CP lowers operating ratio, looks toward traffic growth

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CALGARY, Alberta — Canadian Pacific’s third quarter operating income rose on strengthening volume, prompting the railway to boost its outlook for the year.

CP now expects double-digit earnings per share growth this year, up from previous guidance of high single-digit growth, the railroad announced on Tuesday. Executives said volume momentum, particularly for Canadian grain, prompted the improved outlook.

"Thanks to the hard work of our CP family and a disciplined, balanced approach in the marketplace and to our operations, we were able to produce another quarter of exceptional results," CEO Keith Creel says.

CP’s operating income rose 5 percent, to $690 million, as revenue climbed 3 percent, to $1.6 billion, for the quarter. Earnings per share rose 6 percent, to $2.90, on an adjusted basis, topping analysts’ expectations by 3 cents. Net profit climbed 47 percent, to $510 million.

The railroad reported a record-low third quarter operating ratio of 56.7 percent, down from 57.7 percent a year ago.

Traffic grew 4 percent on a revenue ton-mile basis, or 3 percent when measured by carloads and intermodal units. CP’s potash; energy, chemicals and plastics; and metals, minerals, and consumer products segments all recorded double-digit carload increases for the quarter.

But automotive traffic was down 13 percent, grain was down 5 percent, and intermodal units declined 2 percent. The grain decline was all on the U.S. side. The intermodal decline was all international traffic — domestic intermodal revenue in Canada grew 10 percent.

Creel said traffic was strong on several fronts. CP set its all-time record for grain loadings in Canada in September. Export coal traffic was among the highest on record. And frac sand moved in record volumes.

CP’s daily intermodal and bulk service from Vancouver to Detroit, launched in August, is performing well, Chief Marketing Officer John Brooks says.

But he declined to provide much detail about new intermodal service from Vancouver to the Ohio Valley, announced last week in partnership with Genesee & Wyoming regionals Chicago, Fort Wayne & Eastern and Indiana & Ohio.

“We have a lot of work to do,” Brooks says.

The key to the service is tapping export agricultural traffic so inbound containers of consumer goods can go back to Asia loaded, rather than empty. That improves economics for CP, the steamship lines, and their customers, Creel says.

“We continue to strengthen our product offering,” Brooks says.

CP has begun rolling out new automated intermodal gate technology, a mobile app that can halve the amount of time truckers spend entering and exiting terminals. And by next year, the railway will have door-to-door trip plans in place for intermodal shipments, Brooks says.

CP has been losing automotive traffic to rival Canadian National, which now handles 70 percent of the finished vehicles in Canada. But Creel says CP recently won a long-term contract to handle Hyundai and Kia vehicles.

Early in 2016, CP lost the contract to handle a third of Hyundai and Kia vehicle shipments in Canada. CP was not willing to reduce its rates to keep the traffic, Creel says, and CN gained all of the Hyundai and Kia business.

But this year, Hyundai’s logistics arm, Glovis Canada, approached CP after experiencing capacity constraints in some key lanes on CN, Creel says.

Rather than take on short-term business that could swamp its existing auto terminals, CP proposed that Glovis build its own auto ramps on CP property in Ontario and Quebec. CP will will win back all of the Hyundai and Kia traffic once the current contract expires in 2020, Creel says.

Creel said he was encouraged by progress in labor negotiations, particularly the Teamsters Canada Rail Conference that represents train and engine crews. A one-year extension of the current Teamsters agreement is out for ratification.

CP’s key operating metrics generally improved for the quarter, with the railway setting new third-quarter records for terminal dwell, average train weight, car miles per day, and locomotive productivity.

NEWSWIRETrains News Wire

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