It has been about a month since the last earnings report for Canadian Pacific (CP). Shares have added about 1.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Canadian Pacific due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Canadian Pacific Q1 Earnings Miss, Revenues Beat
The company’s earnings (excluding 23 cents from non-recurring items) of $2.09 per share (C$2.79) lagged the Zacks Consensus Estimate of $2.25. Higher operating expenses caused this downside.
Quarterly revenues came in at $1,329 million (C$1.77 billion), beating the Zacks Consensus Estimate of $1,321.7 million. Also, the top line improved year over year. Strong freight revenues boosted the top line.
Freight revenues rose 6% year over year and contributed 97.7% to the top line. Notably, the company’s freight segment consists of Grain (up 6%), Coal (up 5%), Potash (up 2%), Fertilizers and sulfur (down 7%), Forest products (up 11%), Energy, chemicals and plastics (up 23%), Metals, minerals and consumer products (down 5%), Automotive (up 7%) and Intermodal (up 4%). In the reported quarter, total freight revenues per revenue ton-miles (RTMs) were up 7% year over year. Also, total freight revenues per car load increased 9% from the year-ago quarter’s figure.
Operating income inched up 3% in the quarter under review. Operating ratio (operating expenses as a percentage of revenues on an adjusted basis) deteriorated to 69.3% from 67.5% in the prior-year quarter. Notably, lower value of this key metric bodes well. Operating expenses rose 9% year over year.
The company exited the first quarter with cash and cash equivalents of C$352 million compared with C$61 million at the end of 2018. Long-term debt amounted to C$8,427 million compared with C$8,190 million in December 2018.
As part of the buyback program announced on Oct 19, 2018, Canadian Pacific repurchased around 7.1 million shares worth approximately C$185 million at a weighted average price of C$261.73 per share in the quarter under discussion.
Canadian Pacific expects revenue ton mile (RTM) to rise in mid-single digit while adjusted earnings per share are anticipated to grow in double digits. With enhancement in service, productivity and safety of the network, the company estimates approximately $1.6 billion investment in capital programs. Meanwhile, effective tax rate is projected to be 25.5-26% in the current year.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month.
At this time, Canadian Pacific has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Canadian Pacific has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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