(Canadian Pacific issued the following news release on July 25.)
CALGARY — Canadian Pacific Railway announced that its second quarter net income was $378 million, an increase of $254 million over the same period in 2005. This increase included a $176-million reduction in future income tax expense and a favourable swing in foreign exchange on long-term debt of $58 million.
“CPR faced down a tough second quarter where we saw a reduction of more than $70 million in coal and potash revenues associated with world markets and still produced solid earnings growth,” said Fred Green, CPR President and CEO. “We responded quickly to the drop in volumes with focused initiatives which produced improved yield and reduced expenses. With the success of our balanced scheduled railroad and our recent network capacity investments, we are well positioned for the second half of the year when bulk volumes are expected to increase.”
SUMMARY OF SECOND-QUARTER 2006 COMPARED WITH 2005
– Income before foreign exchange gains and losses on long-term debt and other specified items improved 14 per cent to $160 million
– Diluted earnings per share, before foreign exchange gains and losses on long-term debt and other specified items, improved 15 per cent to $1.00
– Operating ratio improved 40 basis points to 75.1 per cent, a Q2 best for CPR
– Operating expenses, excluding the impact of higher fuel prices, were down more than 2 per cent.
In the second quarter, total revenues improved by 2 per cent with growth in grain, intermodal, automotive and industrial and consumer products offsetting declines in two key business lines, coal and sulphur and fertilizers where revenues decreased by 28 and 10 per cent respectively. Other revenue improved by $9 million over the same period last year and included the sale of the Latta subdivision which was a part of planned land sales for 2006.
Operating expenses increased 2 per cent, most of which was attributable to higher fuel prices. The increase in the cost of fuel was largely recovered through a fuel surcharge program. These increases were partially offset by improvements in operations including the implementation of the balanced scheduled railroad, reductions in management staff and co-production initiatives.
SUMMARY OF FIRST HALF 2006 COMPARED WITH 2005
– Net income was $489 million, an increase of $285 million over 2005
– Income before foreign exchange gains and losses on long-term debt and other specified items was up 24 per cent to $278 million
– Diluted earnings per share, excluding foreign exchange gains and losses on long-term debt and other specified items, increased 24 per cent to $1.74
– Operating ratio improved 160 basis points to 77.2 per cent
– Revenues were up 6 per cent which included double-digit increases in grain, industrial and consumer products, automotive and intermodal business lines
– Operating expenses, excluding the impact of higher fuel prices, decreased slightly in 2006 over 2005.
2006 OUTLOOK
CPR’s outlook for diluted earnings per share in 2006 remains unchanged at a range of $3.60 to $3.85, excluding foreign exchange gains and losses on long-term debt and other specified items, specifically the $176 million income tax benefit due to the rate reduction in the second quarter. The outlook assumes oil prices averaging US$70 per barrel and an average exchange rate of $1.13 per U.S. dollar (US$0.89). This is a revision to our previous assumptions which were oil prices averaging US$66 per barrel and an average exchange rate of $1.14 per U.S. dollar (US$0.88). 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 gain on long-term debt of $53 million ($41 million after tax) in the second quarter of 2006, compared with a loss of $17 million ($17 million after tax) in the same period of 2005. The second quarter of 2006 included a future income tax benefit of $176 million as a result of a decrease in Canadian federal and provincial income tax rates. There were no other specified items in the second quarter of 2005.
In the first half of 2006, CPR had a foreign exchange gain of $46 million ($34 million after tax), compared with a loss of $20 million ($21 million after tax) in the first half of 2005. Other than the future income tax benefit mentioned above, there were no additional other specified items in the first half of 2006, and there were none in the same period of 2005.
Canadian Pacific Railway is a transcontinental carrier operating in Canada and the U.S. Its 13,500-mile rail network serves the principal centres of Canada, from Montreal to Vancouver, and the U.S. Northeast and Midwest regions. CPR feeds directly into America’s heartland from the East and West coasts. Alliances with other carriers extend its market reach throughout the U.S. and into Mexico. Canadian Pacific Logistics Solutions provides logistics and supply chain expertise worldwide. Canadian Pacific Railway is marking its 125th anniversary in 2006. For more information, visit CPR’s website at www.cpr.ca.