(The following story by Greg Bensinger appeared at Bloomberg.com on July 24.)
NEW YORK — Burlington Northern Santa Fe Corp. and Canadian Pacific Railway Ltd., the No. 2 railroads by sales in the U.S. and Canada, said second-quarter profits fell amid higher fuel prices and a slump in demand for lumber shipments.
Net income for Burlington Northern, of Fort Worth, Texas, dropped 8.1 percent from a year earlier to $433 million. Canadian Pacific said profit plunged 32 percent to C$257 million ($246 million) after a one-time income-tax gain in 2006.
Both carriers felt the effect of a U.S. homebuilding slump, which damped shipments of lumber and other construction materials. Burlington and Calgary-based Canadian Pacific also said fuel costs rose 14 percent and 21 percent, respectively.
“Fuel prices did have an impact,” Anthony Hatch, a New York-based independent railroad analyst, said in an interview. “They both have demonstrated very strong pricing” that should help their performance in coming quarters, he said.
The results extended last quarter’s profit declines at North American railroads. Canadian National Railway Co. and CSX Corp. both said earnings fell, and Norfolk Southern Corp. may say tomorrow that net income dropped. Union Pacific Corp., the biggest U.S. carrier, is the only major railroad to report an increase in second-quarter profit.
Shares of Burlington Northern fell $2.62, or 2.9 percent, to $88.24 at 4 p.m. in New York Stock Exchange composite trading. Shares of Canadian Pacific fell C$3.10, or 3.6 percent, to C$83.60 in Toronto.
Burlington Northern
Burlington Northern’s profit of $1.20 a share trailed the $1.23 average estimate of 14 analysts compiled by Bloomberg. It earned $1.27 a share a year earlier.
The railroad was unable to boost volume in any product category except agricultural cargo, which rose 0.4 percent on shipments of ethanol, fertilizer and other commodities. Coal shipments fell 0.3 percent, while coal revenue jumped 9 percent to $776 million.
Industrial-product shipments, including lumber and other housing products, fell 0.5 percent. Sales for the railroad rose 3.8 percent to $3.8 billion.
As a result of its cargo volume decline, Burlington Northern cut its 2007 capital spending goal by 3.8 percent to $2.55 billion.
Canadian Pacific
Per-share earnings, excluding the impact of foreign exchange and other items, were C$1.12, compared with C$1 a year earlier, Canadian Pacific said. On that basis, they beat the $1.11-a-share average of 10 analyst estimates compiled by Bloomberg.
Canadian Pacific recorded gains in coal and grain shipments, offsetting the effects of a 26-day track workers’ strike and western flooding. Coal revenue grew 13 percent to C$162 million.
Sales of lumber and other forestry products fell 2 percent in the quarter as construction in the U.S. slowed, Canadian Pacific said.
The railroad achieved “impressive carload growth” as industry volume declined 3 percent compared with a year earlier, BB&T Capital Markets analyst John Barnes in Richmond, Virginia, said in a note today. He rates the shares as “hold 2.”
Operating income for Canadian Pacific rose 8.9 percent to C$307.7. Canadian Pacific said it still expects revenue growth of 4 percent to 6 percent this year.