28 October 2008
Canadian Pacific Announces Third-Quarter Results
Canadian Pacific Railway Limited announced its
third-quarter results today. Net income was $173 million down from $219 million in third-quarter 2007 and
diluted earnings per share was $1.11 down from $1.41 in third-quarter 2007. This decrease is primarily due to foreign
exchange impacts on long-term debt in 2007 and charges associated with the revaluation of an investment in asset backed
commercial paper (ABCP). Excluding these two items, diluted earnings per share was down two percent.
Q3 2008 Earnings Release and Financial Reports
SUMMARY OF THIRD-QUARTER 2008 COMPARED WITH THIRD-QUARTER 2007 EXCLUDING FOREIGN EXCHANGE GAINS AND
LOSSES ON LONG-TERM DEBT AND OTHER SPECIFIED ITEMS:
- Diluted earnings per share decreased to $1.20 from $1.23;
- Income was $186 million down from $190 million;
- Total revenues rose seven percent to $1.26 billion from $1.19 billion;
- Operating expenses were $962 million an increase from $866 million with the price of fuel the single largest driver contributing
to the increase in expenses.
"Our pricing gains and focused cost containment helped offset declines in bulk volumes," said Fred Green, President and CEO.
"Fuel expenses were a serious headwind, but we saw strong recovery in our operations with progressive improvement as we moved
through the quarter. In a declining market, our operating ratio for the third quarter improved 340 basis points to 76.0 percent from
second quarter 2008 of 79.4 percent."
Freight revenues rose eight percent in the third quarter on continued pricing strength, inclusive of fuel recoveries. Industrial and
consumer products revenues were up 24 percent, with automotive and intermodal revenues increasing 16 and 11 percent respectively.
Sulphur and fertilizer revenue improved eight percent with coal improving five percent over 2007. These gains were offset by a
decrease in grain revenue of four percent due mainly to a late harvest.
Operating expenses increased 11 percent in the third quarter driven mainly by a 49 percent ($90 million) increase in fuel expense over
the same quarter in 2007.
SUMMARY OF FIRST NINE-MONTHS 2008 COMPARED WITH FIRST NINE-MONTHS 2007
Net income for the first nine months of 2008 was $418 million compared with $604 million in 2007. Diluted earnings per share was $2.70
down from $3.87. This decrease was mostly the result of a large foreign exchange gain on long-term debt in the first nine
months of 2007 and lower operating income in 2008.
EXCLUDING FOREIGN EXCHANGE GAINS AND LOSSES ON LONG-TERM DEBT AND OTHER SPECIFIED ITEMS:
- Diluted earnings per share was $2.92 down seven percent from $3.13;
- Income decreased seven percent to $453 million from $488 million;
- Total revenues increased three percent to $3.6 billion;
- Operating expenses were up eight percent to $2.9 billion.
2008 OUTLOOK
"The uncertainty associated with the global economy offsets the positive impact on our financial results of the decrease in the
price of crude oil and the weakening of the Canadian dollar against the US dollar," said Kathryn McQuade, Chief Financial
Officer. "We are confirming our outlook for adjusted diluted earnings per share in the range of $4.00 - $4.20."
This outlook assumes an average currency exchange rate of $1.04 per U.S. dollar (US$0.96) for the full year, a change from the
previous assumption of the Canadian dollar at par with the U.S. dollar. Crude oil prices (WTI) are estimated to average US$105 per
barrel for the year (versus the previous assumption of US$121 per barrel). Crack spreads are estimated to average US$20 per barrel for
the year (versus the previous assumption of US$23 per barrel). The estimated average all-in fuel price is expected to be
between US$3.35 and $3.45 per U.S. gallon for the year. The full year averages reflect assumptions for the fourth-quarter
of an exchange rate of $1.14 per U.S. dollar (US$0.88) and a crude oil price of $85 per barrel.
The decrease in the price of fuel had an impact on the outlook for both revenue and expenses. CP expects to grow total revenue by four
to six percent in 2008, compared with the previous outlook of six to eight percent. Total operating expenses are expected to increase
by eight to 10 percent, down from the previous outlook of 11 to 13 percent. CP expects its normalized tax rate to be between 26
percent and 27 percent, excluding the impact of the Dakota Minnesota & Eastern Railroad (DM&E) equity pick-up.
Free cash is expected to be approximately $150 million.
The 2008 outlook excludes the projected revenues and expenses of the Dakota Minnesota & Eastern Railroad (DM&E) which will be
fully consolidated with CP for November and December 2008.
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