How will Canadian Pacific (CP) move forward during the COVID-19 pandemic?

20161212 Tonyhatch (Cropped)

What they will do during the pandemic:

  • CP didn’t suspend their Guidance but revised downward to flat EPS (the 2020 winner, I suspect albeit down from as much as low double-digit growth expected in January) on a mid-single reduction in volume (RTMs), helped by their 40% bulk base business and wins in autos and international intermodal that will mitigate the cyclical declines in those commodities and continuation of inflation+ pricing.
  • Stick to their proven PSR principals.  CP, along with their countrymen at CN and KSU, had given late quarter updates (again – kudos!) and noted then that PSR will show itself even more brilliantly in a slowdown, especially an acknowledged and expected volume decline.
    • The expected pattern is obvious, with Q2 being the low point then stability followed by recovery (into 2021).
    • Month-to-date RTMs are down ~10% - but train starts are down 15% and yard crew starts down 18% - yet velocity MTD is up 8% (it was up 2% in Q1/20).
    • There appear to be opportunities in fuel efficiency – one of the few metrics that went the “other way” (by 4%).
  • Stick with their $1.6B Capex Plan – with CFO Nadeem Velani noting that it was a “great time to stretch the Capex dollar (loonie) further” (editing was mine).
    • CP “paused” their share buyback program (40% completed; shares down 2% YOY) and held the dividend flat (to be revisited in “2H20.”
    • See FCF of ~$1B for 2020.
    • Yet still had to further defend this on the very second question in Q&A (from someone who knows better) on “contingency plans” to cut Capex and/or the dividend; Velani responded, “We don’t see any of that at-risk” and managed not to shout nor to laugh….