A month has gone by since the last earnings report for Canadian Pacific (CP - Free Report) . Shares have added about 8.4% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Canadian Pacific due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Canadian Pacific Q1 Earnings & Revenues Beat
Canadian Pacific's first-quarter 2020 earnings (excluding $1.08 from non-recurring items) of $3.3 (C$4.42) per share surpassed the Zacks Consensus Estimate of $2.86. Quarterly earnings also improved more than 55% year over year, primarily owing to low operating expenses.
Quarterly revenues of $1,523.3 million (C$2,043) surpassed the Zacks Consensus Estimate of $1,412.3 million. The top line also increased in double digits year over year owing to rise in freight revenues.
Freight revenues rose 15.9% year over year and contributed 97.9% to the top line. Notably, the company’s freight segment consists of Grain (up 10%), Coal (down 5.1%), Potash (down 1.7%), Fertilizers and sulfur (up 22.8%), Forest products (up 6.8%), Energy, chemicals and plastics (up 55.9%), Metals, minerals and consumer products (up 9.2%), Automotive (up 14.5%) and Intermodal (up 6.6%). In the reported quarter, total freight revenues per revenue ton-miles (RTMs) were up 6% year over year. Also, total freight revenues per carload climbed 7% from the year-ago reported figure.
Operating income surged 53.6% in the quarter under review. Operating expenses dipped 1.2% year over year. Consequently, operating ratio (operating expenses as a percentage of revenues on an adjusted basis) improved to 59.2% in the first quarter from 69.3% in the year-ago period. Notably, lower value of this key metric bodes well. Capital spending during the first quarter was C$355 million.
The company exited the first quarter with cash and cash equivalents of C$247 million compared with C$352 million at the end of the year-ago period. Long-term debt amounted to C$9,804 million compared with C$8,158 million at the end of December 2019.
2020 Outlook Impacted by Coronavirus
With softness in demand due to coronavirus, the company now anticipates volumes, measured in revenue ton miles, to decline in mid-single digits in the current year (previously volumes were expected to rise in mid-single digits). Additionally, adjusted earnings per share are expected to be approximately flat year over year. Earlier, adjusted earnings per share were predicted to increase in the high single-digit to low double-digit range from C$16.44 reported in 2019. However, capital expenditures are still anticipated to be C$1.6 billion in 2020.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -10.14% due to these changes.
At this time, Canadian Pacific has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Canadian Pacific has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.