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CANADIAN PACIFIC KANSAS CITY LTD/CN 8-K Report (May 6, 2004)

Filing Date
Filed May 6, 2004
Period End
May 5, 2004
Security
CP
In the record · 2016–202610-K2010-Q328-K361

CP filed 20 annual reports (10-K), 32 quarterly reports (10-Q) and 361 current reports (8-K) between 2016 and 2026.

  1. Leadership change8-K · Feb ’17Feb ’17
  2. Material agreement8-K · Oct ’19Oct ’19
  3. Deal closed8-K · Dec ’21Dec ’21
  4. Material agreement8-K · Aug ’25Aug ’25

01—Abstract

Summary

Summary of the 6-K filed May 6, 2004. Cited figures are marked; the original filing is the authoritative source.

Canadian Pacific Railway's May 6, 2004 Form 6-K furnishes its first-quarter 2004 results.

Reported net income fell to $23.5 milliona ($0.15 diluted EPS) from $101.9 million ($0.64) a year earlier, but the decline was driven almost entirely by a $13.3 million pre-tax foreign exchange loss on U.S. dollar-denominated long-term debt, compared with a $70.8 million gain in Q1 2003. Excluding that non-GAAP item, income was $37.8 million and EPS was $0.24, slightly ahead of $0.23 a year earlier. Operating income was roughly flat at $116.0 million versus $117.9 million, with the operating ratio deteriorating to 86.9% from 86.6%.

Management cited a major avalanche and severe weather in January, plus a roughly 16% stronger Canadian dollar that reduced revenues by about $59 millionb and operating income by about $13 million. Volumes were the bright spot: revenue ton-miles rose 10% and carloads rose 11%, with intermodal and coal leading growth. Management said March traffic jumped 17% over February and that this momentum carried into the second quarter.

The company also revised its 2004 guidance, expecting revenue growth of 4% to 6% and diluted EPS growth (excluding FX on long-term debt) of 5% to 10% over restated 2003 EPS of $2.07c. Restated 2003 comparatives reflect new accounting rules for asset retirement obligations and stock options. Balance-sheet leverage rose modestly, with the net-debt-to-capital ratio at 47.5%, and the company issued US$145 million of 5.41% secured notes to finance locomotives.

For investors, the key takeaways are that the headline earnings decline is largely a currency-translation artifact, underlying operations improved on volume growth, and near-term margin pressure from capacity constraints and FX headwinds remains a watch item. Note that this filing is a Form 6-K for a foreign private issuer and includes Canadian-GAAP figures reported in Canadian dollars.

02—Key points

Key Highlights

  1. Reported Q1 2004 net income fell 77% to $23.5M ($0.15 diluted EPS) from $101.9M ($0.64), primarily due to a $14.3M after-tax FX loss on US$-denominated long-term debt versus a $64.6M gain a year earlier.
  2. Excluding FX on long-term debt (non-GAAP), EPS rose to $0.24 from $0.23, and income before FX reached $37.8M versus $37.3M.
  3. Operating income was $116.0M versus $117.9M; operating ratio worsened to 86.9% from 86.6% amid avalanche and weather disruptions (about $25M impact) and a 16% stronger Canadian dollar.
  4. Freight volumes were strong: revenue ton-miles up 10% and carloads up 11%, with intermodal revenue up 12.3% and coal up 11.2%; March traffic rose 17% over February.
  5. 2004 guidance: revenue growth of 4%-6% and EPS growth (ex-FX on debt) of 5%-10% over restated 2003 EPS of $2.07, assuming a $1.33 C$/US$ exchange rate and WTI oil at US$33/barrel.
  6. Operating cash flow rose to $102.6M from $53.7M, while free cash after dividends improved to negative $56.4M from negative $146.6M; capital spending for 2004 is projected at $670M-$710M.
  7. Net-debt-to-capital ratio rose to 47.5% from 46.5%, and the company issued US$145M of 5.41% secured notes due 2024 to finance locomotive purchases.

03—Questions

Frequently Asked Questions

  1. Why did net income drop so sharply in Q1 2004 if operations improved?

    The drop was mainly non-operating. CP recorded a $14.3M after-tax foreign exchange loss on US$-denominated long-term debt, versus a $64.6M gain in Q1 2003, because the Canadian dollar strengthened. Excluding this item, EPS was $0.24 versus $0.23, a modest improvement.

  2. How did the strong Canadian dollar affect CP's operations?

    Because many revenues and expenses are in US dollars, the roughly 16% year-over-year rise in the Canadian dollar reduced revenues by about $59M, operating expenses by about $46M, and operating income by about $13M in the quarter. Management said the year-over-year FX drag should ease from Q2 onward if the currency stays put.

  3. What is driving volume growth and is it sustainable?

    Growth came from intermodal (up 12% in revenue), coal (up 11%), and sulphur and fertilizers, with carloads up 11%. Management said demand is strong and capacity will stay tight in some western corridors in the medium term, and it plans to add 41 locomotives in Q2 and 25 more in Q4 and to hire train crews.

  4. What is management's outlook for 2004?

    CP expects 2004 revenues to grow 4% to 6% and diluted EPS (excluding FX on long-term debt) to grow 5% to 10% from restated 2003 EPS of $2.07. These targets assume a $1.33 exchange rate per US dollar, WTI oil at US$33 per barrel, and the Ontario tax rate change previously disclosed.

  5. Were the 2003 comparatives changed, and why does it matter?

    Yes. Prior-period figures were restated for the new Canadian GAAP asset retirement obligation standard and for expensing stock options. The combined effect reduced Q1 2003 net income by only $0.4M ($0.01 per share), but it affects year-over-year comparisons and the 2003 EPS base used for guidance.

04—Continue

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