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Will High Costs Mar Canadian Pacific's (CP) Q4 Earnings?

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Canadian Pacific Railway Limited (CP - Free Report) is scheduled to report fourth-quarter 2021 results on Jan 27, after market close.

The Zacks Consensus Estimate for the company’s fourth-quarter earnings has been revised downward by 8.2% to 78 cents in the past 60 days. The company has a disappointing earnings history, having underperformed the Zacks Consensus Estimate in two of the last four quarters (beating the same in the other two). CP has a trailing four-quarter negative earnings surprise of 1.75%, on average.

Let’s see how things are shaping up for Canadian Pacific this earnings season:

Canadian Pacific Railway Limited Price and EPS Surprise

 

Canadian Pacific Railway Limited Price and EPS Surprise

Canadian Pacific Railway Limited price-eps-surprise | Canadian Pacific Railway Limited Quote

 

Factors to Note

The railroad operator’s total operating expenses are likely to have increased in the fourth quarter primarily due to higher fuel costs. This is likely to have hurt the bottom line.

Canadian Pacific’s high capital expenditures (owing to major investments to upgrade facility) amid adversities are also expected to have hurt the bottom line in the to-be-reported quarter. CP’s management expects fourth-quarter volume growth to be hurt by lower expectations for Canadian grain, supply-chain crisis and unfavorable weather conditions in British Columbia.

Despite such a backdrop, gradual recovery in freight-market conditions is likely to have boosted the company’s December-quarter performance.

What the Zacks Model Unveils

Our proven model does not conclusively predict an earnings beat for Canadian Pacific this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of a positive surprise. But that is not the case here. You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings ESP: Canadian Pacific has an Earnings ESP of -2.74% as the Most Accurate Estimate is pegged at 76 cents per share, lower than the Zacks Consensus Estimate of 78 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Canadian Pacific carries a Zacks Rank #5 (Strong Sell), currently.

Highlights of Q3 Earnings

Canadian Pacific’s third-quarter 2021 earnings (excluding 14 cents from non-recurring items) of 70 cents (C$0.88) per share missed the Zacks Consensus Estimate of 75 cents. However, quarterly earnings increased 12.9% on a year-over-year basis. Quarterly revenues of $1,542.4 million (C$1,942 million) missed the Zacks Consensus Estimate of $1,569 million. The top line increased 10.3% on a year-over-year basis due to a rise in freight revenues.

Stocks to Consider

Investors interested in the broader Transportation sector may consider C.H. Robinson Worldwide (CHRW - Free Report) , Werner Enterprises (WERN - Free Report) and Landstar System (LSTR - Free Report) , as these stocks possess the right combination of elements to beat on earnings this reporting cycle.

C.H. Robinson currently has an Earnings ESP of +4.79% and a Zacks Rank #3. C.H. Robinson will report fourth-quarter results on Feb 2.

C.H. Robinson’s fourth-quarter results are likely to be aided by higher revenues owing to improving freight market conditions in the United States. CHRW has gained 7.4% in a year’s time.

Werner has an Earnings ESP of +0.35% and is currently a #3 Ranked player. Werner will release fourth-quarter 2021 results on Feb 3.

Werner’s move to expand its final mile capabilities across the northeast United States and the midwest through the acquisition of NEHDS Logistics is encouraging. The transaction helps Werner to offer broader transportation solutions for the delivery of big and bulky products.

Landstar System has an Earnings ESP of +1.56% and is Zacks #3 Ranked presently. Landstar System will release fourth-quarter 2021 results on Jan 26.

Landstar’s fourth-quarter results are expected to be aided by an improved freight scenario in the United States. Higher truck rates owing to tight truck capacity should aid December-quarter performance.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.