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Canadian Pacific Railway Limited (CP - Analyst Report), Canada’s second largest railway, reported adjusted earnings per share of C$1.24 (approximately $1.23) in the first quarter, surpassing the Zacks Consensus Estimate of $1.18. Adjusted earnings shot up 51.2% from C$0.82 per share (approximately $0.81) in the year-ago quarter.

Quarterly revenues climbed 8.7% year over year to C$1,495 million (approximately $1,484 billion) and surpassed the Zacks Consensus Estimate of $1,464 on volume expansion and strong pricing. The demand for rail service remained healthy across all business segments throughout the quarter.

Carloads (volume) remained flat at 659,000 units, while revenue ton-miles (RTMs), which measure the relative weight and distance of rail freight transported by Canadian Pacific rose 10% year over year.  

Operating income improved 32% year over year to C$362 million (approximately $359 million). Operating expenses increased 3% year over year to C$1,133 million (approximately $1,124 million). Operating ratio (defined as operating expenses as a percentage of revenue) improved 430 basis points year over year to 75.8% because of continued focus on maintaining asset efficiencies, safety measures and increased productivity.

Liquidity

Canadian Pacific exited the first quarter with cash and cash equivalents of C$347 million (approximately $344.4 million), up from C$77 million (approximately $76 million) in the year-ago quarter. Long-term debt was reduced to C$4.590 billion (approximately $4,555 million) from C$4.636 billion (approximately $4.638 billion) in the year-end 2012.  

Our Analysis

We expect Canadian Pacific to deliver strong earnings growth aided by improved volume and pricing. The company is expected to benefit from its coal agreement with Teck Resources Limited (TCK - Snapshot Report) and draw synergies from its agreements with Canpotex and Canadian Tire. Further, major commodities will also garner favorable results for the company. Additionally, Canadian Pacific’s improving balance sheet position and regular returns to shareholders in the form of dividends make it attractive for investors.

Canadian Pacific operates with the likes of Canadian National Railway Company (CNI - Analyst Report) and Union Pacific Corporation (UNP - Analyst Report) and has a Zacks Rank #2 (Buy rating).
 

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