Le Lézard
Classified in: Transportation, Business
Subject: ERN

CP reports record fourth-quarter and record full-year results on the strength of its operating model and disciplined approach in the marketplace


CALGARY, Jan. 18, 2018 /PRNewswire/ - Canadian Pacific Railway Limited (TSX: CP) (NYSE: CP) today announced its best ever fourth-quarter, with revenues up 5 percent to $1.71 billion and an operating ratio of 56.1 percent.

Fourth-quarter diluted earnings per share ("EPS") increased 159 percent to $6.77 from $2.61, which includes an income tax recovery of $527 million, primarily as a result of U.S. tax reform net of Canadian provincial tax rate increases. Adjusted diluted EPS rose 6 percent to a new quarterly record of $3.22 from $3.04.

FOURTH-QUARTER 2017 RESULTS

"The fourth quarter was a record by almost every measure and should be celebrated by the men and women in the CP family who work hard every day to deliver for our customers and shareholders," said Keith Creel, CP President and CEO. "2017 was a positive year where we continued to build the foundation for sustainable long-term growth by enhancing our service offering, strengthening our team of professional railroaders, and furthering strategic partnerships with customers."

A disciplined growth strategy combined with the fundamentals of precision railroading also produced full-year diluted EPS of $16.44, up 55 percent from $10.63 and full-year adjusted diluted EPS of $11.39, an increase of 11 percent from $10.29. The full-year reported operating ratio was 57.4 percent and adjusted operating ratio was a record 58.2 percent.

FULL-YEAR 2017 RESULTS

CP's personal injury rate improved 1 percent and its FRA accident frequency improved 12 percent, making 2017 the 12th consecutive year CP has led the industry with the lowest FRA-reportable train accident frequency.

"Over the course of 2017 we built momentum thanks to our strategic approach to growth combined with our continued focus on operational excellence," Creel said. "That momentum has us well positioned to start 2018 and we look forward to delivering another year of record results in a safe and disciplined manner."

2018 FULL-YEAR GUIDANCE

"With a 2018 plan that balances strategic growth with continued productivity improvement, CP expects revenue growth in the mid-single digits and adjusted diluted EPS growth to be in the low double-digits," said Creel. "I have never been more excited about the potential for CP as we write the next chapter in our compelling story, one focused on sustainable, profitable growth."

CP's expectations for adjusted diluted EPS growth in 2018 are based on adjusted diluted EPS of $11.39 in 2017. CP assumes the Canadian-to-U.S. dollar exchange rate will be in the range of 1.25 to 1.30 and expects an effective tax rate of 24.5 to 25 percent. As CP continues to invest in service, productivity and safety, the company plans to invest between $1.35 billion to $1.5 billion in capital programs in 2018.

CP will discuss its results with the financial community in a conference call beginning at 4:30 p.m. eastern time (2:30 p.m. mountain time) on January 18th, 2018.

Conference Call Access

Toronto participants dial in number: 1-647-427-7450

Operator assisted toll free dial in number: 1-888-231-8191

Callers should dial in 10 minutes prior to the call.

Webcast

We encourage you to access the webcast and presentation material at investor.cpr.ca 

A replay of the fourth-quarter conference call will be available by phone through to February 18, 2018 at 416-849-0833 or toll free 1-855-859-2056, password 5695276.

Access to the webcast and audio file of the presentation will be made available at investor.cpr.ca

Non-GAAP Measures

For information regarding non-GAAP measures, including reconciliations to the nearest GAAP measures, see the attached supplementary schedule Non-GAAP Measures. In this news release, CP has provided a forward looking non-GAAP measure. It is not practicable to provide a reconciliation to a forward-looking reported diluted EPS, the most comparable GAAP measure, due to unknown variables and uncertainty related to future results.

Note on forward-looking information

This news release contains certain forward-looking information within the meaning of applicable securities laws relating, but not limited, to our operations, priorities and plans, anticipated financial performance, including our 2018 full-year guidance, business prospects, planned capital expenditures, programs and strategies. This forward-looking information also includes, but is not limited to, statements concerning expectations, beliefs, plans, goals, objectives, assumptions and statements about possible future events, conditions, and results of operations or performance. Forward-looking information may contain statements with words or headings such as "financial expectations", "key assumptions", "anticipate", "believe", "expect", "plan", "will", "outlook", "should" or similar words suggesting future outcomes. To the extent that CP has provided guidance using non-GAAP financial measures, the Company may not be able to provide a reconciliation to a GAAP measure, due to unknown variables and uncertainty related to future results.

