Canadian Pacific (CP) Lags on Q3 Earnings, Cuts Volume View

Canadian Pacific Railway Limited’s CP third-quarter 2021 earnings (excluding 14 cents from non-recurring items) of 70 cents (C$0.88) per share missed the Zacks Consensus Estimate of 75 cents. However, quarterly earnings increased 12.9% on a year-over-year basis. All per share amounts have been retrospectively adjusted to reflect the share split (five-for-one).

However, quarterly revenues of $1,542.4 million (C$1,942 million) missed the Zacks Consensus Estimate of $1,569 million. The top line increased 10.3% on a year-over-year basis due to a rise in freight revenues.

Canadian Pacific Railway Limited Price, Consensus and EPS Surprise

Canadian Pacific Railway Limited Price, Consensus and EPS Surprise

Canadian Pacific Railway Limited price-consensus-eps-surprise-chart | Canadian Pacific Railway Limited Quote

Freight revenues, contributing 97.6% to the top line, rose 4.1% on a year-over-year basis. The company’s freight segment consists of Grain (down 23%), Coal (up 22%), Potash (down 14%), Fertilizers and sulphur (up 11%), Forest products (up 5%), Energy, chemicals and plastics (up 22%), Metals, minerals and consumer products (up 29%), Automotive (down 12%) as well as Intermodal (up 15%). In the reported quarter, total freight revenues per revenue ton-miles (RTMs) rose 8% year over year. Total freight revenues per carload also increased 3% from the year-ago quarter’s reported figure.

On a reported basis, operating income dropped 1%, while total operating expenses increased 8% year over year in the quarter under review. Adjusted operating income increased 1%. Operating ratio (operating expenses, as a percentage of revenues, on an adjusted basis) deteriorated to 59.4% in the third quarter from 58.2% in the year-ago quarter. Lower the value of the metric, the better.

Liquidity

The company exited the third quarter with cash and cash equivalents of C$210 million compared with C$147 million at the end of fourth-quarter 2020. Long-term debt amounted to C$8,036 million compared with C$8,585 million at the end of December 2020.

2021 Guidance

Canadian Pacific, which is likely to acquire Kansas City Southern KSU next year, anticipates adjusted earnings per share (EPS) to increase in double-digits in 2021 relative to 2020's adjusted diluted EPS of $3.53. Volumes, measured in RTMs, are expected to be in low single-digit (previous expectation: high single digits). The outlook has been trimmed due to the reduced expectations pertaining to Canadian grain crop in 2021-2022 and the prevalent supply chain challenges. Capital expenditures for the year are still estimated at C$1.55 billion. Tax rate is anticipated at 24.6%.

Canadian Pacific carry a Zacks Rank #5 (Strong Sell). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Sectorial Snapshot

Within the broader Transportation sector, Delta Air Lines DAL and J.B. Hunt Transport Services JBHT recently reported third-quarter 2021 results.

Delta reported third-quarter earnings (excluding $1.59 from non-recurring items) of 30 cents per share, outpacing the Zacks Consensus Estimate of 15 cents. Revenues of $9,154 million also beat the Zacks Consensus Estimate of $8,370.6 million.

J.B. Hunt reported third-quarter earnings of $1.88 per share, surpassing the Zacks Consensus Estimate of $1.77. Total operating revenues of $3144.8 million outperformed the Zacks Consensus Estimate of $3002.1 million.

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