Canadian Pacific earnings climb despite steep drop in crude oil traffic

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CP
CALGARY, Alberta — The early retirement of CEO E. Hunter Harrison wasn’t the only news from Canadian Pacific today. The railway also announced fourth-quarter and full-year financial results.

CP’s adjusted income rose 7 percent in the fourth quarter as the railway cut costs deeper than declines in revenue and traffic.

"While the fourth quarter was weighed down by challenging operating conditions, including unexpected and extreme weather on the West Coast that compounded the impact of an already delayed grain harvest, it once again highlighted our resiliency and ability to operate efficiently under tough conditions,” outgoing CEO E. Hunter Harrison said in a statement. He was not on the railway’s earnings call this afternoon.

CP’s reported adjusted earnings per share climbed 12 percent, to $3.04 from $2.72 in the quarter. Fourth-quarter revenues decreased 3 percent, to $1.6 billion, as traffic declined 1 percent. CP’s operating ratio of 56.2 percent was its lowest ever for the fourth quarter.

For the full year, CP’s revenue declined 7 percent, to $6.2 billion, while net profit climbed 18 percent, to $1.5 billion. Overall carloads declined 4 percent for the year. CP posted a record low operating ratio of 58.6 percent for 2016, down from 60 percent in 2015.

The steep drop in crude oil shipments hit CP hard. Half of its quarterly revenue decline was due to dwindling crude traffic, President and Chief Operating Officer Keith Creel said during the railway’s earnings call. Excluding crude traffic — which fell 64 percent in the quarter — CP’s overall volume increased 5 percent for the quarter.

The decline in crude masked progress CP made in gaining merchandise and intermodal traffic, Creel says.

“This franchise needs to grow more in the merchandise side. And that’s where we’re going to focus,” Creel says. “There’s a tremendous amount of carload growth out on this railway.”

CP is also poised to continue growth in its domestic and cross-border intermodal traffic. The railway has struggled, however, to regain international intermodal business it lost to rival Canadian National. And it just lost a $60-million Yang Ming contract to CN. Yang Ming is an international shipping and logistics company.

Creel says that profit margins are low on international intermodal and CP is competing with CN and its larger network reach. CP does have the advantage of a shorter, faster route between Vancouver and Chicago, Creel said. CP plans to forge a partnership that will allow it to extend its international intermodal service east of Chicago to Detroit and the Ohio Valley.

Looking ahead, CP expects to post high single-digit growth in earnings per share this year thanks to a combination of increased profitability and traffic growth.

Despite incoming President-elect Donald Trump administration’s reservations about free trade, Creel says CP is “cautiously optimistic” about the potential Trump effect. That’s partly because of proposals to reduce taxes in the U.S. and partly because CP tends to haul agricultural products and raw materials — rather than the finished goods that would be more likely to be ensnared by a border tax.

NEWSWIRETrains News Wire

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