Undue reliance should not be placed on forward-looking information as actual results may differ materially from the forward-looking information. Forward-looking information is not a guarantee of future performance. By its nature, CP's forward-looking information involves numerous assumptions, inherent risks and uncertainties that could cause actual results to differ materially from the forward looking information, including but not limited to the following factors: changes to the assumptions upon which the 2018 full-year guidance is based, as set out in CP's annual and interim reports on Form 10-K and 10-Q; changes in business strategies; general North American and global economic, credit and business conditions; risks in agricultural production such as weather conditions and insect populations; the availability and price of energy commodities; the effects of competition and pricing pressures; industry capacity; shifts in market demand; changes in commodity prices; uncertainty surrounding timing and volumes of commodities being shipped via CP; inflation; changes in laws and regulations, including regulation of rates; changes in taxes and tax rates; potential increases in maintenance and operating costs; uncertainties of investigations, proceedings or other types of claims and litigation; labour disputes; risks and liabilities arising from derailments; transportation of dangerous goods; timing of completion of capital and maintenance projects; currency and interest rate fluctuations; effects of changes in market conditions and discount rates on the financial position of pension plans and investments; and various events that could disrupt operations, including severe weather, droughts, floods, avalanches and earthquakes as well as security threats and governmental response to them, and technological changes. The foregoing list of factors is not exhaustive. These and other factors are detailed from time to time in reports filed by CP with securities regulators in Canada and the United States. Reference should be made to "Item 1A - Risk Factors" and "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Forward-Looking Information" in CP's annual and interim reports on Form 10-K and 10-Q. Readers are cautioned not to place undue reliance on forward-looking information. Forward looking information is based on current expectations, estimates and projections and it is possible that predictions, forecasts, projections, and other forms of forward-looking information will not be achieved by CP. Except as required by law, CP undertakes no obligation to update publicly or otherwise revise any forward-looking information, whether as a result of new information, future events or otherwise.

About Canadian Pacific

Canadian Pacific is a transcontinental railway in Canada and the United States with direct links to major ports on the west and east coasts, providing North American customers a competitive rail service with access to key markets in every corner of the globe. CP is growing with its customers, offering a suite of freight transportation services, logistics solutions and supply chain expertise. Visit cpr.ca to see the rail advantages of CP. CP-IR

FINANCIAL INFORMATION

INTERIM CONSOLIDATED STATEMENTS OF INCOME
(unaudited)


For the three months
ended December 31

For the year ended
December 31

(in millions of Canadian dollars, except share and per share data)

2017

2016

2017

2016

Revenues






Freight

$

1,667

$

1,596

$

6,375

$

6,060


Non-freight

46

41

179

172

Total revenues

1,713

1,637

6,554

6,232

Operating expenses






Compensation and benefits

269

282

1,035

1,189


Fuel

197

173

677

567


Materials

48

47

190

180


Equipment rents

34

41

142

173


Depreciation and amortization

168

162

661

640


Purchased services and other (Note 2)                                    

244

215

1,056

905

Total operating expenses

960

920

3,761

3,654






Operating income

753

717

2,793

2,578

Less:






Other income and charges (Note 3)

16

74

(178)

(45)


Net interest expense

116

116

473

471

Income before income tax (recovery) expense

621

527

2,498

2,152


Income tax (recovery) expense (Note 4)

(363)

143

93

553

Net income

$

984

$

384

$

2,405

$

1,599






Earnings per share






Basic earnings per share

$

6.79

$

2.63

$

16.49

$

10.69


Diluted earnings per share

$

6.77

$

2.61

$

16.44

$

10.63






Weighted-average number of shares (millions)






Basic

145.0

146.3

145.9

149.6


Diluted

145.4

147.3

146.3

150.5






Dividends declared per share

$

0.5625

$

0.5000

$

2.1875

$

1.8500


See Notes to Interim Consolidated Financial Information.

 

INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)


For the three months
ended December 31

For the year ended
December 31

(in millions of Canadian dollars)

2017

2016

2017

2016

Net income

$

984

$

384

$

2,405

$

1,599


Net (loss) gain in foreign currency translation adjustments, net of hedging activities

(14)

(15)

24

18


Change in derivatives designated as cash flow hedges

8

73

19

(2)


Change in pension and post-retirement defined benefit plans

(33)

(571)

80

(434)

Other comprehensive (loss) income before income taxes

(39)

(513)

123

(418)

Income tax recovery (expense) on above items

13

147

(65)

96

Other comprehensive (loss) income

(26)

(366)

58

(322)

Comprehensive income

$

958

$

18

$

2,463

$

1,277


See Notes to Interim Consolidated Financial Information.


 

INTERIM CONSOLIDATED BALANCE SHEETS AS AT
(unaudited)


December 31

December 31

(in millions of Canadian dollars)

2017

2016

Assets



Current assets




Cash and cash equivalents

$

338

$

164


Accounts receivable, net

687

591


Materials and supplies

152

184


Other current assets

97

70


1,274

1,009

Investments

182

194

Properties

17,016

16,689

Goodwill and intangible assets

187

202

Pension asset

1,407

1,070

Other assets

69

57

Total assets

$

20,135

$

19,221

Liabilities and shareholders' equity



Current liabilities




Accounts payable and accrued liabilities

$

1,238

$

1,322


Long-term debt maturing within one year

746

25


1,984

1,347

Pension and other benefit liabilities

749

734

Other long-term liabilities

231

284

Long-term debt

7,413

8,659

Deferred income taxes

3,321

3,571

Total liabilities

13,698

14,595

Shareholders' equity




Share capital

2,032

2,002


Additional paid-in capital

43

52


Accumulated other comprehensive loss

(1,741)

(1,799)


Retained earnings

6,103

4,371


6,437

4,626

Total liabilities and shareholders' equity

$

20,135

$

19,221


See Notes to Interim Consolidated Financial Information.

