Canadian Pacific (CP) Q4 Earnings Miss, Revenues Beat

Canada's leading railway carrier, Canadian Pacific Railway Limited (CP), reported earnings per share of C$2.63 (approximately $2.32) in the fourth quarter of 2014 against 47 cents recorded in the year-ago quarter. However, adjusted earnings per share of $2.20 missed the Zacks Consensus Estimate of $2.28.

Quarterly revenues climbed 9.5% year over year to C$1,760 million ($1,550 million), which also outpaced the Zacks Consensus Estimate of $1,512 million. The demand for rail services remained healthy across most business segments translating into strong year-over-year growth. In the fourth quarter, carloads (volume) increased 4% year over year and revenue ton-miles.

Operating income witnessed record improvement of 521% year over year to C$708 million on higher shipments, cost efficiency, increased freight rates, lower pension expenses and favorable exchange rates. Operating expenses fell 29.5% year over year owing to lower incentive compensation and assets impairment charges. Operating ratio (defined as operating expenses as a percentage of revenues) improved a whopping 310 basis points year over year to 61.2% on continued focus on maintaining asset efficiencies, safety measures and productivity increase.

Liquidity

Canadian Pacific exited the fourth quarter with cash and cash equivalents of C$226 million against C$476 million at the end of fiscal 2013. Long-term debt was C$5,659 million against C$4,687 million at end-2013.

Outlook

The company expects operating ratio for full-year fiscal 2015 to remain below 62% while revenues are likely to expand between 7% and 8%. Likewise, non-GAAP earnings per share for the fiscal are projected to rise over 25% year over year.

Currently, Canadian Pacific has a Zacks Rank #3 (Hold).

Stocks to Consider

Other better ranked stocks are Delta Air Lines Inc. (DAL), American Airlines Group (AAL) and Hawaiian Holdings Inc. (HA). All three sports a Zacks Rank #1 (Strong Buy).