Canadian Pacific (CP) reports quarterly earnings January 23rd. Analysts expect revenue of $1.45 billion and eps of $3.15. The revenue estimate implies a double-digit decline Y/Y. Investors should focus on the following key items.

Q3 Revenue Growth Was Gaudy

The debate over whether the U.S. economy is slowing rages on. There is so many outside influences that it’s difficult to predict the economy’s trajectory. The Federal Reserve is unwinding its $4 trillion, which could weigh on the economy. President Trump is reportedly negotiating to end the trade war with China. An end to the trade war could open the spigot for China’s spending on U.S. goods and services. That said, rail traffic remains a key indicator of economic strength.

For the first week of 2019 total North American carloads were up 7.5 percent versus the same week last year. Canadian carloads were up 14.5 percent; overall, railroad traffic has gotten off to a strong start. How much of that volume was due to municipalities stockpiling goods in expectation of rising prices due to the trade war? This is a key question for management on the earnings call.

In its most-recent quarter the company reported freight revenue of $1.9 billion, up 20 percent Y/Y. Revenue was driven by 5 percent growth in carloads and a 14 percent increase in average selling price (“asp”). The revenue growth was broad-based. Grain was one of Canadian Pacific’s largest products at over 20 percent of total revenue. Read more:

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