23 April 2009
Sluggish Economy Hits CP Results
Calgary Alberta - Steep drops in the volumes of
fertilizer, coal, and other products Canadian Pacific Railway Ltd. carries on its network contributed to a 31 percent drop in
first-quarter profits, the Calgary-based railway said Thursday.
With carloads down 19 percent from a year ago, earnings for the first three months of 2009 were $62.5 million, down from $90.7 million
in the same year-ago period.
"This was a tough quarter for us financially as we were hit hard by unprecedented volume declines which were magnified by the
loss of our coal and potash business," chief financial officer Kathryn McQuade told an analyst conference call.
"We did an excellent job of managing costs and driving productivity gains by successfully removing train starts, mobile assets,
and employees at a pace similar to or greater than the volume declines."
CP freight revenues were down 13 percent in the first quarter, the railway says.
Canadian Pacific has issued temporary layoffs and taken other measures to keep costs down.
Earnings per share amounted to 39 cents, down from 59 cents in the year ago quarter.
Analysts polled by Thomson Reuters were on average expecting earnings of 48 cents per share.
Quarterly revenues fell by 7 percent from $1.15 billion to $1.07 billion.
Hardest hit was the potash business, where the number of carloads shipping the fertilizer dropped 70 percent.
To illustrate the magnitude of the decline, Marcella Szel, senior vice-president of marketing and sales, told analysts
that 11 trains of potash made their way to the Port of Vancouver for export throughout the entire month of March.
"In normal times, we run the same volumes over the course of three to four days," she said.
So far this month, potash volumes are down 85 percent compared to the same period last year.
However, Ms. Szel said: "We do remain confident in the fundamentals of this portfolio."
Canadian coal carloads in the quarter were down about 30 percent.
"This reflects the overall reduction in demand for metallurgical coals, linked directly to the decline in worldwide steel
production," Ms. Szel said.
She declined to give details on how the negotiation of a new coal shipment contract with Teck Resources Ltd. is progressing.
Canadian grain shipments were a "bright spot" with revenues in that segment up 17 percent.
The company is "aggressively pursuing every operational cost control opportunity available given the slowing economy," said
chief operating officer Brock Winter. "In an unfortunate, but necessary step, our temporary layoff of crews and maintenance staff
today sits at 2,400. This is about 23 percent of our unionized work force," he said. "And we are employing other levers to
reduce the cost of the remaining work force, such as elimination of overtime, with the exception of emergency situations."
More than 350 road and yard locomotives, or about 23 percent of the fleet, has been tied up, and 16,000 rail cars, or 26 percent of
Canadian Pacific's fleet have been put into storage.
"We're sizing ourselves weekly to meet demand and I'm satisfied that our actions are delivering results," Mr. Winter said.
Management is reducing its capital program this year to between $720 million and $740 million, down from its original projection of
$800 million to $820 million, and from 2008 spending of $1 billion.
The first-quarter results consolidate the newly acquired Dakota, Minnesota & Eastern Railroad, and offer a pro forma
presentation of year-ago results when DM&E earnings were reported as equity income.
On that basis, total revenue slumped 13 percent from $1.23 billion.
UBS Investment Research said the first quarter performance "underwhelms." "Notwithstanding benefit from favourable
[foreign exchange] and pricing which resulted in a 12 percent improvement in yields, CP's revenues declined by 13 percent,
overwhelming the company's cost reduction efforts," analyst Fadi Chamoun wrote in a note to
clients.
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