(Source: Canadian Pacific Railway press release, January 29, 2014)
CALGARY, Alberta — Canadian Pacific Railway Limited today announced record Q4 and 2013 full-year results that clearly demonstrate the significant progress made to date in its corporate and operational turnaround.
Fourth quarter 2013 highlights:
• Total revenues were $1.6 billion, an increase of 7 per cent and a quarterly record
• Reported operating expenses were $1.5 billion, an increase of 4 per cent
• Adjusted operating expenses were $1.1 billion, a decrease of 6 per cent
• Reported operating income was $114 million, an increase of 90 per cent
• Adjusted operating income was $547 million, an increase of 45 per cent
• Adjusted operating ratio was 65.9 per cent, a 890 basis-point improvement and an all-time record
• Free cash totaled $212 million, an increase of 194 per cent
Reported net income in the fourth-quarter was $82 million, or $0.47 per diluted share, versus $15 million, or $0.08 per share, in the fourth-quarter 2012.
Adjusted net income in the fourth-quarter was $338 million, or $1.91 per diluted share, representing a 49 per cent improvement versus fourth-quarter 2012.
Adjusted operating expenses, Adjusted operating income, Adjusted operating ratio, Adjusted net income and Free cash are Non-GAAP measures which exclude significant items (*see Non-GAAP Measures below).
“Once again, Canadian Pacific and its outstanding team of railroaders delivered solid results this quarter, closing a historic year with record-setting operational and financial performance,” said E. Hunter Harrison, Chief Executive Officer.
Full year 2013 highlights
• Total revenues were $6.1 billion, an increase of 8 per cent and a Company record
• Reported operating expenses were $4.7 billion, a decrease of 1 per cent
• Adjusted operating expenses were $4.3 billion, a decrease of 2 per cent
• Reported operating income was $1.4 billion, an increase of 50 per cent
• Adjusted operating income was $1.8 billion, an increase of 41 per cent
• Adjusted operating ratio was 69.9 per cent, a 710 basis-point improvement and an all-time record
• Free cash totaled $530 million for the year, an increase of 470 per cent
Reported net income for 2013 was $875 million, or $4.96 per diluted share, versus $484 million, or $2.79 per share, in 2012.
Adjusted net income for the year was $1.1 billion, or $6.42 per diluted share, representing a 48 per cent improvement versus year-end 2012.
“The transformational pace of change at CP has definitely exceeded expectations,” said Harrison. “We entered 2013 with an aggressive agenda of change and financial targets that would put us squarely in the path of achieving our goal of once again becoming an industry leader. I am proud to report that we exceeded those targets and have reestablished a sense of pride and accomplishment to this historic organization,” added Harrison.
“This journey is far from complete. Riding this positive momentum, I fully anticipate that 2014 will be another year of solid returns for our shareholders,” said Harrison.
2014 Full Year Guidance
• Revenue growth of 6-7 per cent
• Operating ratio of 65 per cent or lower
• Diluted earnings per share (“EPS”) 30 per cent or greater versus 2013 diluted EPS, excluding significant items (*see Non-GAAP Measures below) of $6.42
KEY ASSUMPTIONS
• Average fuel cost per gallon of US$3.50 per U.S. Gallon
• Tax rate of 28 per cent
• Canadian to U.S. exchange rate of 1.05
• Defined benefit pension income of approximately $50 million in 2014 and 2015
• Capital expenditures of $1.2 to $1.3 billion
FOURTH-QUARTER SIGNIFICANT ITEMS
Items that impacted reported fourth-quarter 2013 and 2012 earnings include:
2013:
• $435 million ($257 million after-tax) asset impairment charge and accruals for future costs associated with the sale of the DM&E West which unfavourably impacted diluted EPS by $1.45
• $7 million experience gains from our 2012 labour restructuring initiative ($5 million after tax), which favourably impacted diluted EPS by 3 cents
• $5 million management transition costs ($4 million after tax), which unfavourably impacted diluted EPS by 2 cents
2012:
• $53 million labour restructuring charge ($39 million after tax), which unfavourably impacted diluted EPS by 22 cents
• $185 million impairment of Powder River Basin and other investment ($111 million after tax), which unfavourably impacted diluted EPS by 64 cents
• $80 million asset impairment of certain locomotives ($59 million after tax), which unfavourably impacted diluted EPS by 34 cents
FULL-YEAR SIGNIFICANT ITEMS
Items that impacted full year 2013 and 2012 earnings include:
2013:
• In the first quarter, US $9 million (US $6 million after tax) recovery in the complete satisfaction of certain management transition amounts which had been subject to legal proceedings which favourably impacted diluted EPS by 3 cents
• In the third quarter, income tax expense of $7 million as a result of the change in the province of British Columbia’s corporate income tax rate which unfavourably impacted diluted EPS by 4 cents
• $435 million ($257 million after-tax) asset impairment charge and accruals for future costs associated with the sale of the DM&E West which unfavourably impacted diluted earnings per share (“EPS”) by $1.46 for the full year
• $7 million experience gains from our 2012 labour restructuring initiative ($5 million after tax), which favourably impacted diluted EPS by 3 cents
• $5 million management transition costs ($4 million after tax), which unfavourably impacted diluted EPS by 2 cents
2012:
In addition to the fourth quarter significant items of 2012 discussed earlier:
• in the second quarter a charge of $42 million ($29 million after tax) was recorded with respect to compensation and other management transition costs which unfavourably impacted diluted EPS by 17 cents
• during the first and second quarters of 2012, the Company incurred advisory fees of $27 million ($20 million after tax) related to shareholder matters which unfavourably impacted diluted EPS by 12 cents
• in the second quarter of 2012, an income tax expense of $11 million as a result of the change in the province of Ontario’s corporate income tax rate which unfavourably impacted diluted EPS by 6 cents
Non-GAAP Measures
We present non-GAAP measures and cash flow information to provide a basis for evaluating underlying earnings and liquidity trends in our business that can be compared with the results of our operations in prior periods. These non-GAAP measures exclude significant items that are not among our normal ongoing revenues and operating expenses. They have no standardized meaning and are not defined by GAAP and, therefore, are unlikely to be comparable to similar measures presented by other companies.
Adjusted net income provides management with a measure of income that allows a multi-period assessment of long-term profitability and also allows management and other external users of our consolidated financial statements to compare profitability on a long-term basis with that of our peers. Diluted earnings per share, excluding significant items, also referred to as Adjusted EPS, provides the same information on a per share basis. Operating ratio excluding significant items, also referred to as Adjusted operating ratio calculated as Operating expenses excluding significant items divided by total revenues, provides the percentage of total revenues used to operate the railway on an ongoing basis. Operating expenses excluding significant items is also referred to as Adjusted operating expenses.
Free cash is used by management to provide information with respect to the relationship between cash provided by operating activities and investment decisions and provides a comparable measure for period to period changes.
For further information regarding non-GAAP measures, including reconciliations to the nearest GAAP measures, see our 2012 annual Management’s Discussion and Analysis or the attached supplementary schedule, Non-GAAP Measures.