10-KPeriod: FY2017

CANADIAN PACIFIC KANSAS CITY LTD/CN Annual Report, Year Ended Dec 31, 2017

Filed February 16, 2018For Securities:CP

Summary

Canadian Pacific Railway Limited (CP) reported a strong financial performance for the year ended December 31, 2017, with diluted earnings per share (EPS) reaching $16.44 and adjusted diluted EPS increasing 11% to $11.39. The company achieved a record-low operating ratio of 57.4%, reflecting significant improvements in operational efficiency and cost control. Total revenues rose by 5% to $6.55 billion, driven by a 5% increase in volume, primarily in frac sand, energy, chemicals and plastics, and intermodal traffic. CP's strategy, focused on service, cost control, asset optimization, safety, and people development, continues to drive profitable growth. The company also outlined its 2018 outlook, expecting mid-single-digit revenue growth and low double-digit adjusted diluted EPS growth, with capital expenditures planned between $1.35 billion and $1.50 billion. Operationally, CP saw improvements in average train weight and terminal dwell time, though average train speed slightly decreased due to a shift in traffic mix and harsher weather conditions in early 2017. The company maintained a strong safety record with a decrease in train accidents per million train-miles. Financially, CP's liquidity remains solid, supported by a revolving credit facility and substantial cash reserves. The company also continued its share repurchase program, repurchasing 1.9 million common shares for $381 million during 2017, demonstrating a commitment to returning value to shareholders.

Key Highlights

  • 1Achieved record-low Operating Ratio of 57.4% and Adjusted Operating Ratio of 58.2% in 2017, indicating strong operational efficiency.
  • 2Total revenues increased by 5% to $6.55 billion, driven by a 5% growth in revenue ton-miles (RTMs), indicating increased freight volumes.
  • 3Diluted EPS grew significantly to $16.44, with Adjusted Diluted EPS up 11% to $11.39, showing improved profitability on an adjusted basis.
  • 4Capital expenditures of $1.34 billion in 2017 exceeded the outlook, reflecting continued investment in network and rolling stock improvements.
  • 5The company maintained a strong safety record, with train accidents per million train-miles decreasing by 12% compared to 2016.
  • 6CP's 2018 outlook projects mid-single-digit revenue growth and low double-digit Adjusted diluted EPS growth.
  • 7Continued share repurchases totaling $381 million in 2017, demonstrating a commitment to shareholder returns.

Frequently Asked Questions

Canadian Pacific's revenue growth in 2017 was primarily driven by a 5% increase in freight volumes, as measured by revenue ton-miles (RTMs). Key contributing commodities included frac sand, energy, chemicals and plastics, domestic intermodal, Potash, and Canadian grain. Higher fuel surcharge revenues also contributed positively.

Canadian Pacific demonstrated improved operational efficiency in 2017. Key performance indicators showed an increase in average train weight by 2% to 8,806 tons and a 1% improvement in average terminal dwell time to 6.6 hours. The company achieved its best-ever operating ratio of 57.4%, a significant improvement from 58.6% in 2016.

For 2018, Canadian Pacific anticipates mid-single-digit revenue growth and low double-digit growth in Adjusted diluted EPS, based on a 2017 Adjusted diluted EPS of $11.39. Capital expenditures are projected to be between $1.35 billion and $1.50 billion, reflecting ongoing investment in the company's network and assets.

Canadian Pacific maintained a strong liquidity position in 2017, with $338 million in cash and cash equivalents and an undrawn U.S. $2.0 billion revolving credit facility. The company's debt-to-EBITDA ratio remained within its target range. Financing activities included $381 million in share repurchases and $310 million in dividends paid, indicating a balanced approach to capital management and shareholder returns.