 

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)


For the three months
ended December 31

For the year ended
December 31

(in millions of Canadian dollars)

2017

2016

2017

2016

Operating activities





Net income

$

984

$

384

$

2,405

$

1,599

Reconciliation of net income to cash provided by operating activities:






Depreciation and amortization                                                            

168

162

661

640


Deferred income taxes

(378)

87

(210)

320


Pension funding in excess of expense

(59)

(33)

(237)

(138)

Foreign exchange loss (gain) on long-term debt (Note 3)

14

74

(186)

(79)

Other operating activities, net

(25)

(68)

(113)

(198)

Change in non-cash working capital balances related to operations

29

162

(138)

(55)

Cash provided by operating activities

733

768

2,182

2,089

Investing activities





Additions to properties

(445)

(280)

(1,340)

(1,182)

Proceeds from sale of properties and other assets

13

29

42

116

Other

(2)

(1)

3

(3)

Cash used in investing activities

(434)

(252)

(1,295)

(1,069)

Financing activities





Dividends paid

(81)

(73)

(310)

(255)

Issuance of CP Common Shares

6

7

45

21

Purchase of CP Common Shares

(13)

(10)

(381)

(1,210)

Repayment of long-term debt, excluding commercial paper

(15)

(8)

(32)

(38)

Net repayment of commercial paper

?

(374)

?

(8)

Settlement of forward starting swaps

?

?

(22)

?

Other

?

?

?

(3)

Cash used in financing activities

(103)

(458)

(700)

(1,493)






Effect of foreign currency fluctuations on U.S. dollar-denominated
cash and cash equivalents

?

3

(13)

(13)

Cash position





Increase (decrease) in cash and cash equivalents

196

61

174

(486)

Cash and cash equivalents at beginning of period

142

103

164

650

Cash and cash equivalents at end of period

$

338

$

164

$

338

$

164






Supplemental disclosures of cash flow information:





Income taxes paid

$

61

$

48

$

425

$

322

Interest paid

$

90

$

93

$

475

$

488


See Notes to Interim Consolidated Financial Information.

 

INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(unaudited)

(in millions of Canadian dollars, except
common share amounts)


Common
shares (in
millions)


Share
capital

Additional
paid-in
capital

Accumulated
other
comprehensive
loss

Retained
earnings

Total
shareholders'
equity

Balance at January 1, 2017


146.3


$

2,002

$

52

$

(1,799)

$

4,371

$

4,626


Net income


?


?

?

?

2,405

2,405


Other comprehensive income


?


?

?

58

?

58


Dividends declared


?


?

?

?

(319)

(319)


Effect of stock-based compensation expense


?


?

3

?

?

3


CP Common Shares repurchased


(1.9)


(27)

?

?

(354)

(381)


Shares issued under stock option plan    


0.5


57

(12)

?

?

45

Balance at December 31, 2017


144.9


$

2,032

$

43

$

(1,741)

$

6,103

$

6,437

Balance at January 1, 2016


153.0


$

2,058

$

43

$

(1,477)

$

4,172

$

4,796


Net income


?


?

?

?

1,599

1,599


Other comprehensive income


?


?

?

(322)

?

(322)


Dividends declared


?


?

?

?

(274)

(274)


Effect of stock-based compensation expense


?


?

14

?

?

14


CP Common Shares repurchased


(6.9)


(84)

?

?

(1,126)

(1,210)


Shares issued under stock option plan


0.2


28

(5)

?

?

23

Balance at December 31, 2016


146.3


$

2,002

$

52

$

(1,799)

$

4,371

$

4,626


See Notes to Interim Consolidated Financial Information.

 

NOTES TO INTERIM CONSOLIDATED FINANCIAL INFORMATION
December 31, 2017
(unaudited)

1    Basis of presentation

This unaudited interim consolidated financial information of Canadian Pacific Railway Limited ("CP", or "the Company"), expressed in Canadian dollars, reflect management's estimates and assumptions that are necessary for their fair presentation in conformity with generally accepted accounting principles in the United States of America ("GAAP"). They do not include all disclosures required under GAAP for annual financial statements and should be read in conjunction with the 2016 annual consolidated financial statements and notes included in CP's 2016 Annual Report on Form 10-K and 2017 interim consolidated financial statements. The accounting policies used are consistent with the accounting policies used in preparing the 2016 annual consolidated financial statements.

CP's operations can be affected by seasonal fluctuations such as changes in customer demand and weather-related issues. This seasonality could impact quarter-over-quarter comparisons.

In management's opinion, the unaudited interim consolidated financial information includes all adjustments (consisting of normal and recurring adjustments) necessary to present fairly such information.

2     Dispositions of properties

During the fourth quarter of 2016, the Company completed the sale of its Obico rail yard, for gross proceeds of $38 million. The Company recorded a gain on sale of $37 million before tax ($33 million after tax) within "Purchased services and other" in the interim consolidated statement of income.

3    Other income and charges


For the three months ended December 31

For the year ended December 31

(in millions of Canadian dollars)

2017

2016

2017

2016

Foreign exchange loss (gain) on long-term debt

$

14

$

74

$

(186)

$

(79)

Other foreign exchange gains

(2)

?

(7)

(5)

Legal settlement

?

