CP reports third-quarter revenue growth of 4 percent; maintains full-year adjusted diluted EPS guidance

·14 min read

CALGARY, AB, Oct. 20, 2021 /CNW/ - Canadian Pacific Railway Limited (TSX: CP) (NYSE: CP) today announced third-quarter revenues of $1.94 billion, diluted earnings per share ("EPS") of $0.70, adjusted diluted EPS1 of $0.88, an operating ratio ("OR") of 60.2 percent and an adjusted OR1 of 59.4 percent.

"The third quarter presented challenges across the supply chain, but the CP team's commitment to the foundations of precision scheduled railroading enabled us to respond quickly and effectively to changing environments," said Keith Creel, CP President and Chief Executive Officer. "We are committed to controlling what we can control, as CP continues to focus on providing service excellence to our customers and driving value for our shareholders."

Third-quarter highlights

  • Revenues increased by 4 percent to $1.94 billion, from $1.86 billion last year

  • Reported diluted EPS of $0.70, a 20 percent decrease from $0.88 last year, and adjusted diluted EPS of $0.88, a 7 percent increase from $0.82 last year

  • Reported OR, which includes Kansas City Southern ("KCS") acquisition-related costs, increased by 200 basis points to 60.2 percent from 58.2 percent

  • Adjusted OR, which excludes the KCS acquisition-related costs, increased 120 basis points to 59.4 percent over last year's third-quarter OR of 58.2 percent

Updated outlook
CP now expects low single-digit volume growth in 2021, as measured in revenue ton-miles, compared to 2020. CP remains confident that it will deliver full-year double-digit adjusted diluted EPS growth2,3 in 2021.

CP's revised guidance continues to assume other components of net periodic benefit recovery to increase by approximately $40 million versus 2020, an effective tax rate of approximately 24.6 percent and capital expenditure of $1.55 billion.

"Despite global supply chain issues and a challenging Canadian grain crop, we remain confident in our ability to deliver full-year double-digit adjusted diluted EPS growth," said Creel. "The underlying demand environment remains strong, and our commitment to generate sustainable, profitable growth will not be distracted by elements outside our control."

Additionally, CP will continue its work preparing to create the first single-line rail network linking the U.S., Mexico and Canada by combining with Kansas City Southern.

"The transitory issues over the past year have only reinforced the need for enhanced competition and optionality for North American shippers," Creel said. "Our excitement about the opportunities ahead with the combined companies continues to grow."

1 These measures have no standardized meanings prescribed by accounting principles generally accepted in the United States of America ("GAAP") and, therefore, may not be comparable to similar measures presented by other companies. These measures are defined and reconciled in the Non-GAAP Measures supplementary schedule of this Earnings Release.

2 CP's expectation for full year double-digit adjusted diluted EPS growth in 2021 is relative to 2020's adjusted diluted EPS of $3.53. CP's reported diluted EPS was $3.59 in 2020.

3 Although CP has provided a forward-looking non-GAAP measure (adjusted diluted EPS), management is unable to reconcile, without unreasonable efforts, the forward-looking adjusted diluted EPS to the most comparable GAAP measure (diluted EPS), due to unknown variables and uncertainty related to future results. These unknown variables may include unpredictable transactions of significant value. In recent years, CP has recognized acquisition-related costs (including legal, consulting and financing fees, and fair value gain or loss on foreign exchange (FX) forward contracts and interest rate hedges), the merger termination payment received, changes in income tax rates and a change to an uncertain tax item. These or other similar, large unforeseen transactions affect diluted EPS but may be excluded from CP's adjusted diluted EPS. Additionally, the U.S.-to-Canadian dollar FX rate is unpredictable and can have a significant impact on CP's reported results but may be excluded from CP's adjusted diluted EPS. In particular, CP excludes the FX impact of translating the Company's debt and lease liabilities from adjusted diluted EPS.

