Canadian Pacific Railway Limited 's ( CP )
adjusted earnings per share of 90 Canadian cents (approximately
89.1 cents) for the second quarter of 2012 surpassed the Zacks
Consensus Estimate of 88 cents. Adjusted earnings per share
registered a 20% increase from 75 Canadian cents earned in the
year-ago quarter given higher freight revenues across most of the
Adjusted earnings for the second quarter 2012 excluded the
negative impacts of 30 Canadian cents per share related to
management transition and advisory costs and change associated with
the income tax rate.
Revenues increased 8% year over year to C$1.366 billion
(approximately $1.353 billion) but fell below the Zacks Consensus
Estimate of $1.416 billion.
On a year-over-year basis, carload (volumes) dipped 1%, while
revenue ton miles, which measure the relative weight and distance
of rail freight transported, upped 1%.
Operating income increased 3.5% year over year to C$239 million
(approximately $236.7 million). Operating expenses increased 9%
year over year to C$1,127 million (approximately $1,116 million)
primarily due to a substantial hike in purchased services and other
cost (up 19.4% year over year) followed by depreciation and
amortization expenses (up 10.7% year over year) and higher
compensation expenses (7% year over year).
Operating ratio (defined as operating expenses as a percentage
of revenue) deteriorated 80 basis points to 82.5% from 81.7% in the
Canadian Pacific exited the second quarter with cash and cash
equivalents of C$82.0 million, which was much lower than C$268.0
million in the year-ago quarter. Long-term debt was C$4.75 billion
compared with C$4.70 billion at year-end 2011.
We expect Canadian Pacific to deliver strong earnings growth
aided by volume recoveries and pricing. The company is expected to
benefit from its coal agreement with Teck Resources
Limited ( TCK ) and liaisons with Canpotexand Canadian
Tire. Further, major commodities will also deliver favorable
results for the company.
However, competitive threat from major rivals like
Canadian National Railway Company ( CNI ), a
highly unionized workforce, and regulatory pressures may limit the
upside potential of the stock.
The stock currently holds a short-term (1-3 months) Zacks #3
Rank (Hold). For the long term, we have a Neutral recommendation on
CDN NATL RY CO (CNI): Free Stock Analysis
CDN PAC RLWY (CP): Free Stock Analysis Report
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