?

?

25

Insurance recovery of legal settlement

?

?

(10)

?

Charge on hedge roll and de-designation

?

?

13

?

Other

4

?

12

14

Total other income and charges

$

16

$

74

$

(178)

$

(45)

4    Income taxes

On December 22, 2017, the United States ("U.S.") enacted the "Tax Cuts and Jobs Act" which has been commonly referred to as U.S. tax reform. A significant change under this reform is the reduction of US federal statutory corporate income tax rate from 35% to 21% beginning in 2018. As a result of this and other tax rate increases in the provinces of British Columbia and Saskatchewan, the Company revalued its deferred income tax balances accordingly. The revaluation of deferred tax associated with rate changes total a net recovery of $527 million in the fourth quarter of 2017 (fourth quarter of 2016 - $nil) reducing income tax expense of the period.

For the full year in 2017, revaluations of deferred tax balances associated with changes in rates total a net recovery of $541 million (2016 - $nil).

These recoveries are estimated based on the Company's initial analysis of the Tax Cuts and Jobs Act. Given the significant complexity of this act these estimates are subject to adjustment if further guidance becomes available.

Summary of Rail Data


Fourth Quarter


Year

Financial (millions, except per share data)

2017

2016

Total
Change

%
Change


2017

2016

Total
Change

%
Change











Revenues











Freight

$

1,667

$

1,596

$

71

4


$

6,375

$

6,060

$

315

5


Non-freight

46

41

5

12


179

172

7

4

Total revenues

1,713

1,637

76

5


6,554

6,232

322

5











Operating expenses











Compensation and benefits

269

282

(13)

(5)


1,035

1,189

(154)

(13)


Fuel

197

173

24

14


677

567

110

19


Materials

48

47

1

2


190

180

10

6


Equipment rents

34

41

(7)

(17)


142

173

(31)

(18)


Depreciation and amortization

168

162

6

4


661

640

21

3


Purchased services and other

244

215

29

13


1,056

905

151

17

Total operating expenses

960

920

40

4


3,761

3,654

107

3











Operating income

753

717

36

5


2,793

2,578

215

8











Less:





















Other income and charges

16

74

(58)

(78)


(178)

(45)

(133)

296


Net interest expense

116

116

?

?


473

471

2

?











Income before income tax (recovery) expense

621

527

94

18


2,498

2,152

346

16












Income tax (recovery) expense

(363)

143

(506)

(354)


93

553

(460)

(83)











Net income

$

984

$

384

$

600

156


$

2,405

$

1,599

$

806

50

Operating ratio (%)

56.1

56.2

(0.1)

(10) bps


57.4

58.6

(1.2)

(120) bps












Basic earnings per share

$

6.79

$

2.63

$

4.16

158


$

16.49

$

10.69

$

5.80

54












Diluted earnings per share

$

6.77

$

2.61

$

4.16

159


$

16.44

$

10.63

$

5.81

55











Shares Outstanding











Weighted average number of shares outstanding
(millions)

145.0

146.3

(1.3)

(1)


145.9

149.6

(3.7)

(2)


Weighted average number of diluted shares
outstanding (millions)

145.4

147.3

(1.9)

(1)


146.3

150.5

(4.2)

(3)











Foreign Exchange











Average foreign exchange rate (US$/Canadian$)

0.79

0.75

0.04

5


0.77

0.75

0.02

3


Average foreign exchange rate (Canadian$/US$)

1.27

1.33

(0.06)

(5)


1.30

1.33

(0.03)

(2)

 

Summary of Rail Data (Page 2)


Fourth Quarter


Year

Commodity Data(1)

2017

2016

Total
Change

%
Change

FX
Adjusted

%
Change(2)


2017

2016

Total
Change

%
Change

FX
Adjusted

%
Change(2)













Freight Revenues (millions)












- Grain

$

425

$

439

$

(14)

(3)

(1)


$

1,532

$

1,480

$

52

4

5

- Coal

153

152

1

1

1


631

606

25

4

4

- Potash

101

96

5

5

9


411

338

73

22

23

- Fertilizers and sulphur

60

66

(6)

(9)

(6)


241

284

(43)

(15)

(14)

- Forest products

63

63

?

?

3


265

275

(10)

(4)

(2)

- Energy, chemicals and plastics

247

214

33

15

20


898

852

46

5

7

- Metals, minerals, and consumer products

187

149

38

26

30


739

564

175

31

33

- Automotive

70

80

(10)

(13)

(9)


293

350

(57)

(16)

(15)

- Intermodal

361

337

24

7

8


1,365

1,311

54

4

5













Total Freight Revenues

$

1,667

$

1,596

$

71

4

7


$

6,375

$

6,060

$

315

5

6













Freight Revenue per Revenue Ton-Miles
(RTM) (cents)












- Grain

4.21

4.17

0.04

1

3


4.10

4.01

0.09

2

4

- Coal

2.82

2.70

0.12

4

5


2.78

2.73

0.05

2

2

- Potash

2.62

2.49

0.13

5

8


2.61

2.38

0.23

10

11

- Fertilizers and sulphur

5.91

6.68

(0.77)

(12)

(9)


6.27

6.87

(0.60)

(9)

(8)

- Forest products

5.79

5.86

(0.07)

(1)

3


5.92

5.86

0.06

1

3

- Energy, chemicals and plastics

4.10

4.53

(0.43)

(9)

(6)


4.21

4.48

(0.27)

(6)

(4)

- Metals, minerals, and consumer products

6.32

6.59

(0.27)

(4)

?


