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Earnings season continues

Encana and CP report their third quarter results, while one Fortune 500 company prepares for the arrival of the fiscal cliff - with good reason, perhaps

Oct 24, 2012

by Max Fawcett

Encana (TSE:ECA) reported its results for the third quarter of 2012, and despite an eye-watering $1.2 billion loss its shares are more or less treading water so far today. That’s because, despite the headline number, the company actually performed fairly well in the most recent quarter, generating US$0.36 per share in operating earnings on the back of realized hedging gains of US$2.01 per share. The US$1.69 per share loss was mostly the result of another impairment charge (this time worth US$1.2 billion, which brings the total bill for the year to US$4.2 billion).

The company added to its 2013 hedges for the quarter as well, locking in approximately 0.7 bcf/d at somewhere around US$4.00/mcf. As a FirstEnergy report notes, that gives the company a total hedging program of 1.2 bcf/d at an average price of US$4.51 for 2013, which accounts for approximately 40 per cent of its estimated 2013 volumes.

Canadian Pacific’s (TSE:CP) quarterly results, the first under new management, were a bit less ambiguous. It reported fully diluted earnings of $1.30 per share, beating the street’s expectations of $1.23. It did that largely by driving down its operating costs by 3.1 per cent and by reducing its operating ratio to 74.1 per cent in the quarter, a 170 basis point improvement over Q3 2011.

Meanwhile, with the troubles in Europe currently at a low boil, attention has turned to potential consequences associated with the United States’s so-called fiscal cliff. Both sides of the partisan aisle have made noises about avoiding the automatic spending cuts and tax increases that will kick in at the end of the year if legislators can’t reach a deal. General Electric, for example, has gone so far as to refinance $5 billion worth of debt in order to hedge against the possibility that they won’t, and while that’s always smart to bet on inactivity when it comes to Washington it might be particularly wise given the strategic calculus that informs this particular issue. As Ezra Klein pointed out over at the Washington Post last week, a win by President Barack Obama may all but guarantee that outcome. Whether that presents a short-term trading opportunity or a long-term investing challenge remains to be seen.

 

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