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Canadian Pacific Crushed Analysts’ Q4 Earnings Estimates

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Earnings beat the expectations

Canadian Pacific Railway (CP) reported better-than-expected fourth-quarter results. The company’s quarterly revenues and adjusted EPS improved significantly on a YoY (year-over-year) basis. Canadian Pacific Railway’s fourth-quarter EPS of $4.55 beat analysts’ consensus estimate of $4.22 and grew 41.3% YoY. Higher revenues, lower costs, and reduced taxes mainly drove the fourth-quarter earnings higher. The company posted better-than-expected bottom-line results for the eighth consecutive quarter.

Canadian Pacific Railway’s revenues were $2.0 billion—higher than analysts’ estimate of $1.93 billion. The quarterly revenues grew 17.1% YoY mainly due to higher volumes and pricing gains across all of the major commodity groups.

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Canadian Pacific Railway’s adoption of a precision scheduled railroading system continued to help it lower costs and improve its operational efficiency. In the fourth quarter, the company’s expenses increased 9.8% to $1.13 billion compared to the same quarter the previous year. As a result, Canadian Pacific Railway’s fourth-quarter operating ratio (operating expenses as a percentage of revenues) fell by 370 basis points YoY to 56.5%. The operating income for the quarter increased 28% YoY to $874 million.

For fiscal 2018, Canadian Pacific Railway reported revenues of $7.32 billion, which beat analysts’ expectations of $7.23 billion and grew 11.6% YoY. The adjusted EPS of $14.51 beat the consensus estimate by $0.34 and improved 27.4% YoY. The operating ratio contracted by 110 basis points and reached a yearly record level at 61.3%.

Among the Class I railroad companies (IYT), CSX (CSX) and Kansas City Southern (KSU) reported their fourth-quarter results. CSX and Kansas City Southern’s fourth-quarter adjusted EPS rose 58% and 13%, respectively. Union Pacific (UNP) is scheduled to report its results before the market opens on January 24.

Strong 2019 outlook

Canadian Pacific Railway expects a strong pricing environment and rising demand for crude and other commodities to continue driving its top and bottom-line results. For fiscal 2019, the company expects the volumes to increase in the mid-single-digit range. Management expects the adjusted EPS for the year to grow in the double-digit range.

Analysts expect an adjusted EPS of $16.47 for 2019, which depicts 13.5% YoY growth.

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