Canadian Pacific Railway Ltd.’s profit slumped by 7 per cent in the second quarter, a period marked by two brief strikes, service disruptions and higher expenses.
Calgary-based CP posted a second-quarter profit of $436-million, or $3.04 a share, on revenue of $1.75-billion, the railway said in financial results released after markets closed on Wednesday.
A Canadian Pacific Railway employee walks along the side of a locomotive in a marshaling yard in Calgary on May 16, 2012. Canadian Pacific Railway Ltd. says service interruptions related to labour negotiations and strike notices caused its profit to dip 7 per cent in the second quarter, despite higher revenues.Jeff McIntosh/The Canadian Press
Keith Creel, CP’s chief executive officer, said the results reflect “solid operational performance” and “pretty solid demand” in a quarter that was “obviously not without some headwinds and without some noise.”
CP’s train crews and signal workers went on strike for a day in May, halting freight traffic on Canada’s second-largest railway. The work stoppage came as much of the North American railway industry was working to move a backlog of freight stemming from a harsh winter, network congestion a lack of available crews and locomotives.
“As you can imagine, winding down the railway ... winding back up the railway certainly created some inconvenience, some disruption and some additional cost, and slowed momentum,” Mr. Creel said on a conference call on Wednesday. He said the strikes by 3,300 workers drove up the company’s closely watched operating ratio and dampened revenue growth.
In the second quarter, carloads increased by 2 per cent and revenue rose by 7 per cent, from the same period last year. The operating ratio, which compares expenses with sales, worsened to 64.2 per cent from 62.8 per cent.
Contributing to CP’s rise in sales from April through June was a surge in the company’s crude-by-rail business amid rising oil production and tightening pipeline capacity.
CP said it moved 20,000 carloads of crude in the quarter. “As I look into [the third quarter], I think I’ve got an opportunity to add to that,” said John Brooks, CP’s marketing chief.
Canadian oil exports to the United States for the entire rail industry rose by 15 per cent in the first four months of the year, compared with the same period last year, according to the National Energy Board.
Boosting oil flows to the United States are price differences between U.S. and Alberta crude. The discount on Canadian oil has widened to US$25, nearing the year’s high of US$30, according to Bloomberg data.
CP’s share price is up by 9 per cent this year on the Toronto Stock Exchange, outpacing the broad S&P/TSX Composite Index’s gain of about 2 per cent. Canadian National Railway Co., CP’s bigger rival, has seen its share price rise by 9 per cent on the TSX. CN is scheduled to report quarterly results on July 24.
CP’s results come amid escalating tariffs and countertariffs on steel, aluminum and other goods, in addition to questions over the future of the North American free-trade agreement. U.S. President Donald Trump has imposed taxes on a range of imports in what he says is a bid to create U.S. jobs. China, Canada and other countries have retaliated with similar tariffs, raising fears a rising wave of protectionism will spur higher prices and reduced trade flows amid falling demand.
Fadi Chamoun, a stock analyst at Bank of Montreal, said the North American rail sector looks set for a strong year, driven by robust demand, tight truck capacity and railways’ abilities to raise shipping charges. That’s assuming the escalating trade wars do not dampen economic growth. CP relies on cross-border trade for 30 per cent of its freight revenue.
Eric Atkins