up to 6.91 million of its common shares, for cancellation, representing approximately 5% of CP’s public float of common shares as of April 19, 2016. The board also authorized an increase to the company’s quarterly dividend to C$0.50 per share from C$0.35, payable on July 25, 2016 to shareholders of record on June 24, 2016.

“The actual number of common shares that will be repurchased, and the timing of any such purchases, will be determined by CP, subject to the limits imposed by the TSX,” CP said. There cannot” be any assurances as to how many common shares will ultimately be acquired.” CP purchased 11,375,189 of its common shares at a weighted average price of C$198.46 under its previous normal course issuer bid, which expired March 17, 2016.

“With the increase in our dividend and the new share repurchase program, we are renewing our commitment to return cash to shareholders in a disciplined manner that affirms our confidence in the long-term plan for CP,” said Hunter Harrison. “We have established a solid foundation to build on, and we believe that the long term outlook for CP remains strong.”