It has been about a month since the last earnings report for Canadian Pacific Kansas City (CP). Shares have lost about 4.2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Canadian Pacific Kansas City due for a breakout? 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.
Q3 Earnings Miss at CP
Canadian Pacific Kansas City reported third-quarter 2024 earnings (excluding 7 cents from non-recurring items) of 73 cents per share, which marginally missed the Zacks Consensus Estimate of 74 cents. However, the bottom line improved 5.8% on a year-over-year basis. Results were aided by strong operational efficiency.
Operating revenues of $2.60 billion lagged the Zacks Consensus Estimate of $2.67 billion. However, the top line improved by 4.5% on a year-over-year basis due to synergies and robust operational and safety performances.
In the reported quarter, total freight revenues per revenue ton miles increased 1.5% year over year. Total Freight revenues per carload increased 9.6% year over year.
On a reported basis, the operating income was up 2.6%. Total operating expenses surged 8.3% year over year due to escalated labor costs. The reported operating ratio (operating expenses as a percentage of revenues) improved 120 basis points to 66.1% from 64.9% in the year-ago quarter. A lower value of the metric is more desirable.
CP’s Segmental Highlights
Freight revenues, accounting for 97.5% of the top line, increased 6% to $3.46 billion. The actual figure missed our estimate of $3.51 billion. CP’s Freight segment contains Grain (up 11.3%), Coal (up 8.3%), Potash (up 8.3%), Energy, chemicals and plastics (up 10.7%), Metals, minerals and consumer products (down 2.6%), Automotive (up 25.2%) and Intermodal (down 4%). Meanwhile, Fertilizers and Sulphur and Forest products remained flat at $91 million and $198 million.
Other revenues increased 20.6% to $88 million in the third quarter of 2024.
CP’s Liquidity
CP exited the third quarter with cash and cash equivalents of C$463 million compared with C$464 million in the fourth quarter of 2023. Long-term debt amounted to C$18.71 billion compared with C$19.35 billion at the end of the fourth quarter of 2023.
CP’s Outlook
Canadian Pacific Kansas City now expects RTMs to increase in the mid-single digits from the 2023 actuals on a combined basis. CP continues to expect 2024 core adjusted combined diluted earnings per share to grow in double digits from the 2023 actuals to $3.84 per share.
Management expects capital expenditures to be C$2.75 billion for full-year 2024. The company targets capital expenditures of approximately $2.6 billion to $2.8 billion per year across the combined network for the 2024-2028 period.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
VGM Scores
At this time, Canadian Pacific Kansas City has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, Canadian Pacific Kansas City has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Canadian Pacific Kansas City belongs to the Zacks Transportation - Rail industry. Another stock from the same industry, CSX (CSX), has gained 6.8% over the past month. More than a month has passed since the company reported results for the quarter ended September 2024.
CSX reported revenues of $3.62 billion in the last reported quarter, representing a year-over-year change of +1.3%. EPS of $0.46 for the same period compares with $0.42 a year ago.
CSX is expected to post earnings of $0.44 per share for the current quarter, representing a year-over-year change of -2.2%. Over the last 30 days, the Zacks Consensus Estimate has changed -1.4%.
CSX has a Zacks Rank #4 (Sell) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of D.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
