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In earnings, railways to take stock of brutal weather

The polar vortex and inclement weather likely meant increased fuel costs and lowered productivity for railways.


The polar vortex has left its mark on Canada's big railways.

Brutal winter weather is expected to have taken a bite out of the fourth-quarter results of Canadian National Railway Co. and Canadian Pacific Railway Ltd.

The two companies are set to unveil their respective fourth-quarter earnings this week, CP on Wednesday and CN on Thursday. Investors will be taking stock of how bad the damage was.

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But most observers say a positive year is in store for the competing rail service providers.

"Despite solid volume growth sector-wide, we believe the key differentiator in [2013 fourth-quarter] results will be impact from weather, particularly in Canada," RBC Dominion Securities analyst Walter Spracklin wrote in a recent research report.

"We expect that extreme cold temperatures shortened train lengths, increased labour costs, lowered fuel productivity, and increased purchased services costs in [the quarter].

"As a result, we believe CNR and CP's fourth-quarter results will underperform the U.S. carriers."

Mr. Spracklin believes investors will discount the impact of the bad weather and focus instead on how well 2014 is shaping up. Among the encouraging trends he sees are a record Canadian crop as well as renewed strength in crude-by-rail and intermodal demand.

Desjardins Securities analyst Benoit Poirier said crude-by-rail will continue to help boost volume growth for CP in particular. In his fourth-quarter preview, he said both railway companies are also in good shape thanks to their "low exposure to thermal coal, which has been a major issue for some U.S. railroads in the last two years."

Mr. Poirier has reduced his fourth-quarter earnings-per-share estimates to 76 cents from 81 cents for CN; and to $1.84 from $1.97 for CP.

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Mr. Spracklin has also lowered his EPS forecast for CN to 76 cents from 81 cents. But he has raised it for CP, to $1.87 from $1.85 as a reflection of volume growth.

The analysts' consensus EPS estimate for CN is 79 cents; for CP it is $1.91.

One issue that might be raised on the companies' respective earnings conference calls is U.S. and Canadian regulators' push for tougher safety measures to deal with the 400-per-cent increase in oil shipments by rail since 2005, and in light of the Lac-M├ęgantic, Que., crude-oil rail disaster that killed 47 people last summer.

There have also been other incidents since, including the Jan. 7 fiery derailment of five crude-carrying CN cars near Plaster Rock, N.B., which forced the evacuation of 150 people.

CN Railway (CNR)

Friday close: $57.93, down $1.77

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CP Railway (CP)

Friday close: $156.88, down $7.22

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