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Canadian Pacific (CP) Lags Q1 Earnings,Sales; Stock Down

Railroad operator Canadian Pacific Railway Limited CP reported lower-than-expected earnings and revenues in the first quarter of 2016. The company’s earnings (on an adjusted basis) of C$2.50 per share (approximately $1.82 per share) fell short of the Zacks Consensus Estimate by a penny. Earnings also fell shy of the year-ago figure of $1.85 per share.

Quarterly revenues declined year over year to $1,160 million and also missed the Zacks Consensus Estimate of $1,242 million. Revenues were hurt by weak coal demand. Carloads (volume) decreased 4% year over year and revenue ton-miles fell 5%.

Operating expenses contracted 11% on the back of low fuel costs. Operating ratio (defined as operating expenses as a percentage of revenues) improved 430 basis points to 58.9% due to continued focus on asset efficiency, safety measures and productivity improvement.

Liquidity

Canadian Pacific exited the first quarter with cash and cash equivalents of C$571 million compared with C$650 million at the end of 2015. Long-term debt totaled C$8,430 million compared with C$8,927 million at the end of 2015.

Dividend and Share Repurchase

Canadian Pacific recently scrapped its plans to buy peer Norfolk Southern Corp. NSC. Subsequently, CEO Hunter Harrison stated that the company might use the cash, which was to be utilized for the Norfolk Southern takeover, toward shareholder friendly measures like a buyback/dividend raise or both. In keeping with his comments, Canadian Pacific raised its dividend per share by 43% to C$0.50 per share. The company’s board of directors also sanctioned a buyback plan of up to 6.91 million shares.

Zacks Rank & Other Key Picks

Currently, Canadian Pacific sports a Zacks Rank #1 (Strong Buy). Other favorably ranked stocks in the transportation sector are China Eastern Airlines Corp. Ltd. CEA and International Consolidated Airlines Group, S.A ICAGY with a Zacks Rank #1.

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