For information regarding non-GAAP measures, including reconciliations to the most comparable GAAP measures, see the attached supplementary schedule Non-GAAP Measures.

Conference call details
CP will discuss its results with the financial community in a conference call beginning at 8 a.m. ET (6 a.m. MT) today.

Conference call access
Toronto participants dial in number: 1-416-764-8688
Operator assisted toll free dial in number: 1-888-390-0546
Callers should dial in 10 minutes prior to the call.

Webcast
We encourage you to access the webcast and presentation material in the Investors section of CP's website at investor.cpr.ca.

A replay of the third-quarter conference call will be available by phone through to Oct. 27, 2021 at 416-764-8677 or toll free 1-888-390-0541, password 549569.

Note on forward-looking information
This news release may contain certain forward-looking information and forward-looking statements (collectively, "forward-looking information") within the meaning of applicable securities laws. Forward-looking information includes, but is not limited to, statements concerning expectations, beliefs, plans, goals, objectives, assumptions and statements about possible future events, conditions, and results of operations or performance. Forward-looking information may contain statements with words or headings such as "financial expectations", "key assumptions", "anticipate", "believe", "expect", "plan", "will", "outlook", "should" or similar words suggesting future outcomes. This news release contains forward-looking information relating, but not limited to statements concerning 2021 volume as measured in revenue ton-miles, adjusted diluted EPS growth, capital program investments, the U.S.-to-Canadian dollar exchange rate, annualized effective tax rate, other components of net periodic benefit recovery, cost control efforts, the success of our business, our operations, priorities and plans, anticipated financial and operational performance, business prospects and demand for our services and growth opportunities.

The forward-looking information that may be in this news release is based on current expectations, estimates, projections and assumptions, having regard to CP's experience and its perception of historical trends, and includes, but is not limited to, expectations, estimates, projections and assumptions relating to: changes in business strategies, North American and global economic growth; commodity demand growth; sustainable industrial and agricultural production; commodity prices and interest rates; foreign exchange rates (as specified herein); effective tax rates (as specified herein); performance of our assets and equipment; sufficiency of our budgeted capital expenditures in carrying out our business plan; geopolitical conditions, applicable laws, regulations and government policies; the availability and cost of labour, services and infrastructure; the satisfaction by third parties of their obligations to CP; and the anticipated impacts of the COVID-19 pandemic on CP businesses, operating results, cash flows and/or financial condition. Although CP believes the expectations, estimates, projections and assumptions reflected in the forward-looking information presented herein are reasonable as of the date hereof, there can be no assurance that they will prove to be correct. Current conditions, economic and otherwise, render assumptions, although reasonable when made, subject to greater uncertainty.

