Canadian Pacific demonstrates resiliency of the PSR operating model, reports record-low Q2 operating ratio

Written by Press Release
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A CP trained derailed near Minneapolis yesterday.
Canadian Pacific

Canadian Pacific Railway Limited [yesterday] announced second-quarter results, including revenues of $1.79 billion, diluted earnings per share (“EPS”) of $4.66, adjusted diluted EPS of $4.07 and an operating ratio of 57.0 percent. 

“The CP family of railroaders has achieved these results during some of the most challenging conditions the world has experienced in recent memory,” said Keith Creel, CP President and Chief Executive Officer. “Our second-quarter results showcase the resiliency of our people and of the precision scheduled railroading (PSR) operating model. The COVID-19 pandemic has created immense challenges, but CP has risen to the occasion, adapted and responded to the benefit of our customers, communities and shareholders. The pride I feel each day coming to work with this team has never been stronger.”

Second-quarter highlights

  • Revenues decreased by 9 percent to $1.79 billion from $1.98 billion last year
  • Reported diluted EPS of $4.66, a 10 percent decrease from $5.17 last year, and adjusted diluted EPS of $4.07, a 5 percent decrease from $4.30 last year
  • Operating ratio was a second-quarter record 57.0 percent, a 140 basis point improvement over last year’s second-quarter operating ratio of 58.4 percent

“While economic uncertainty remains, we’re controlling what we can control – our costs,” said Creel. “Our strong bulk franchise, which included record movements for Canadian grain and potash in the first half of the year, helped to offset some of the declines we experienced in other lines of business. Given our strong cost control measures, industry-leading execution of the PSR model, and improved clarity on the volume environment, we now expect positive adjusted diluted EPS growth for the year. As a result of the continued strength of our balance sheet, we have also restarted our share repurchase program.”

Additionally, CP announced yesterday it was increasing the quarterly dividend payable to shareholders to $0.95 per share on CP’s outstanding common shares, an increase of approximately 15 percent to the previous quarterly dividend of $0.83 per share, and marking the fifth consecutive year CP has increased its quarterly dividend. The announcement continues the path toward meeting CP’s stated goal of achieving a 25 percent adjusted dividend payout ratio.

Updated outlook

Based on the strength of the company’s performance to date, CP now expects to deliver adjusted diluted EPS growth year over year1. CP continues to expect capital expenditures of $1.6 billion and a mid-single digit decline in revenue ton-miles.

CP’s revised earnings guidance assumes a Canadian-to-U.S. dollar exchange rate of approximately 1.35 as compared to 1.40 previously, other components of net periodic benefit recovery to decrease by approximately $40 million as compared to 2019 and an effective tax rate of approximately 24.8 percent as a result of the accelerated reduction of the Alberta corporate tax rate as compared to 25.0 percent previously.

“The completion of our recent acquisition of the Central Maine and Québec Railway, combined with our continuing pipeline of unique growth opportunities, provides me with optimism for the remainder of 2020 and into 2021,” Creel said.

1 CP’s expectation for positive growth in 2020 adjusted diluted EPS is relative to 2019’s adjusted diluted EPS of $16.44. CP’s reported diluted EPS was $17.52 in 2019.

More information is available online.

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