What is driving Canadian Pacific Railway Ltd (NYSE: CP) stock

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Canadian Pacific Railway Ltd (NYSE: CP) stock rose over 3.5% on 22nd April, 2020 (as of 1:33 pm GMT-4 ; Source: Google finance). CP in the first quarter of FY 20 has reported the adjusted earnings per share of C$4.42, beating the analysts’ estimates for the adjusted earnings per share of C$4.09, according to IBES data from Refinitiv. The company had reported the adjusted revenue growth of 15.6 percent to C$2.04 billion in the first quarter of FY 20. RTMs, were up 9% while fuel was flat. The pricing remained stable and was within the targeted range, while mix was positive as the company moved lower volumes of coal and potash.

Moreover, the grain volumes rose up 8% in the first quarter with revenues up 10%. The company delivered an all-time Q1 tonnage record for Canadian grain and grain products at approximately 6.4 million metric tons. Canadian grain market share is currently about 54% and with strong demand in both Vancouver and Thunder Bay, the company expects to continue the ongoing momentum. On the potash front, volumes had fallen 10% and revenues declined by 2%. In fertilizers and sulfur, revenues and volumes have risen by 21%. The energy, chemicals and plastics portfolio posted the revenue growth of 55%, while volumes grew 39%.

The company has posted better than expected earnings estimate for the period. The company projects full-year adjusted earnings to be flat due to the coronavirus pandemic and warned of rapidly slowing crude volumes. Further, a drop in crude oil and automotive shipments will outweigh gains in grain traffic. Due to an extended or more widespread outbreak of the coronavirus, the ratings agency Moody’s has warned railroads in North America will experience lower demand for freight services, as the pandemic has disrupted the supply chains and slows down economic activity.

Meanwhile, U.S. crude oil futures has fallen below $0 on Monday for the first time in history, as the oil inventories have been building for weeks after Saudi Arabia and Russia early in March failed to come to terms on extending output cuts, and the coronavirus-induced supply glut, that ended the day at a minus $37.63 a barrel as desperate traders paid to get rid of oil.

After the hit from the virus outbreak on business operations, Canada’s second-largest railroad operator now expects overall volumes to be down mid-single digits in 2020 and that adjusted diluted earnings per share is expected to remain flat in 2020.


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