Canadian Pacific Railway Limited
), Canada's second largest railway, reported adjusted earnings
per share of C$1.28 (approximately $1.29) in the fourth quarter,
in line with the Zacks Consensus Estimate. Adjusted earnings
leaped 15% year over year. For fiscal 2012, adjusted earnings
shot up 37.8% to C$4.34 per share (approximately $4.34).
Quarterly revenues climbed 6.7% year over year to C$1.5
billion (approximately $1.51 billion) due to volume expansion and
strong pricing. The revenues were also in line with the Zacks
Consensus Estimate. Revenues for full-year 2012 witnessed an
increase of 10% to C$5.695 billion ($5.697 billion). The demand
for rail service remained healthy across all business segments
throughout the year.
In the fourth quarter, carloads (volume) and revenue ton-miles
(RTMs), which measure the relative weight and distance of rail
freight transported by Canadian Pacific, grew 1% and 4%,
respectively. For the full year, carloads and RTMs increased 3%
and 5%, respectively.
Operating income in the reported quarter witnessed a massive
decline of 80% year over year to C$60.0 million (approximately
$60.5 million). For 2012, operating income dropped 2% to C$949
million ($949.4 million).
Operating expenses increased 32% year over year to C$1.4
billion (approximately $1.5 billion) in the fourth quarter.
Operating ratio (defined as operating expenses as a percentage of
revenue) expanded 370 basis points year over year to 74.8%
because of continued focus on maintaining asset efficiencies,
safety measures and increased productivity.
Operating expenses in fiscal 2012 rose 12.0% year over year to
C$4.7 billion ($4.75 billion), resulting in an operating ratio of
83.3%, down 200 basis points.
Canadian Pacific exited fiscal 2012 with cash and cash
equivalents of C$333 million (approximately $333.1 million), up
from C$47 million (approximately $47.6 million) a year ago.
Long-term debt reduced to C$4.636 billion (approximately $4.638
billion) from C$4.695 billion (approximately $4.751 billion) last
For 2013, the company estimated earnings of $4.34 and revenues
in high single digits. Operating ratio is estimated in the low
70s. The company assumes average fuel cost per gallon of $3.45
per U.S. gallon. Tax rate is expected in the range of 25%-27% and
exchange rates are expected to remain at par.
Besides Canadian Pacific, other railroads that released their
fourth quarter earnings include
Canadian National Railway
Norfolk Southern Corp.
Kansas City Southern
). While Canadian National's earnings were in line with the
Zacks Consensus Estimate, Norfolk and Kansas surpassed our
We believe high demand for each product group, long-term
investments, and rising coal volumes resulting from an agreement
Teck Resources Limited
) will lead to higher profitability in the future. Canadian
Pacific remains on track to produce an operating ratio in the low
70s over the next three-to-five years.
This low operating ratio can be achieved through structural
cost reductions, running longer and heavier trains equipped with
distributed power, greater asset utilization as well as
consolidating divisions, yards and shops. On the flip side,
competitive threats, strong Canadian dollarand highly unionized
workforce limit the upside to the stock.
Canadian Pacific has a Zacks Rank #3 (Hold) rating.
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