Canadian Pacific Earnings Miss Estimates as Revenue Drops

  • Sales tumble 4.1% as shipments decline for crude, metals
  • Operating expenses fall 4%, spurred by decline in fuel costs

Canadian Pacific Railway Ltd., the railroad attempting to acquire Norfolk Southern Corp., reported fourth-quarter earnings that missed analyst estimates as revenue fell amid declines in cargo including crude, metals and minerals.

Adjusted earnings were 4 cents a share below analysts’ expectations. The carrier has tried to blunt the impact of the freight drop by furloughing workers and running faster trains, and said it expects the cost savings to help boost this year’s bottom line. Canadian Pacific also can look forward to some benefit from the stronger U.S. dollar, which accounts for more than half the company’s revenue.

Per-share profit in 2016 will probably climb at least 10 percent from last year’s adjusted EPS of C$10.10, Canadian Pacific said Thursday. That implies 2016 earnings of at least C$11.11.

Operating ratio, a closely watched measure of railroad efficiency that compares expenses to revenue, held steady at 59.8 percent in the fourth quarter. Operating expenses declined 4 percent, paced by a 35 percent drop for fuel and a 15 percent decline in material costs.

This year’s ratio, in which a lower number is better, will improve to less than
59 percent from last year’s record 60 percent, Canadian Pacific said. Having eliminated as many as 7,000 jobs since Hunter Harrison took over as CEO in 2012, the railroad said it may cut another 1,000 positions this year.

Revenue Decline

Fourth-quarter adjusted earnings were C$2.72 a share, less than the C$2.76 average of 22 analyst estimates compiled by Bloomberg. Revenue dropped 4.1 percent to C$1.69 billion ($1.17 billion), compared with the C$1.71 billion average estimate. Canada’s dollar has lost about 14 percent of its value against its U.S. counterpart in the past 12 months.

For every 1 cent decline in the Canadian dollar, Canadian Pacific’s revenue increases by C$30 million while expenses rise by C$15 million, according to a company presentation.

Canadian Pacific fell 0.9 percent to C$149.84 in Toronto, its lowest close since October 2013.

At these levels, the stock “is arguably already reflecting the more challenging macro environment,” Cameron Doerksen, a National Bank Financial analyst in Montreal, said Thursday in a note to clients.

On a conference call with analysts, Harrison said the company plans to change its strategy to win the battle for Norfolk Southern after encountering greater-than-anticipated opposition in the U.S. He has touted a combination as providing customers a coast-to-coast network that improves service by eliminating railcar hand-offs between railroads.

Norfolk Southern’s board has rebuffed Canadian Pacific -- including one proposal that valued the target at about $27 billion in mid-December.

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