The Energy And Market Page, T+363 -- Late Afternoon, The Market Turns Positive; Wow, Look What The US Tax Code Did For Canadian Pacific

Dow: after being minimally negative all day -- down about 50 points -- the Dow has now (2:22 p.m. CT) turned positive. Interesting.

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For Canadian Railroad, Better To Be Lucky Than Good

Canadian CBR: only a few days ago, January 8, 2018, to be exact, we posted that Canadian CBR is alive and well. Did 4Q17 Canadian Pacific earnings bear that out? You be the judge. From Motley Fool, Canadian Pacific Railway nets a big one-time gain in the fourth quarter.

Earnings for the fourth quarter of 2017 were monstrous, jumping 159% compared to this time last year. For anyone that follows the railroad business at all, that should sound a little suspicious. Sure, railroad companies can be excellent wealth building machines, but doubling earnings in a year is extremely rare.

So let's dig into Canadian Pacific's bottom line this past quarter to see what was up and what management expects for the rest of 2018.

Whenever a number jumps out like Canadian Pacific's net income for the quarter, you have to see what is behind it. According to management, net income benefited from an income tax recovery of 527 million Canadian dollars related to changes to the U.S. tax code. Canadian Pacific brought forward several hundred million in deferred tax assets, which was the reason for the sweeping gain. If we were to adjust earnings for this one-time benefit, earnings per share would have been CA$3.22.

The numbers:

• three quarters: revenue relatively flat
• operating income: relatively flat, but a nice bump in 4Q17
• but look at this, net income jumped from CA$150 million in 3Q17 compared to CA$984 million in 4Q17. Wow. A year earlier, 4Q16, net income was CA$384 million
• those numbers are reflect in the EPS; look at this:
• 4Q16: CA$2.61
• 3Q17: CA$3.50
• 4Q17: CA$6.77

Shares of CP are up significantly today on a down day for the market.

Memo to CP: send a "thank you" letter to President Trump. Send a "hey, what are you doing for Canada?" note to Mr Trudeau. 

So back to the numbers:

• 4Q16, net income: CA$384 million
• 4Q17, net income: CA$984 million
• Now, subtract out the CA$527 million related to income tax recovery:
• CA$984 - CA$527 = CA$457
• year-over-year, 457 - 384 = 73; 73/384 = 19% year-over-year

Yes, I would say that Canadian CBR is doing just fine.

The change in the price of CP shares today seem to reflect the 19% (real) improvement and not the one-time gain.