Canadian Pacific Railway Limited
's (
CP
) earnings per share of 82 Canadian cents (approximately 81.8
cents) for the first quarter of 2012 surpassed the Zacks Consensus
Estimate by almost a penny. Earnings per share registered a
whopping 310% increase from 20 Canadian cents earned in the
year-ago quarter. The outperformance was led by strong revenue
growth and operating results.
Revenues increased 18.3% year over year to C$1.376 billion
(approximately $1.367 billion) and breezed passed the Zacks
Consensus Estimate of $1.28 billion, backed by a positive price mix
and increased fuel surcharges.
On a year-over-year basis, Carload (volumes) increased 8% and
revenue ton miles, which measures the relative weight and distance
of rail freight transported, grew 11% mainly due to increased Coal
and Automotive volumes.
Operating income shot up 151% year over year to C$274 million
(approximately $273.4 million). Operating expenses went up 5% year
over year primarily due to a substantial increase in fuel cost (up
19% year over year) followed by higher compensation expenses (up 7%
year over year). Operating ratio (defined as operating expenses as
a percentage of revenue) improved a staggering 1,050 basis points
to 80.1% from 90.6% in the year-ago quarter.
Liquidity
Canadian Pacific exited the first quarter with cash and cash
equivalents of C$77.0 million, which was much lower than C$311.0
million in the year-ago quarter. Long-term debt was C$4.68 billion
compared with C$4.69 billion at year-end 2011.
Our Analysis
We expect Canadian Pacific to continue delivering 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 recent liaisons with Canpotex and Canadian Tire. Further,
major commodities will also deliver favorable results for the
company.
However, competitive threats from major rivals like
Canadian National Railway Company
(
CNI
), a highly unionized workforce, regulatory pressures and expected
near-term lows in certain commodity sections and cost burden may
limit the upside of the stock.
The stock currently holds a short-term (1-3 months) Zacks #2
Rank (Buy). For the long term, we have a Neutral recommendation on
Canadian Pacific.
CDN NATL RY CO (
CNI
): Free Stock Analysis Report
CDN PAC RLWY (
CP
): Free Stock Analysis Report
TECK RESOURCES (
TCK
): Free Stock Analysis Report
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