Freight trains in a rail yard in CalgaryJEFF MCINTOSH
After winter avalanches and spring flooding, summer can't come soon enough for Canadian Pacific Railway Ltd.
With the worst of the extreme weather challenges behind them, CP executives have turned their attention to prospering from an improving economy as demand climbs for freight shipments.
In its first quarter, which was marred by train delays amid brutal winter weather in the Rockies, Calgary-based CP posted a $33.7-million profit, down 67 per cent from $101-million in the same quarter last year. The rising cost of diesel fuel needed to run locomotives also hurt the railway.
CP's operating ratio, a key indicator of productivity that measures operating costs as a percentage of revenue, weakened in the three months that ended March 31. A lower operating ratio is better; CP's ratio rose to 90.6 per cent, compared with 82.3 per cent in the first quarter of 2010.
"We are glad to have this quarter behind us," CP chief financial officer Kathryn McQuade said during a conference call with analysts. "Our book of business remains robust and we expect a strong second half of the year."
CP chief executive officer Fred Green said the railway is striving to reduce its operating ratio to the low 70s within two to four years. He defended CP's Canadian and U.S. operations, describing this past winter's impact on the company as an "anomaly."
Spring flooding, notably in Manitoba, has created new headaches for CP, but Mr. Green said he's counting on having the trains run smoothly in the months ahead. "I'm confident that we're regaining our stride," he said.
Some CP shipments increased in the first quarter, including a 9-per-cent rise in carloads of industrial and consumer products, but grain and coal deliveries slumped as winter slammed the Prairies and U.S. Midwest. First-quarter revenue slipped 0.3 per cent to $1.16-billion.
"In all my years of railroading, I have to say this was the toughest winter I've ever experienced," said Ed Harris, 61, CP's former executive vice-president of operations. Mr. Harris, a former top executive at rival Canadian National Railway Co., stepped down from his CP position on April 1, though he has agreed to stay on as an adviser until the end of 2011.
"There is nothing more frustrating than plowing at noon, having the snow blow back in by the end of the day and having to dig out those same switches all over again," said Mr. Harris, who has been replaced by Mike Franczak, CP's former senior vice-president of operations.
The transition surprised analysts. "My decision to leave is more personal than anything else. It certainly has to do with my immediate family and the travel demands. And being able to do my job the way I need to do my job was just too much of a strain with the personal issues I had going back home," Mr. Harris said.
Since CP issued a profit warning on March 21 for its first-quarter results, its shares have fallen 10 per cent.
UBS Securities Canada Inc. analyst Tasneem Azim, who said the "selloff in CP is overdone," maintained her 52-week target price of $72 on the stock.
Raymond James Ltd. analyst Steve Hansen said CP is ramping up, hiring hundreds of workers, in anticipation of robust freight demand. "The company is also intensely focused on improving network velocity and service reliability," Mr. Hansen wrote.
Brent Jang