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CP trims outlook on delayed Prairie harvest

Railway books lower revenues on lower grain, crude oil volumes


Rain delays in this year’s Prairie grain harvest have bit into third-quarter revenues and earnings expectations for Canadian Pacific Railway (CP).

The Calgary company on Wednesday booked overall net income of $347 million on revenues of $1.554 billion for its quarter ending Sept. 30. While net income was up seven per cent, total revenues were down nine per cent from the year-earlier period.

The most significant declines in revenue showed in the company’s Canadian grain handle, down 15 per cent from the year-earlier period at $222 million, and in its crude oil handle, down 88 per cent at $13 million.

The decline in Canadian grain revenue followed a seven per cent decline in Canadian grain carloads in the quarter, to about 65,000, for freight revenue per carload of $3,435, down $178, CP said.

The decrease, CP said, was “mainly attributable to a decline in volumes as a result of wet weather conditions that delayed the harvest of the 2016-17 crop” — and to lower freight rates in line with CP’s federally-imposed maximum revenue entitlement on Prairie grain for the 2015-16 crop year, often referred to as the revenue cap.

“Effectively the story is the grain story,” Reuters quoted CP CEO Hunter Harrison as saying on a conference call Wednesday with analysts. “If the grain had been like a lot of folks were predicting I think we would have been right in line with what we expected.”

CP’s U.S. grain handle improved in the same quarter, as the railway moved about 49,000 carloads, up 11 per cent, for revenues of $150 million, up one per cent, and revenue per carload of $3,077, down 10 per cent.

That revenue, CP said, was due to “increased shipment of mostly corn and soybeans,” though it noted those increases were partly offset by lower average freight revenue per revenue ton-mile, due mainly to longer hauls, as a “greater proportion” of its U.S. grain handle in the quarter was bound for export.

The railway’s fertilizers and sulphur segment also showed improved revenue per carload, at $4,476, up five per cent, though its potash segment saw revenue per carload down one per cent at $2,782. Revenue in those segments, CP said, was held down in part by lower fuel surcharges, due to lower fuel prices.

Percentage-wise, CP’s crude oil segment posted the most substantial drop in traffic and revenue, moving just 5,000 carloads during the quarter, compared to 25,000 in the year-earlier period, for revenue per carload of $2,732, down 36 per cent.

“Despite decreased revenues, tied to a delayed grain harvest and stiff economic headwinds, our business model continues to perform on the cost side,” Harrison said Wednesday in the company’s release.

“Given the delayed grain harvest, lower crude volumes and persistent economic challenges compounded by a strengthening Canadian dollar, we are now expecting mid-single-digit EPS (earnings per share) growth this year,” he said.

However, he noted, the company would deliver its “lowest-ever annual operating ratio (OR).”

The OR, a ratio of operating expenses to net sales, is cited within business sectors as a measure of a specific company’s relative efficiency in that sector. CP on Wednesday recorded an OR of 57.7 per cent, its lowest-ever against adjusted ORs in previous quarters.

CP’s Montreal rival, Canadian National Railway (CN), is scheduled to release its third-quarter results on Tuesday. — Network

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