10-QPeriod: Q1 FY2017

CANADIAN PACIFIC KANSAS CITY LTD/CN Quarterly Report for Q1 Ended Mar 31, 2017

Filed April 20, 2017For Securities:CP

Summary

Canadian Pacific Kansas City Ltd./CN (CP) reported its first quarter 2017 financial results, showing a year-over-year decrease in Diluted Earnings Per Share (EPS) to $2.93 from $3.51. This decline was primarily attributed to a reduced foreign exchange (FX) gain on U.S. dollar-denominated debt compared to the prior year. Despite the EPS decrease, the company demonstrated operational improvements. Total operating revenues saw a slight increase to $1,603 million. The operating ratio improved by 80 basis points to 58.1%, reflecting enhanced asset utilization and network efficiency, although an adjusted operating ratio (excluding a $51 million management transition recovery) increased. The company also saw a workforce reduction of 5% and maintained a strong liquidity position with $201 million in cash and cash equivalents and substantial credit facilities available.

Key Highlights

  • 1Diluted EPS decreased by 17% to $2.93 in Q1 2017 compared to $3.51 in Q1 2016, largely due to a lower FX gain on USD debt.
  • 2Total operating revenues increased by 1% to $1,603 million, driven by freight revenues.
  • 3Operating ratio improved by 80 basis points to 58.1%, indicating increased operational efficiency.
  • 4Adjusted diluted EPS remained stable at $2.50 for both Q1 2017 and Q1 2016.
  • 5The company reduced its workforce by 5% to 11,829 employees, contributing to cost efficiencies.
  • 6Capital expenditures are planned at $1.25 billion for 2017, an increase from 2016, aimed at network enhancement and safety.
  • 7The company reported $201 million in cash and cash equivalents, with ample liquidity from its revolving credit facilities.

Frequently Asked Questions

The primary driver for the decrease in Diluted EPS was a reduced foreign exchange (FX) gain on U.S. dollar-denominated debt in the first quarter of 2017 compared to the same period in 2016.

Operational efficiency improved, as evidenced by an 80 basis point improvement in the operating ratio to 58.1%. This was supported by increased asset utilization and network investments, although the adjusted operating ratio, which excludes a management transition recovery, saw an increase.

For the full year 2017, CP expects Adjusted diluted EPS growth in the high single-digit percentages. The company anticipates investing approximately $1.25 billion in capital programs and assumes a Canadian-to-U.S. dollar exchange rate between $1.30 and $1.35, with an average WTI crude oil price of $45-$55 per barrel.

In the first quarter of 2017, a stronger Canadian dollar (weaker USD) negatively impacted results, leading to a decrease in total revenues by $33 million, operating expenses by $16 million, and interest expense by $4 million compared to the prior year. The company also noted that the FX translation on undesignated U.S. dollar-denominated long-term debt had an impact on earnings in 'Other income and charges'.