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Canadian railways expect to ride through 2011 economic bumps Add to ...

Canada’s two largest railways say they will overcome economic bumps and exit the year in positions of strength.

Canadian National Railway Co.’s third-quarter profit climbed 19 per cent while Canadian Pacific Railway Ltd. , whose operations were disrupted by severe weather earlier this year, saw its earnings slip 5 per cent.

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CN, which is seen as a barometer for the economy because the carrier hauls a wide range of goods, posted a $659-million profit in its third quarter, up from $556-million a year earlier. Its share profit rose to $1.46 from $1.19.

“We’re continuing to see growth,” CN chief executive officer Claude Mongeau said during a conference call with analysts on Tuesday. “Like everybody else, we’re concerned about the potential shocks and about confidence, but honestly, when we look at our traffic patterns, we can’t see a recession in the making at the moment.”

Third-quarter revenue at the country’s largest railway climbed to $2.3-billion from $2.1-billion, helped by gains in metals and minerals, as well as petroleum and chemicals.

“We feel cautiously optimistic about the current environment,” Mr. Mongeau said. “We are positioned to finish 2011 on a very positive note.”

At Calgary-based CP, bulk shipments headed toward export markets in Asia are holding up well. “Despite all the rumblings and rumours that we hear from the media in Asia about the Asian slowdown, the demand for all of our bulk materials – grain, potash and metallurgical coal – remains surprisingly strong,” CP chief executive officer Fred Green said during a separate call.

Imports of manufactured goods shipped in containers are showing early signs of a modest uptick this fall, though Mr. Green cautioned that consumer confidence is still weak.

Amid high unemployment in the United States and economic turmoil in Europe, “there is going to be a reticence on behalf of the general population to [spend]too far beyond its means,” Mr. Green said. “We are kind of seeing spotty movements in that regard,” he said, adding that he expects to see “a little bit of discomfort and apprehension” with retailers.

CP suffered through brutal winter weather in the Rockies in the first quarter, notably avalanches that disrupted freight shipments in Western Canada. Then flooding in Saskatchewan, Manitoba and North Dakota threw the second quarter off track.

Jane O’Hagan, CP’s chief marketing officer, said the railway “will earn back the business by demonstrating service consistency on a sustained basis and through winter conditions.”

CP had a third-quarter profit of $186.8-million, down 5 per cent from $197.3-million in the same period last year. Its share profit fell short of analysts’ expectations, dipping to $1.10 from $1.17.

While quarterly revenue rose to $1.34-billion from $1.29-billion, there was a 6-per-cent drop in sales from “intermodal freight,” or goods transported inside standardized metal containers that are readily transferred between trains and trucks.

The company’s third-quarter operating ratio, a key indicator of productivity that measures operating costs as a percentage of revenue, rang in at 75.8 per cent. A lower operating ratio is better, and CP’s ratio worsened from 73.7 per cent in the third quarter of 2010. Montreal-based CN’s operating ratio improved to 59.3 per cent from 60.7 per cent.

Industry observers are expecting North American freight carriers to chug along in the final quarter. For the week ending Oct. 15, the continent’s major railways saw the number of carload shipments climb 0.5 per cent, compared with the same week in 2010. Container volumes rose 2.8 per cent.

October’s retail container traffic in the United States is expected to rise 2.6 per cent over the same month in 2010, according to the U.S. National Retail Federation and Hackett Associates. And a report by BMO Nesbitt Burns Inc. forecasts that Canadian “retail sales receipts, excluding auto and gasoline sales, should increase about 2.5 per cent year-over-year in November/December.”

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