CP reports preliminary Q3 results, updates 2018 guidance

Canadian Pacific today reported preliminary third-quarter results, updated its 2018 guidance and unveiled the next phase of its long-term strategy for driving sustainable, profitable growth.

Third-quarter revenue is expected to increase by 10 percent to a record high of CA$1.9 billion. Reported diluted earnings per share (EPS) are expected to be about CA$4.35, while adjusted diluted EPS are expected to be about CA$4.10 — the highest in company history, CP officials said in a press release.

In addition, CP expects a Q3 operating ratio to be below 58.5 percent.

Due to a record-setting quarter and strong outlook for the remainder of 2018, the Class I is raising its 2018 full-year guidance to include an expected adjusted diluted EPS to grow in excess of 20 percent. That's an increase from earlier guidance of low double-digit growth, CP officials said.

The announcement was made as part of CP's 2018 Investor Day.

"Simply put, we have rebuilt the engine at CP and are leveraging the strengths of our franchise to drive growth," said President and Chief Executive Officer Keith Creel. "Our continued success comes from our commitment to the precision scheduled railroading model, our deep bench of industry-leading railroaders, a disciplined approach to capital investment, network capacity and a focus on sustainable growth."

CP's financial targets for 2018-2020 are:
• a volume compound annual growth rate (CAGR) of mid-single digits, measured in revenue ton miles;
• double-digit CAGR in adjusted diluted EPS;
• continued margin improvement through cost control and operating leverage; and
• capital expenditures of about CA$1.6 billion per year.

Key assumptions for CP's 2018-2020 targets are:
• an exchange rate of 1.30 CAD/USD;
• an on-highway diesel price of $3.20 per gallon (U.S. dollar and gallon);
• pension income consistent with 2018; and
• an annualized effective tax rate of about 25 percent, excluding discrete items such as foreign-exchange gains or losses on U.S. dollar-denominated debt and any effects of changes in tax rates.