Canadian Pacific Railway Limited
), Canada's second largest railway carrier, reported adjusted
earnings per share of C$1.91 (approximately $1.82) in the fourth
quarter of 2013, missing the Zacks Consensus Estimate of $1.84.
The results improved 49% from C$1.28 per share (approximately
$1.29) earned in the year-ago quarter.
Quarterly revenues climbed 7% year over year to C$1,607
million (approximately $1,532 million), surpassing the Zacks
Consensus Estimate of $1,521 million. The demand for rail service
remained healthy across most of the business segments resulting
in year-over-year growth.
For 2013, the company reported earnings per share of C$6.42
($6.24), up 48% year over year. Revenues were C$6,133 million
($5,956 million), up 8% year over year.
In the fourth quarter, Carloads (volume) increased 6% year
over year and revenue ton-miles (RTMs), which measure the
relative weight and distance of rail freight transported by
Canadian Pacific, grew 5% year over year. For 2013, Carloads and
RTM grew 1% and 7%, respectively.
Adjusted Operating income improved 45% year over year to C$547
million (approximately $522 million). Adjusted operating expenses
decreased 6% year over year to C$1,060 (approximately $1,010
million). Adjusted Operating ratio (defined as operating expenses
as a percentage of revenues) improved 890 basis points year over
year to 65.9% on continued focus on maintaining asset
efficiencies, safety measures and productivity increase.
For 2013, operating income increased 41% year over year to
C$1.8 billion (approximately $1.7 billion). Adjusted operating
ratio improved 710 basis points year over year to 69.9%,
representing an all time record. Adjusted operating expenses were
C$4.3 billion (approximately $4.2 billion), down 2% year over
Canadian Pacific exited the fourth quarter with cash and cash
equivalents of C$476 million (approximately $462 million), up
from C$333 million (approximately $336 million) at the end of
2012. Long-term debt increased to C$4.687 billion (approximately
$4.552 billion) from C$4.636 billion (approximately $4.681
billion) at year-end 2012.
For 2014, the company expects revenue growth of 6%-7%.
Operating ratio is expected to be 65% or lower. Further the
company estimates earnings per share to be 30 Canadian cents or
higher in comparison to 2013 adjusted earnings.
In addition, the company expects capital expenditure of $1.2
billion to 1.3 billion in 2014 and defined benefit pension income
of approximately $50 million in 2014 and 2015. Going forward, the
company assumes fuel price to be at US$3.50 per U.S. Gallon, tax
rate to be 28% and CAD/USD exchange rate of C$1.05.
We expect Canadian Pacific to deliver strong earnings growth
aided by improved volume and pricing. The company is expected to
benefit from its coal agreement with
Teck Resources Ltd
) and draw synergies from its agreements with Canpotex and
Canadian Tire. Further, focus on volume expansion, operational
efficiency, pricing revision and network capability upgrade bode
well for the company.
However, a weak coal business, commodity risks related to
purchase of diesel fuel and competition from other Canadian and
U.S. companies like
Canadian National Railway Co.
Union Pacific Corp.
) act as headwinds.
Currently, Canadian Pacific has a Zacks Rank #3 (Hold).
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