Canadian Pacific Railway Limited
) adjusted earnings per share of C$1.30 (approximately $1.31) in
the third quarter of 2012 surpassed the Zacks Consensus Estimate
of C$1.26 ($1.27). Adjusted earnings per share also registered an
18% increase from C$1.10 ($1.12) earned in the year-ago quarter,
driven by higher revenues across all product lines.
Revenues increased 8% year over year to C$1,451 million
(approximately $1,457 million) but missed the Zacks Consensus
Estimate of C$1,454 million ($1,460 million). The year-over-year
increase was primarily aided by substantial revenue growth in
Automotives (up 31%) as well as Industrial and Consumer Products
On a year-over-year basis, Carload (volumes) increased 3% and
revenue ton miles, which measures the relative weight and
distance of rail freight transported, also grew 3%.
Operating income increased 16% year over year to C$376 million
(approximately $377 million). Operating expenses increased 6%
year over year to C$1,075 million (approximately $1,079 million).
This has resulted in an operating ratio (defined as operating
expenses as a percentage of revenue) of 74.1%, up 170 basis
points year over year.
Canadian Pacific exited the quarter with cash and cash
equivalents of C$207 million ($208 million), being much higher
than C$97 million ($99 million) in the year-ago quarter.
Long-term debt was reduced to C$4.60 billion ($4.58 billion)
compared with C$4.70 billion ($4.60 billion) at year-end
We expect Canadian Pacific to continue delivering strong
earnings growth aided by recoveries of volume and pricing. The
company is expected to benefit from its coal agreement with
Teck Resources Limited
) and liaisons with Canpotex and Canadian Tire. Further, major
commodities will also deliver favorable results for the
However, competitive threats from its major rivals - including
Canadian National Railway Company
), highly unionized workforce and regulatory pressures may limit
the upside of the stock.
The stock currently retains a Zacks #3 Rank, implying a
short-term (1-3 months) Hold rating. For the long term, we have a
Neutral recommendation on Canadian Pacific
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