6.44

6.77

(0.33)

(5)

(3)

- Automotive

22.91

22.31

0.60

3

7


22.15

21.02

1.13

5

7

- Intermodal

5.65

5.41

0.24

4

6


5.62

5.27

0.35

7

7













Total Freight Revenue per RTM

4.49

4.48

0.01

?

3


4.47

4.46

0.01

?

1













Freight Revenue per Carload












- Grain

$

3,690

$

3,659

$

31

1

3


$

3,477

$

3,426

$

51

1

3

- Coal

2,106

1,932

174

9

10


2,061

1,984

77

4

4

- Potash

2,916

2,973

(57)

(2)

1


2,988

2,904

84

3

4

- Fertilizers and sulphur

4,118

4,593

(475)

(10)

(8)


4,178

4,769

(591)

(12)

(11)

- Forest products

3,974

4,158

(184)

(4)

?


4,036

4,157

(121)

(3)

(1)

- Energy, chemicals and plastics

3,271

3,302

(31)

(1)

3


3,333

3,410

(77)

(2)

?

- Metals, minerals, and consumer products

2,911

2,964

(53)

(2)

2


2,894

2,888

6

?

2

- Automotive

2,776

3,006

(230)

(8)

(4)


2,785

2,825

(40)

(1)

?

- Intermodal

1,384

1,368

16

1

2


1,370

1,342

28

2

3













Total Freight Revenue per Carload

$

2,455

$

2,462

$

(7)

?

2


$

2,420

$

2,400

$

20

1

2



(1)

In the first quarter of 2017, CP revised the grouping of revenues, and aggregated certain lines of business where "Canadian Grain" and "U.S. Grain" were aggregated into the line of business "Grain"; "Chemicals and Plastics" and "Crude" were aggregated into the line of business "Energy, Chemicals and Plastics"; and "Domestic Intermodal" and "International Intermodal" were aggregated into the line of business "Intermodal". Prior period figures have been aggregated accordingly.

(2)

This earnings measure has no standardized meaning prescribed by GAAP and, therefore, is unlikely to be comparable to similar measures presented by other companies. This measure is defined and reconciled in Non-GAAP Measures of this Earnings Release.

 

Summary of Rail Data (Page 3)


Fourth Quarter


Year

Commodity Data (Continued)(1)

2017

2016

Total
Change

%
Change


2017

2016

Total
Change

%
Change











Millions of RTM










- Grain

10,103

10,488

(385)

(4)


37,377

36,892

485

1

- Coal

5,430

5,631

(201)

(4)


22,660

22,171

489

2

- Potash

3,832

3,842

(10)

?


15,751

14,175

1,576

11

- Fertilizers and sulphur

1,012

996

16

2


3,849

4,140

(291)

(7)

- Forest products

1,094

1,072

22

2


4,484

4,691

(207)

(4)

- Energy, chemicals and plastics

6,025

4,726

1,299

27


21,327

19,021

2,306

12

- Metals, minerals, and consumer products

2,956

2,271

685

30


11,468

8,338

3,130

38

- Automotive

305

362

(57)

(16)


1,321

1,667

(346)

(21)

- Intermodal

6,402

6,223

179

3


24,303

24,857

(554)

(2)











Total RTMs

37,159

35,611

1,548

4


142,540

135,952

6,588

5











Carloads (thousands)(2)










- Grain

115.1

119.7

(4.6)

(4)


440.7

431.9

8.8

2

- Coal

72.7

78.6

(5.9)

(8)


306.0

305.3

0.7

?

- Potash

34.5

32.2

2.3

7


137.4

116.4

21.0

18

- Fertilizers and sulphur

14.5

14.4

0.1

1


57.7

59.6

(1.9)

(3)

- Forest products

16.0

15.1

0.9

6


65.8

66.1

(0.3)

?

- Energy, chemicals and plastics

75.5

64.9

10.6

16


269.5

250.0

19.5

8

- Metals, minerals, and consumer products

64.2

50.4

13.8

27


255.3

195.3

60.0

31

- Automotive

25.2

26.9

(1.7)

(6)


105.1

124.1

(19.0)

(15)

- Intermodal

261.3

246.0

15.3

6


996.7

976.2

20.5

2










Total Carloads

679.0

648.2

30.8

5


2,634.2

2,524.9

109.3

4

 


Fourth Quarter


Year


2017

2016

Total
Change

%
Change

FX
Adjusted %
Change(3)


2017

2016

Total
Change

%
Change

FX
Adjusted %
Change(3)













Operating Expenses (millions)












Compensation and benefits

$

269

$

282

$

(13)

(5)

(3)


$

1,035

$

1,189

$

(154)

(13)

(12)

Fuel

197

173

24

14

19


677

567

110

19

22

Materials

48

47

1

2

4


190

180

10

6

7

Equipment rents

34

41

(7)

(17)

(15)


142

173

(31)

(18)

(17)

Depreciation and amortization

168

162

6

4

5


661

640

21

3

4

Purchased services and other

244

215

29

13

16


1,056

905

151

17

18













Total Operating Expenses

$

960

$

920

$

40

4

7


$

3,761

$

3,654

$

107

3

4



(1)

In the first quarter of 2017, CP revised the grouping of revenues, and aggregated certain lines of business where "Canadian Grain" and "U.S. Grain" were aggregated into the line of business "Grain"; "Chemicals and Plastics" and "Crude" were aggregated into the line of business "Energy, Chemicals and Plastics"; and "Domestic Intermodal" and "International Intermodal" were aggregated into the line of business "Intermodal". Prior period figures have been aggregated accordingly.

