(Canadian Pacific issued the following news release on October 24.)
CALGARY – Canadian Pacific Railway announced today third-quarter net income of $162 million. Net income was lower in 2006 by $42 million when compared to the same period in 2005 due primarily to the impact of foreign exchange on long-term debt and a one-time special reduction to an accrual taken in third-quarter 2005.
“I am very pleased with our results,” said Fred Green, CPR President and CEO. “CPR has delivered growth of 26 per cent in normalized diluted earnings per share and an improved operating ratio of 74.2 per cent. We achieved this while significantly improving the safety of our train operations. Our operating metrics, which measure how well our railroad is running, are excellent and show that our scheduled railroad strategy is driving us closer to our goal of being the safest and most fluid railway in North America.”
SUMMARY OF THIRD-QUARTER 2006 COMPARED WITH 2005
Excluding foreign exchange gains and losses on long-term debt andother specified items:
– Income was $168 million, up 24 per cent.
– Diluted earnings per share was $1.06, an increase of 26 per cent from $0.84.
– Operating ratio improved 320 basis points to 74.2 per cent.
– Operating expenses were virtually flat at $854 million despite increases in fuel costs.
In the third quarter, total freight revenues improved by 4 per cent to $1,122 million, with growth in grain of 18 per cent; industrial and consumer products of 13 per cent; sulphur and fertilizers of 10 per cent; and intermodal of 8 per cent. This growth more than offset a sharp decrease in coal revenues of 25 per cent.
SUMMARY OF FIRST NINE MONTHS 2006 COMPARED WITH 2005
For the first nine months of 2006, net income was $650 million, an improvement of 60 per cent over 2005 which included a $176-million reduction in future income tax expense.
Excluding foreign exchange gains and losses on long-term debt and the other specified item:
– Income was $446 million, an increase of $87 million over 2005.
– Diluted earnings per share increased 25 per cent to $2.79.
– Operating ratio improved 210 basis points to 76.2 per cent.
– Total freight revenues were up 4 per cent, despite ongoing market softness in coal, driven by a 21 per cent increase in grain and a 15 per cent increase in industrial and consumer products.
– Operating expenses, excluding the impact of higher fuel prices, decreased 2 per cent in 2006 over 2005.
2006 OUTLOOK
CPR’s current outlook for diluted earnings per share in 2006 is in the range of $3.60 to $3.85, excluding foreign exchange gains and losses on long-term debt and other specified items, including specifically the $176 million income tax benefit due to the rate reduction in the second quarter. Based on current trends, it is possible that we will exceed the top end of this guidance range by up to $.10.
The full year outlook assumes oil prices averaging US$67 per barrel and an average exchange rate of $1.13 per U.S. dollar (US$0.89). This is a revision to our previous assumption of oil prices averaging US$70 per barrel. CPR expects to grow revenue in the range of 5 per cent to 8 per cent and expenses are expected to increase by 3 per cent to 6 per cent in 2006. Capital investment is anticipated to be between $810 million and $825 million in 2006 and free cash is expected to exceed $200 million for the year.
FOREIGN EXCHANGE GAINS AND LOSSES ON LONG-TERM DEBT AND OTHER SPECIFIED ITEMS
CPR had a foreign exchange loss on long-term debt of $2 million ($6 million after tax) in the third quarter of 2006, compared with a gain of $65 million ($48 million after tax) in the same period of 2005. There were no other specified items in the third quarter of 2006. In the third quarter of 2005 there was one other specified item, as CPR booked a special credit of $34 million ($21 million after tax) which was a reduction of a special charge for environmental remediation of $90.9 million ($55 million after tax) taken in fourth-quarter 2004 for environmental remediation of a property in the United States. The reduction reflected a settlement of litigation related to remediation of environmental contamination.
In the first nine months of 2006, CPR had a foreign exchange gain on long-term debt of $45 million ($28 million after tax), compared with a gain of $45 million ($27 million after tax) in the first nine months of 2005. There was a future income tax benefit of $176 million as a result of a decrease in Canadian federal and provincial income tax rates that occurred in the second quarter of 2006. There were no other specified items in the first nine months of 2005 other than the environmental accrual reduction mentioned above.
Canadian Pacific Railway, through the ingenuity of its employees located across Canada and in the United States, intends to be the safest, and most fluid railway in North America. Our people are the key to delivering innovative transportation solutions to our customers and to ensuring the safe operation of our trains through the more than 900 communities where we operate. Our combined ingenuity makes CPR a better place to work, rail a better way to ship, and North America a better place to live. Come and visit us at www.cpr.ca to see how we can put our ingenuity to work for you.