Why Is Canadian Pacific Kansas City (CP) Up 5.5% Since Last Earnings Report?
A month has gone by since the last earnings report for Canadian Pacific Kansas City (CP). Shares have added about 5.5% 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 Kansas City 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.
Q4 Earnings Beat at Canadian Pacific Kansas City
CP's fourth-quarter 2023 earnings (excluding 6 cents from non-recurring items) per share of 87 cents (C$1.10), which beat the Zacks Consensus Estimate of 83 cents. The bottom line increased 7.4% year over year. Quarterly revenues of $2.77 billion (C$3.78 billion) surpassed the Zacks Consensus Estimate of $2.71 billion and improved 53% year over year.
Freight revenues, contributing 97.9% to the top line, rose 53.2% on a year-over-year basis. We suggested the metric to jump 47.8% from fourth-quarter 2022 actuals. CP’s freight segment contains Grain (up 29%), Coal (up 115%), Potash (up 15%), Forest products (up 99%), Energy, chemicals and plastics (up 87%), Metals, minerals and consumer products (up 97%), Automotive (up 147%), Fertilizers and Sulphur (up 24%) and Intermodal (up 15%).
In the reported quarter, total freight revenue per revenue ton-miles gained 9% year over year. Total freight revenue per carload declined 6% from a year ago.
On a reported basis, operating income was up 46%. Total operating expenses increased 58% year over year. Operating ratio (operating expenses as a percentage of revenues) deteriorated 200 basis points to 61.8% from 59.8% in the year-ago quarter.
CP exited the fourth quarter with cash and cash equivalents of C$464 million compared with C$451 million in fourth-quarter 2022. Long-term debt amounted to C$19.35 billion compared with C$18.14 billion at the end of fourth-quarter 2022.
Management expects adjusted earnings for 2024 to grow double digits from 2023 . In 2024, the company aims to spend C$2.75 billion on capital expenditures.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
VGM Scores
Currently, Canadian Pacific Kansas City has a poor Growth Score of F, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Canadian Pacific Kansas City has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Canadian Pacific Kansas City is part of the Zacks Transportation - Rail industry. Over the past month, CSX (CSX), a stock from the same industry, has gained 5.6%. The company reported its results for the quarter ended December 2023 more than a month ago.
CSX reported revenues of $3.68 billion in the last reported quarter, representing a year-over-year change of -1.3%. EPS of $0.45 for the same period compares with $0.49 a year ago.
CSX is expected to post earnings of $0.45 per share for the current quarter, representing a year-over-year change of -6.3%. Over the last 30 days, the Zacks Consensus Estimate remained unchanged.
CSX has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of D.
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