(2)

Certain figures have been revised to conform with current presentation.

(3)

This earnings measure has no standardized meaning prescribed by GAAP and, therefore, is unlikely to be comparable to similar measures presented by other companies. This measure is defined and reconciled in Non-GAAP Measures of this Earnings Release.

 

Summary of Rail Data (Page 4)


Fourth Quarter


Year


2017

2016 (1)

Total
Change

%
Change


2017 (1)

2016 (1)

Total
Change

%
Change











Operations Performance




















Gross ton-miles ("GTMs") (millions)

65,296

62,233

3,063

5


252,195

242,694

9,501

4

Train miles (thousands)

7,845

7,748

97

1


30,632

30,373

259

1

Average train weight - excluding local traffic (tons)

8,897

8,588

309

4


8,806

8,614

192

2

Average train length - excluding local traffic (feet)

7,276

7,100

176

2


7,214

7,217

(3)

?

Average terminal dwell (hours)

6.9

6.4

0.5

8


6.6

6.7

(0.1)

(1)

Average train speed (mph)(2)

21.9

22.9

(1.0)

(4)


22.6

23.5

(0.9)

(4)

Fuel efficiency(3)

0.984

0.996

(0.012)

(1)


0.980

0.980

?

?

U.S. gallons of locomotive fuel consumed (millions)(4)

63.9

61.6

2.3

4


245.3

236.2

9.1

4

Average fuel price (U.S. dollars per U.S. gallon)

2.43

2.01

0.42

21


2.16

1.80

0.36

20











Total employees (average)(5)

12,165

11,803

362

3


12,034

12,082

(48)

?

Total employees (end of period)(5)

12,163

11,653

510

4


12,163

11,653

510

4

Workforce (end of period)(6)

12,242

11,698

544

5


12,242

11,698

544

5











Safety




















FRA personal injuries per 200,000 employee-hours

1.69

2.02

(0.33)

(16)


1.65

1.67

(0.02)

(1)

FRA train accidents per million train miles

0.94

1.19

(0.25)

(21)


0.99

1.12

(0.13)

(12)



(1)

Certain previously reported quarterly figures have been revised to conform with current presentation or have been updated to reflect new information as certain operating statistics are estimated and can continue to be updated as actuals settle.

(2)

Average train speed is defined as a measure of the line-haul movement from origin to destination including terminal dwell hours. It excludes delay time related to customer or foreign railways, and also excludes the time and distance traveled by: i) trains used in or around CP's yards; ii) passenger trains; and iii) trains used for repairing track.

(3)

Fuel efficiency is defined as U.S. gallons of locomotive fuel consumed per 1,000 GTMs ? freight and yard.

(4)

Includes gallons of fuel consumed from freight, yard and commuter service but excludes fuel used in capital projects and other non-freight activities.

(5)

An employee is defined as an individual currently engaged in full-time or part-time employment with CP.

(6)

Workforce is defined as total employees plus contractors and consultants.

 

Non-GAAP Measures - Unaudited

The Company presents non-GAAP measures and cash flow information to provide a basis for evaluating underlying earnings and liquidity trends in the Company's business that can be compared with the results of operations in prior periods. In addition, these non-GAAP measures facilitate a multi-period assessment of long-term profitability allowing management and other external users of the Company's consolidated financial information to compare profitability on a long-term basis, including assessing future profitability, with that of the Company's peers.

These non-GAAP measures have no standardized meaning and are not defined by GAAP and, therefore, may not be comparable to similar measures presented by other companies. The presentation of these non-GAAP measures is not intended to be considered in isolation from, as a substitute for, or as superior to, the financial information presented in accordance with GAAP.

Adjusted Performance Measures

The Company uses Adjusted income, Adjusted diluted earnings per share, Adjusted operating income and Adjusted operating ratio to evaluate the Company's operating performance and for planning and forecasting future business operations and future profitability. These non-GAAP measures provide meaningful supplemental information regarding operating results because they exclude certain significant items that are not considered indicative of future financial trends either by nature or amount. As a result, these items are excluded for management assessment of operational performance, allocation of resources and preparation of annual budgets. These significant items may include, but are not limited to, restructuring and asset impairment charges, individually significant gains and losses from sales of assets, and certain items outside the control of management. These items may not be non-recurring. However, excluding these significant items from GAAP results allows for a consistent understanding of the Company's consolidated financial performance when performing a multi-period assessment including assessing the likelihood of future results. Accordingly, these non-GAAP financial measures may provide insight to investors and other external users of the Company's consolidated financial information.

