2009

27 October 2009 CP Rail Skeptical on Freight Volumes, Focused on Costs Canadian Pacific Railway says third quarter profit rose 14%, mostly due to a $79.1-million gain on the sale of its former head office in downtown Montreal and the sale of some land in Western Canada.     Calgary Alberta - Despite some hopeful signs the economy is on the mend, Canadian Pacific Railway Ltd. remains skeptical that a rebound in freight volumes will occur before the second half of next year.   In the meantime, it remains focussed on controlling its costs, management said.   "I don't have any signs right now that people are going to be out buying cars and building houses in a big way, certainly in the first half of the year," Fred Green, CP chief executive, said on a conference call Tuesday.   Mr. Green's cautious tone once again stood in contrast to his counterpart at CP's main domestic rival, Canadian National Railway Co. Hunter Harrison, CN chief executive, said last week he expects his railway's volumes to continue to grow from here and dismissed any possibility of an economic pullback.   CP has also seen its volume declines moderate in recent months.   Its total carloads were down 18% during the third quarter compared with last.   While significant, this was a 7% improvement over the declines it experienced in the previous quarter.   If a recovery is underway, as CN suggests, that could lead to "double-digit" volume growth over the next year, according to Walter Spracklin, RBC Capital Markets analyst.   "That would be for the industry as a whole, and CP included," Mr. Spracklin said.   CP reported earnings of $144-million for the third quarter, or 85 cents per diluted share, excluding certain one-time items, including the sale of its Windsor Station in Montreal and some land in Western Canada.   That was down 29% compared with last year, but beat the Street's estimates of 78 cents a share.   Still, every segment of CP's business remained depressed in the third quarter compared to 2008 levels, with the exception of grain, which jumped 3% on a robust harvest.   And while domestic intermodal volumes, primarily used for shipping retail goods, are showing "signs of life" and have only been off by about 5% in September and early October, those improvements have been more than offset by a 28% decline in international shipments stemming from weak global demand.   The Port of Montreal has been hit especially hard because of its large exposure to the ongoing recession in the U.S. market, CP said.   In addition, CP's volumes continued to be impacted by the negotiation with China over export rates on potash.   Shipments continued to be down around 36% during the third quarter.   Mr. Green said management "just don't know" when those volumes will return.   In the meantime, CP has been aggressively tackling the drops in carloads by dealing with inefficiencies in its network.   Management said it was able to offset every dollar drop in revenue during the quarter with 57 cents in cost savings, excluding non-controllable costs, such as inflation and foreign exchange, by running trains more efficiently.   Sales still dropped by 20% in the third quarter to $1.1-billion.   Scott Deveau.

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