21 March 2011

CP Rail Issues Earnings Warning on Bad Weather Costly Fuel

Calgary Alberta - Canadian Pacific Railway Ltd. issued an earnings warning Monday saying it expected severe winter weather, lower volumes, and a sharp spike in fuel prices to have dramatically impacted its earnings during the first quarter.
 
Canada's second-largest railway said it expected its earnings to be reduced by about 40¢ a share as a result of the conditions it faced during the quarter, and that it now expected its earnings to be between 12¢ and 22¢ a diluted share for the first three months of the year.
 
That is dramatically below the 74¢-a-share consensus expected for the quarter by analysts covering the stock, according to Bloomberg estimates.
 
"Since the new year, multiple severe weather events have caused significant disruptions to train operations across our network," said Fred Green, CP chief executive, in a statement.
 
"Slower train speeds have reduced productivity and asset velocity thereby constraining network capacity and limiting our ability to meet market demands."
 
Steve Hansen, Raymond James analyst, said CP's volumes had fallen by about 2% year-over-year in the first quarter, compared with a 3% increase at Canadian National Railway Co., and a 7% increase on average at other top-tier North American railways during the quarter.
 
He noted CP's network has not only been plagued by extreme winter weather, but the loss of short-haul U.S. thermal coal volumes, mechanical failures at a key coal export terminal, and a highly irregular grain harvest.
 
The sharp spike in fuel prices has also weighed on its earnings, he said.
 
"I'm not entirely surprised by the lower guidance. But I am surprised by the magnitude," Mr. Hansen said in an interview.
 
Meanwhile, CP said the return of spring was seeing its network run more smoothly in recent weeks.
 
"We have been increasing resources to meet strong demand and improve service reliability," Mr. Green said.
 
"With moderating weather CP is seeing fluidity return to the network and our operating metrics are showing improvement.
 
Our two to four-year target of delivering a low 70s operating ratio remains unchanged."
 
Scott Deveau.