Significant items that impact reported earnings for 2017 and 2016 include:

2017:

2016:

2018 Outlook

With a 2018 plan that balances strategic growth with continued productivity improvement, CP expects revenue growth in the mid-single digits and adjusted diluted EPS growth to be in the low double-digits. CP's expectations for adjusted diluted EPS growth in 2018 are based on adjusted diluted EPS of $11.39 in 2017. CP assumes the Canadian-to-U.S. dollar exchange rate will be in the range of $1.25 to $1.30 and expects an effective tax rate in the range of 24.5 to 25 percent. As CP continues to invest in service, productivity and safety, the company plans to invest between $1.35 billion to $1.5 billion in capital programs in 2018.

Adjusted diluted EPS is defined and discussed further below. Although CP has provided a forward-looking non-GAAP measure, it is not practicable to provide a reconciliation to a forward-looking reported diluted EPS, the most comparable GAAP measure, due to unknown variables and uncertainty related to future results. These unknown variables may include unpredicted transactions of significant value. In past years, CP has recognized significant asset impairment charges and management transition costs related to senior executives. These or other similar, large unforeseen transactions affect diluted EPS but may be excluded from CP's Adjusted diluted EPS. Additionally, the Canadian-to-U.S. dollar exchange rate is unpredictable and can have a significant impact on CP's reported results but may be excluded from CP's Adjusted diluted EPS. In particular, CP excludes the foreign exchange impact of translating the Company's U.S. dollar denominated long-term debt from Adjusted diluted EPS. Please see note on forward-looking information for further discussion.

Reconciliation of GAAP Performance Measures to Non-GAAP Performance Measures

The following tables reconcile the most directly comparable measures presented in accordance with GAAP to the non-GAAP measures for the periods ended December 31, 2017 and 2016:

Adjusted income is calculated as Net income reported on a GAAP basis less significant items.


For the three months
ended December 31

For the year ended
December 31

(in millions)

2017

2016

2017

2016

Net income as reported

$

984

$

384

$

2,405

$

1,599

Less significant items (pretax):






Management transition recovery

?

?

51

?


Impact of FX translation on U.S. dollar-denominated debt

(14)

(74)

186

79


Charge on hedge roll and de-designation

?

?

(13)

?


Legal settlement charge

?

?

?

(25)


Insurance recovery of legal settlement

?

?

10

?


Income tax rate changes

527

?

541

?

Add:






Tax effect of adjustments(1)

(2)

(10)

36

4

Adjusted income

$

469

$

448

$

1,666

$

1,549


(1) The tax effect of adjustments was calculated as the pretax effect of the adjustments multiplied by the effective tax rate for each of the above items for the periods presented.

 

Adjusted diluted earnings per share is calculated using Adjusted income, as defined above, divided by the weighted-average diluted shares outstanding during the period as determined in accordance with GAAP.


For the three months
ended December 31

For the year ended
December 31


2017

2016

2017

2016

Diluted earnings per share as reported

$

6.77

$

2.61

$

16.44

$

10.63

Less significant items:






Management transition recovery

?

?

0.35

?


Impact of FX translation on U.S. dollar-denominated debt

(0.09)

(0.50)

1.27

0.53


Charge on hedge roll and de-designation

?

?

(0.09)

?


Legal settlement charge

?

?

?

(0.17)


Insurance recovery of legal settlement

?

?

0.07

?


Income tax rate changes

3.63

?

3.70

?

Add:






Tax effect of adjustments(1)

(0.01)

(0.07)

0.25

0.02

Adjusted diluted earnings per share

$

3.22

$

3.04

$

11.39

$

10.29


(1) The tax effect of adjustments was calculated as the pretax effect of the adjustments multiplied by the effective tax rate for each of the above items for the periods presented.

 

Adjusted operating income is calculated as Operating income reported on a GAAP basis less significant items.


For the three months
ended December 31

For the year ended
December 31

(in millions)

2017

2016

2017

2016

Operating income as reported

$

753

$

717

$

2,793

$

2,578

Less significant item:






Management transition recovery

?

?

51

?

Adjusted operating income

$

753

$

717

$

2,742

$

2,578

 

Adjusted operating ratio excludes those significant items that are reported within Operating income.


For the three months
ended December 31

For the year ended
December 31


2017

2016

2017

2016

Operating ratio as reported

56.1%

56.2%

57.4%

58.6%

Less significant item:






Management transition recovery

?%

?%

(0.8)%

?%

Adjusted operating ratio

56.1%

56.2%

58.2%

58.6%

 

Free Cash

Free cash is calculated as Cash provided by operating activities, less Cash used in investing activities, adjusted for changes in Cash and cash equivalents balances resulting from FX fluctuations. Free cash is a measure that management considers to be an indicator of liquidity. Free cash is useful to investors and other external users of the consolidated financial statements as it assists with the evaluation of the Company's ability to generate cash from its operations without incurring additional external financing. Positive Free cash indicates the amount of cash available for reinvestment in the business, or cash that can be returned to investors through dividends, stock repurchase programs, debt retirements or a combination of these. Conversely, negative Free cash indicates the amount of cash that must be raised from investors through new debt or equity issues, reduction in available cash balances or a combination of these. Free cash should be considered in addition to, rather than as a substitute for, Cash provided by operating activities.

