Canadian Pacific Railway Limited
) adjusted earnings per share of C$1.30 ($1.27) in the fourth
quarter of 2011 was well ahead of the Zacks Consensus Estimate of
$1.09. Adjusted earnings of the fourth largest Canadian railway
rose 19.3% from C$1.09 per share in the year-ago quarter, on the
back of strong freight rates across the railroads that compensated
for subdued volumes.
For fiscal 2011, adjusted earnings went down 13.3% year over
year to C$3.34 ($3.38 billion). The company witnessed a strong
turnaround from the difficult operating environment resulting from
the floods that affected the first half results. Subsequently, the
impact went on to dampen the year's results.
Revenues for the quarter increased 8.8% year over year to C$1.4
billion ($1.37 billion) but were a tad below the Zacks Consensus
Estimate of $1.5 billion. The year-over-year growth was backed by a
positive price mix and increased fuel surcharges that compensated
for lower volumes. Revenues for the year increased 3.9% year over
year to C$5.2 billion ($5.3 billion).
On a year-over-year basis, Carloads (volumes) remained flat at
676,000 units in the reported quarter while Carloads for the full
year dropped 2% year over year to 2.5 million units, mainly due to
lower Coal, grain and intermodal volumes coupled with lowered train
speed and disrupted train operations owing to the floods that
resulted in restricted productivity and network capacity in the
first half of the year.
Quarterly operating income inched up 1.7% year over year to
C$303 million ($296.2 million) but operating income for the year
declined 13.4% year over year to C$967 million ($978 million).
Operating expenses crept up 10.9% and 8.9% year over year in the
fourth quarter and full year 2011, respectively, due to higher fuel
expenses that grew a respective 32.2% and 33% year over year in the
fourth quarter and full year 2011. Operating ratio (defined as
operating expenses as a percentage of revenue) deteriorated 150 and
370 basis points to 78.5% and 81.3% in the fourth quarter and full
year 2011, respectively.
Canadian Pacific exited the fourth quarter with cash and cash
equivalents of C$47.0 million, much lower than C$361 million in the
year-ago period. Long-term debt increased to C$4,695 million in
2011 from C$4,033 million in 2010.
Management maintains its long-term operating ratio range of
70-72%. For 2012, management expects capital expenditures in the
range of $1.1 - $1.2 billion. The tax rate for 2012 is expected to
range between 25% and 27%.
The company expects to deliver strong financial results in the
coming years, riding on its multi-year plan that involves expanding
network capacity to support higher shipments and summon cost
improvements. Canadian Pacific registered sequential revenue growth
on pricing recoveries. We expect Canadian Pacific's earnings to
eventually rebound, supported by strong pricing. In addition,
long-term investments are expected to yield higher profitability in
future. However, rising fuel prices, lackluster earnings,
competitive threats from railroads like
Canadian National Railway
), exchange rate fluctuations, a highly unionized workforce and
regulatory pressuresremain headwinds for the stock.
Thus, we currently maintain our long-term Neutral recommendation
on Canadian Pacific. The stock holds a Hold rating in the
short-term (1-3 months), represented by the Zacks #3 Rank.
CDN NATL RY CO (
): Free Stock Analysis Report
CDN PAC RLWY (
): Free Stock Analysis Report
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