MENU

48 hours only!

Join Pro Canada for roughly just HALF the entry price you saw yesterday…

Canadian Pacific Railway Limited: Q2 Revenue Will Drop 12%

Canadian Pacific Railway Limited (TSX:CP)(NYSE:CP) can’t catch a break lately.

The company tried for months on end to acquire another competitor, only to have organization after organization speak up against the merger. And so the company moved on, continuing to focus on increasing revenue and adding value to shareholders.

The company was well on its way to achieve that until three unlikely factors came to fruition at once only just a few months ago.

The Canadian dollar, which had fallen to below US$.070 late last year and into this year, began to rally, most recently pushing forward to the US$0.80 level. Commodity prices, which have been weak for some time now, also regained some strength, but that didn’t pan out as hoped. And the wildfires in the Fort McMurray region resulted in sharp cuts to outputs from the oil sands, which, by extension, led to reduced or even cut rail traffic.

Lower revenue expected for this quarter

The company announced this week that as result of those factors, revenues for the second quarter will be weaker than expected by roughly 12%.

Analysts had already reached a consensus that the results for Canadian Pacific would fall lower than expected as the entire railroad industry sorted out the temporary halt in services and prolonged weak demand for freight.

Canadian Pacific noted that it was now expecting to post earnings of nearly $2.00 per share. For the same quarter last year, the company posted $2.45 per share; analysts had been expecting the company to post $2.46 per share.

Year-end guidance and outlook remains unchanged

Despite the expected drop in revenue, Canadian Pacific also commented on the full-year guidance for the company, noting that cost-cutting measures both implemented and targeted as well as the potential of stronger demand in the remaining half of the year will help the company achieve the previously stated full-year guidance.

The operating ratio, which shows operating expenses as a percentage of revenue, is widely regarded as a gauge on the company’s overall efficiency and performance. The lower the number, the better the performance.

During the first quarter of the year Canadian Pacific posted a record low of 58.9% operating ratio. The expectation for the upcoming quarter will see that figure slip to approximately 62%. By way of comparison, the second-quarter figure from last year was 60.9%.

What’s next for Canadian Pacific?

News of the drop in revenue has the stock trading down. At the time of writing, the stock is down by over 2% for the day. When stock prices shift as they did for Canadian Pacific, the words of Warren Buffet come to mind: “Be fearful when others are greedy, and be greedy when others are fearful.”

In other words, Canadian Pacific can be bought for a discount at the moment, so go ahead and be greedy. The stock price will recover, the trains will continue to move, and the company will continue to post earnings, albeit smaller earnings for this quarter.

In my opinion, while the reduction in revenue is worrying, it is not reason enough to dump the stock. The discount that the stock trades at now represents a unique opportunity for investors to buy into the stock, which–apart from this one hiccup–is a great stock that pays a handsome dividend.

Stock buy alert hits astounding 96% success rate!

The hand-picked investing team inside Stock Advisor Canada, recently issued a buy alert for one special type of "bread-and-butter" stock where The Motley Fool U.S. has banked profits on 23 out of 24 recommendations. Frankly, with an astounding 96% success rate that has delivered average returns of 260%, chances are this new pick could deliver life-changing returns as well. Because the team at Stock Advisor Canada fully embraces the same time-tested investing philosophies that have led to countless Motley Fool winners globally. So simply  click here to unlock the full details behind this new recommendation and join Stock Advisor Canada.

*96% accuracy includes restaurant stock recommendations from Motley Fool U.S. services Stock Advisor, Rule Breakers, Hidden Gems, Income Investor and Inside Value since each services inception. Returns as of 5/27/16.

Fool contributor Demetris Afxentiou has no position in any stocks mentioned.

NEW! This Stock Could Be Like Buying Amazon In 1997

For only the 5th time in over 14 years, Motley Fool co-founder David Gardner just issued a Buy Recommendation on this recent Canadian IPO.

Stock Advisor Canada’s Chief Investment Adviser, Iain Butler, also recommended this company back in March – and it’s already up a whopping 57%!

Enter your email address below to claim your copy of this brand new report, “Breakthrough IPO Receives Rare Endorsement.”

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.