Reconciliation of Cash Provided by Operating Activities to Free Cash


For the three months
ended December 31

For the year ended
December 31

(in millions)

2017

2016

2017

2016

Cash provided by operating activities

$

733

$

768

$

2,182

$

2,089

Cash used in investing activities

(434)

(252)

(1,295)

(1,069)

Effect of foreign currency fluctuations on U.S. dollar-denominated cash and cash equivalents

?

3

(13)

(13)

Free cash

$

299

$

519

$

874

$

1,007

 

FX Adjusted Variance

FX adjusted variance allows certain financial results to be viewed without the impact of fluctuations in foreign currency exchange rates, thereby facilitating period to period comparisons in the analysis of trends in business performance. Financial result variances at constant currency are obtained by translating the comparable period of the prior year results denominated in U.S. dollars at the foreign exchange rates of the current period.


For the three months ended December 31

(in millions)

Reported
2017

Reported
2016

Variance
due to FX

FX Adjusted
2016

FX Adjusted 
% Change

Freight revenues

$

1,667

$

1,596

$

(38)

$

1,558

7

Non-freight revenues

46

41

(1)

40

15

Total revenues

1,713

1,637

(39)

1,598

7

Compensation and benefits

269

282

(5)

277

(3)

Fuel

197

173

(7)

166

19

Materials

48

47

(1)

46

4

Equipment rents

34

41

(1)

40

(15)

Depreciation and amortization

168

162

(2)

160

5

Purchased services and other

244

215

(5)

210

16

Total operating expenses

960

920

(21)

899

7

Operating income

$

753

$

717

$

(18)

$

699

8

 


For the year ended December 31

(in millions)

Reported
2017

Reported
2016

Variance
due to FX

FX Adjusted
2016

FX Adjusted
 % Change


Freight revenues

$

6,375


$

6,060


$

(67)


$

5,993


6


Non-freight revenues

179


172


(1)


171


5


Total revenues

6,554


6,232


(68)


6,164


6


Compensation and benefits

1,035


1,189


(9)


1,180


(12)


Fuel

677


567


(10)


557


22


Materials

190


180


(2)


178


7


Equipment rents

142


173


(2)


171


(17)


Depreciation and amortization

661


640


(3)


637


4


Purchased services and other

1,056


905


(10)


895


18


Total operating expenses

3,761


3,654


(36)


3,618


4


Operating income

$

2,793


$

2,578


$

(32)


$

2,546


10


 

Reconciliation of Net Income to Earnings before interest and tax, Adjusted earnings before interest and tax and Adjusted earnings before interest, tax, depreciation and amortization

EBIT is calculated as Operating income, less Other income and charges. Adjusted EBIT excludes significant items reported in Operating income and Other income and charges. Adjusted EBITDA is calculated as Adjusted EBIT plus Depreciation and amortization, net periodic pension and other benefit cost other than current service costs, and operating lease expense.


For the year ended December 31


(in millions)

2017

2016


Net income as reported

$

2,405


$

1,599


Add:




Net interest expense

473


471



Income tax expense

93


553


EBIT

2,971


2,623


Less significant items (pretax):




Charge on hedge roll and de-designation

(13)


?



Management transition recovery

51


?



Legal settlement charge

?


(25)



Insurance recovery of legal settlement

10


?



Impact of FX translation on U.S. dollar-denominated debt

186


79


Adjusted EBIT

2,737


2,569


Less:




Net periodic pension and other benefit cost other than current service costs

274


167



Operating lease expense

(104)


(111)



Depreciation and amortization

(661)


(640)


Adjusted EBITDA

$

3,228


$

3,153


 

Adjusted Net Debt to Adjusted EBITDA Ratio

Adjusted net debt is defined as Long-term debt, Long-term debt maturing within one year and Short-term borrowing as reported on the Company's Consolidated Balance Sheets adjusted for pension plans deficit, the net present value of operating leases, which is discounted by the Company's effective interest rate for each of the years presented, and Cash and cash equivalents. Adjusted net debt to Adjusted EBITDA ratio is calculated as Adjusted net debt divided by Adjusted EBITDA. The Adjusted net debt to Adjusted EBITDA ratio is a key credit measure used to assess the Company's financial capacity. The ratio provides information on the Company's ability to service its debt and other long-term obligations.

Reconciliation of Long-term Debt to Adjusted Net Debt

(in millions)

2017


2016


Long-term debt including long term debt maturing within one year as at December 31

$

8,159


$

8,684


Less:




Pension plans in deficit

(278)


(273)



Net present value of operating leases(1)

(281)


(361)



Cash and cash equivalents                                                                                                

338


164


Adjusted net debt as at December 31

$

8,380


$

9,154


(1) Operating leases were discounted at the Company's effective interest rate for each of the years presented.

 

Calculation of Adjusted Net Debt to Adjusted EBITDA Ratio

(in millions, except for ratios)

2017


2016


Adjusted net debt as at December 31

8,380


9,154


Adjusted EBITDA for the year ended December 31

3,228


3,153


Adjusted net debt to Adjusted EBITDA ratio

2.6


2.9


 

SOURCE Canadian Pacific


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