Canadian Pacific reports record second-quarter earnings

Traffic, revenue, and profit all rise
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CALGARY, Alberta — Canadian Pacific’s second-quarter earnings hit a record as broad traffic gains boosted revenue and profits.

CP on Wednesday reported that its operating income increased 23 percent to a second-quarter record $679 million. Revenue was up 13 percent, to $1.64 billion. CP’s operating ratio declined to 58.7 percent, also a second-quarter record, from 62 percent a year ago.

“Needless to say, we’re pretty proud of these results,” CEO Keith Creel said on the railway’s earnings call.

“This precision railroading model is the gift that keeps on giving,” Creel says. “It allows us to grow at low incremental cost.”

Traffic volume rose 8 percent on a carload basis and 12 percent when measured by revenue ton-miles. Expenses, however, were up just 7 percent.

CP’s bread and butter — bulk shipments — led the traffic volume gains. Potash carloads were up 30 percent, and increased frac sand shipments helped the metals, minerals, and consumer products category grow 27 percent. Other business segments experiencing double-digit growth were grain, 13 percent; coal, 10 percent; and energy, plastics, and chemicals, 10 percent. Intermodal was up 4 percent.

The only traffic segments to decline were automotive, down 21 percent; and forest products, down 5 percent.

CP set records for the amount of grain it hauled to port at Vancouver, British Columbia, as well as Thunder Bay, Ontario, says John Brooks, chief marketing officer. CP also set records for potash exports through Portland, Ore., and coal exports through Vancouver.

CP’s domestic intermodal revenue rose 10 percent, outpacing economic growth, Brooks says, while cross-border domestic intermodal business grew 40 percent. CP also offset the loss of the Yang Ming international intermodal contract by gaining more traffic from existing international customers.

The railway’s key operating metrics held relatively steady during the quarter. Train weight was up 2 percent, while length was down 2 percent. Terminal dwell declined 11 percent. Average train speed declined 3 percent, largely due to the increased number of slow-moving grain, potash, and coal unit trains.

On-time performance, as measured by compliance with the car trip plans CP introduced last fall, was just below 90 percent for the quarter, Creel says. CP will begin using trip plans for intermodal containers in a few weeks.

CP has a number of service initiatives in the works. Among them: Expanding its transload network, further improving grain service, and buying new generators for refrigerated containers. CP also is retooling its automotive service, which in recent years has lost share to rival Canadian National.

Executives said the railway won new contracts with chemicals and energy companies, and that the first shipments from the new K+S Potash mine in Saskatchewan would begin rolling in August.

Despite the stronger-than-expected quarter, Creel says CP won’t upgrade its revenue and volume guidance for the year until after the third quarter. Too many elements outside of CP’s control — including dry conditions in key grain growing areas, currency exchange rates, and the timing of surplus land sales — make the railway’s crystal ball cloudy.

Creel doesn’t expect the pending renegotiation of the North American Free Trade Agreement to have a negative impact the railway simply because trade is critical to the economies of the U.S., Canada, and Mexico. “At the end of the day I think we’re going to be fine,” he says.

CP reported record second-quarter adjusted earnings per share of $2.77, a 35-percent increase from the $2.05 reported a year ago.

NEWSWIRETrains News Wire

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