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Harsh Winter and Derailment Hurt Canadian Pacific’s Q1 Earnings

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Misses expectations

Canadian Pacific Railway (CP) reported lower-than-expected first-quarter 2019 results, as harsh winter conditions disrupted business operations and increased operating expenses. The railroad company reported adjusted EPS of $2.79 Canadian dollars, which fell short of Wall Street analysts’ estimate of $3.01 Canadian dollars mainly due to sluggish top-line growth and increased operating expenses. Nonetheless, the bottom-line results rose marginally by 3.3% YoY.

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Revenues came in at $1.77 billion Canadian dollars, slightly lower than Wall Street analysts’ estimate of $1.78 billion Canadian dollars. The company stated that challenging winter conditions and a derailment in British Columbia’s Rocky Mountains hurt its rail traffic volume during the quarter. Canadian Pacific Railway’s total rail traffic volume declined 2% YoY.

However, a 6% YoY increase in freight revenue per carload helped Canadian Pacific Railway to report a YoY improvement in top-line results. The company’s quarterly revenues marked a YoY increase of 6.3%.

Business disruptions due to severe winter and derailment led to a 9% YoY increase in the company’s first-quarter operating expenses, which resulted in a rise of 180 basis points in operating ratio (operating expenses as a percentage of revenue) to 69.3% from 67.5% in the year-ago quarter.

Despite lower-than-expected first-quarter results, Canadian Pacific Railway is optimistic about its performance in 2019. During the earnings release, President and CEO Keith Creel said, “As we look forward, we remain confident in our ability to deliver record financial and operating results in 2019.”

For the full year 2019, Canadian Pacific continues to expect volumes to increase in the mid-single-digit range. The company also reaffirmed its outlook of double-digit growth in adjusted EPS. Wall Street analysts’ projections of $16.44 for 2019 adjusted EPS signify YoY growth of 13.3%.

Peers’ performance

Class I railroad companies (IYT) Union Pacific (UNP), Kansas City Southern (KSU), and CSX (CSX) have recently reported their first-quarter results. Union Pacific, Kansas City Southern, and CSX registered adjusted EPS growth of 15%, 18%, and 31%, respectively.

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