Undue reliance should not be placed on forward-looking information as actual results may differ materially from those expressed or implied by forward-looking information. By its nature, CP's forward-looking information involves inherent risks and uncertainties that could cause actual results to differ materially from the forward looking information, including, but not limited to, the following factors: changes in business strategies and strategic opportunities; general Canadian, U.S., Mexican and global social, economic, political, credit and business conditions; risks associated with agricultural production such as weather conditions and insect populations; the availability and price of energy commodities; the effects of competition and pricing pressures, including competition from other rail carriers, trucking companies and maritime shippers in Canada, the U.S. and Mexico; North American and global economic growth; industry capacity; shifts in market demand; changes in commodity prices and commodity demand; uncertainty surrounding timing and volumes of commodities being shipped via CP; inflation; geopolitical instability; changes in laws, regulations and government policies, including regulation of rates; changes in taxes and tax rates; potential increases in maintenance and operating costs; changes in fuel prices; disruption in fuel supplies; uncertainties of investigations, proceedings or other types of claims and litigation; compliance with environmental regulations; labour disputes; changes in labour costs and labour difficulties; risks and liabilities arising from derailments; transportation of dangerous goods; timing of completion of capital and maintenance projects; sufficiency of budgeted capital expenditures in carrying out business plans; services and infrastructure; the satisfaction by third parties of their obligations; currency and interest rate fluctuations; exchange rates; effects of changes in market conditions and discount rates on the financial position of pension plans and investments; trade restrictions or other changes to international trade arrangements; the effects of current and future multinational trade agreements on the level of trade among Canada, the U.S. and Mexico; climate change and the market and regulatory responses to climate change; anticipated in-service dates; success of hedging activities; operational performance and reliability; customer, shareholder, regulatory and other stakeholder approvals and support; regulatory and legislative decisions and actions; the adverse impact of any termination or revocation by the Mexican government of Kansas City Southern de México, S.A. de C.V.'s Concession; public opinion; various events that could disrupt operations, including severe weather, such as droughts, floods, avalanches and earthquakes, and cybersecurity attacks, as well as security threats and governmental response to them, and technological changes; acts of terrorism, war or other acts of violence or crime or risk of such activities; insurance coverage limitations; material adverse changes in economic and industry conditions, including the availability of short and long-term financing; the pandemic created by the outbreak of COVID-19 and its variants and resulting effects on economic conditions, the demand environment for logistics requirements and energy prices, restrictions imposed by public health authorities or governments, fiscal and monetary policy responses by governments and financial institutions, and disruptions to global supply chains; the timing and completion of the pending KCS transaction, including receipt of regulatory and shareholder approvals and the satisfaction of other conditions precedent; interloper risk to the pending KCS transaction; the realization of anticipated benefits and synergies of the transaction and the timing thereof; the success of integration plans for KCS; the focus of management time and attention on the pending KCS transaction and other disruptions arising from the transaction; estimated future dividends; financial strength and flexibility; debt and equity market conditions, including the ability to access capital markets on favourable terms or at all; cost of debt and equity capital; potential changes in CP's share price which may negatively impact the value of consideration offered to KCS stockholders; and the ability of the management of the Company, its subsidiaries and affiliates to execute key priorities, including those in connection with the pending KCS transaction. The foregoing list of factors is not exhaustive. These and other factors are detailed from time to time in reports filed by CP with securities regulators in Canada and the United States. Reference should be made to "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations - Forward-Looking Statements" in CP's annual and interim reports on Form 10-K and 10-Q.

Any forward-looking information contained in this news release is made as of the date hereof. Except as required by law, CP undertakes no obligation to update publicly or otherwise revise any forward-looking information, or the foregoing assumptions and risks affecting such forward-looking information, whether as a result of new information, future events or otherwise.

About Canadian Pacific
Canadian Pacific is a transcontinental railway in Canada and the United States with direct links to major ports on the west and east coasts. CP provides North American customers a competitive rail service with access to key markets in every corner of the globe. CP is growing with its customers, offering a suite of freight transportation services, logistics solutions and supply chain expertise. Visit cpr.ca to see the rail advantages of CP. CP-IR

FINANCIAL STATEMENTS

INTERIM CONSOLIDATED STATEMENTS OF INCOME
(unaudited)


For the three months
ended September 30

For the nine months
ended September 30

(in millions of Canadian dollars, except share and per share data)

2021

2020

2021

2020

Revenues (Note 3)





Freight

$

1,896


$

1,821


$

5,822


$

5,573


Non-freight

46


42


133


125


Total revenues

1,942


1,863


5,955


5,698


Operating expenses





Compensation and benefits

381


382


1,165


1,127


Fuel

199


140


623


483


Materials

51


53


164


162


Equipment rents

31


39


92


108


Depreciation and amortization

203


195


605


582


Purchased services and other (Note 9, 10)

303


275


932


853


Total operating expenses

1,168


1,084


3,581


3,315







Operating income

774


779


2,374


2,383


Less:





Other expense (income) (Note 4, 10)

124


(36)


253


89


Merger termination fee (Note 10)



(845)



Other components of net periodic benefit recovery (Note 14)

(95)


