31 July 2009
In Weak Market, Efficiency Pays Off for CP
North America's largest railways are reporting sharply
lower freight shipments, but investors took a shine to the sector yesterday, with Canadian Pacific Railway Ltd. leading the way with
its second-quarter profit rolling beyond expectations.
Calgary-based CP has been able to operate more efficiently and control costs, including with temporary layoffs, helping
to offset continuing weakness in moving goods such as forest products, fertilizers, coal, and autos.
Canada's second-biggest rail company had 15,178 employees at the end of June, down 2,284 or 13 percent from a year
earlier, including U.S. operations.
CP shares jumped 12 percent yesterday after the company announced 59 cents in earnings per share, excluding one-time
gains, surpassing analysts' forecasts of 34 cents.
Grain was one of the bright spots, rising in freight revenue by 20 percent.
"CP blew away the Street's estimates", RBC Dominion Securities Inc. analyst Walter Spracklin said in an interview yesterday.
"When the economy comes back, you've got an exciting story for the rail industry".
While there remains uncertainty about how long it will take for the broader economy to bounce back, the railways are well positioned
to pounce when good times do return, Mr. Spracklin said. "The railways have performed well, much better than what I would have
expected, given the severity of this recession", he said, noting that many investors are starting to rotate into the rail sector,
impressed by carriers' ability to maintain and even raise freight rates in some cases.
Shares in Canadian National Railway Co., the country's largest freight carrier, staged a 4 percent gain yesterday.
U.S. companies also joined the rally, including Norfolk Southern Corp., Union Pacific Corp., CSX Corp., Burlington Northern Santa Fe
Corp., and Kansas City Southern Railway Co.
While CP's second-quarter profit climbed 2 percent to $157.3-million, CP chief executive officer Fred Green
cautioned that there are challenges ahead. "In an economic environment like this, where we're not seeing any signs of a
substantive recovery, we continue to focus our efforts and actively manage what's within our control", Mr. Green said during a
conference call yesterday.
For the first 29 weeks of this year, carloads have fallen 19.8 percent at North America's biggest railways from the same period in
2008.
Brent Jang.
|
|
