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Canadian Pacific Railway Reports Solid Third Quarter, Stock Down 3%

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CP’s third-quarter earnings

On October 18, Canadian Pacific Railway (CP) announced its third-quarter earnings after the markets closed. It reported adjusted EPS of 4.12 Canadian dollars, which surpassed Thomson Reuters–surveyed analysts’ average estimate of 4.07 Canadian dollars by 1.2%.

The railway’s third-quarter adjusted EPS rose 42.1% from 2.90 Canadian dollars in the third quarter of 2017. On a GAAP basis, its EPS was 4.35 Canadian dollars, up 24.3% YoY (year-over-year) from 3.50 Canadian dollars.

Yesterday, Canadian Pacific Railway stock opened at $205.93 on the New York Stock Exchange and reached a high of $206.67. After falling to $198.86, it closed at $199.83, down 3%. Today, it’s trading at $202.90, up 1.54% in pre-market trading.

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Revenue and other statistics

Canadian Pacific Railway’s revenue was 1.89 billion Canadian dollars in the third quarter, marginally beating analysts’ estimate of 1.87 billion Canadian dollars. It recorded a robust rise of 19% YoY for its third-quarter revenue. It was 1.59 billion Canadian dollars in Q3 2017.

Revenue growth was due to strong revenue across all major business segments. The company’s freight revenue per revenue ton-miles expanded 6% YoY in the quarter. Revenue per carload rose 14% YoY. Carloads grew 5% YoY in Q3 2018 to 702,000 units, from 666,400 units in Q3 2017.

The most notable aspect of Canadian Pacific Railway’s third-quarter earnings was a record operating ratio. Operating ratio is the flip side of operating margin. The higher the ratio, the lower the margin, and vice versa. CP’s operating margin expanded 2.7% in the quarter to 41.7%, from 39% in Q3 2017. Its operating income rose 27% YoY to 790 million Canadian dollars in the quarter, from 622 million Canadian dollars.

Management outlook

On Canadian Pacific Railway’s Investor Day on October 4, management raised the company’s 2018 EPS guidance. It now expects adjusted diluted EPS to rise 20% YoY in 2018 against a low double-digit growth outlook issued earlier.

The railway is expected to benefit from a deal with Cenovus Energy (CVE). Under the agreement, CVE will haul crude oil on CP’s network starting in the second quarter of 2019.

Among the major US transportation (XTN) companies, J.B. Hunt Transport Services (JBHT), Marten Transport (MRTN), and CSX (CSX) have reported their third-quarter earnings so far. All these companies have reported double-digit growth in their YoY third-quarter earnings.

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