(86)


(286)


(257)


Net interest expense

104


114


315


346


Income before income tax expense

641


787


2,937


2,205


Income tax expense (Note 5)

169


189


617


563


Net income

$

472


$

598


$

2,320


$

1,642







Earnings per share (Note 1, 6)





Basic earnings per share

$

0.71


$

0.88


$

3.48


$

2.42


Diluted earnings per share

$

0.70


$

0.88


$

3.46


$

2.41







Weighted-average number of shares (millions) (Note 1, 6)





Basic

666.9


676.2


666.7


679.3


Diluted

669.8


679.0


669.8


681.8







Dividends declared per share (Note 1)

$

0.190


$

0.190


$

0.570


$

0.522


See Notes to Interim Consolidated Financial Statements.

INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)


For the three months
ended September 30

For the nine months
ended September 30

(in millions of Canadian dollars)

2021

2020

2021

2020

Net income

$

472


$

598


$

2,320


$

1,642


Net (loss) gain in foreign currency translation adjustments, net of hedging activities

(17)


16


3


(18)


Change in derivatives designated as cash flow hedges

141


3


69


6


Change in pension and post-retirement defined benefit plans

53


44


158


134


Other comprehensive income before income taxes

177


63


230


122


Income tax expense on above items

(29)


(29)


(59)


(16)


Other comprehensive income (Note 7)

148


34


171


106


Comprehensive income

$

620


$

632


$

2,491


$

1,748


See Notes to Interim Consolidated Financial Statements.

INTERIM CONSOLIDATED BALANCE SHEETS AS AT
(unaudited)


September 30

December 31

(in millions of Canadian dollars)

2021

2020

Assets



Current assets



Cash and cash equivalents

$

210


$

147


Restricted cash and cash equivalents

13



Accounts receivable, net (Note 8)

811


825


Materials and supplies

227


208


Other current assets

190


141



1,451


1,321


Investments

205


199


Properties

21,007


20,422


Goodwill and intangible assets

372


366


Pension asset

1,232


894


Other assets

405


438


Payment to Kansas City Southern (Note 10)

1,773



Total assets

$

26,445


$

23,640


Liabilities and shareholders' equity



Current liabilities



Accounts payable and accrued liabilities

$

1,744


$

1,467


Long-term debt maturing within one year (Note 11, 12)

1,932


1,186



3,676


2,653


Pension and other benefit liabilities

825


832


Other long-term liabilities

522


585


Long-term debt (Note 11, 12)

8,036


8,585


Deferred income taxes

3,918


3,666


Total liabilities

16,977


16,321


Shareholders' equity



Share capital

2,008


1,983


Additional paid-in capital

68


55


Accumulated other comprehensive loss (Note 7)

(2,643)


(2,814)


Retained earnings

10,035


8,095



9,468


7,319


Total liabilities and shareholders' equity

$

26,445


$

23,640


See Contingencies (Note 16).

See Notes to Interim Consolidated Financial Statements.

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)


For the three months
ended September 30

For the nine months
ended September 30

(in millions of Canadian dollars)

2021

2020

2021

2020

Operating activities





Net income

$

472


$

598


$

2,320


$

1,642


Reconciliation of net income to cash provided by operating activities:





Depreciation and amortization

203


195


605


582


Deferred income tax expense (Note 5)

130


45


190


133


Pension recovery and funding (Note 14)

(62)


(65)


(188)


(192)


Foreign exchange loss (gain) on debt and lease liabilities (Note 4)

46


(40)


(39)


89


Other operating activities, net

(14)


56


(50)


11


Change in non-cash working capital balances related to operations

(227)


(296)


246


(448)


Cash provided by operating activities

548


493


3,084


1,817


Investing activities





Additions to properties

(372)


(484)


(1,111)


(1,341)


Investment in Central Maine & Québec...




19


Payment to Kansas City Southern (Note 10)

(1,773)



...

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