(Bloomberg News circulated the following article by Rip Watson on November 16.)
CALGARY — Canadian Pacific Railway Ltd., whose stock has gained 19 percent this year, said it expects 2006 per- share earnings to rise as much as 18 percent on increasing sales.
Profit for 2006 will be C$3.70 ($3.10) to $3.85 a share excluding some costs, up from a range of C$3.15 to C$3.25 this year, the Calgary-based company said in a statement today. The 2006 forecast from a survey of Thomson Financial analysts, also on that basis, ranged from C$3.60 to C$4.10.
Canada’s No. 2 railroad is expecting revenue growth to slow by as much as 50 percent, to a range of 6 percent to 8 percent for next year as demand remains strong for consumer goods and bulk exports such as coal. The railway’s sales growth this year of up to 14 percent has been powered by rate increases, including fuel fees to cover rising diesel costs.
“This is a perfectly respectable set of numbers,” said Gavin Graham, director of investments for Guardian Group of Funds in Toronto, which held 98,000 Canadian Pacific shares as of June. “They are increasing their margin as earnings rise faster than revenue, and presumably are squeezing their operating costs.”
Canadian Pacific shares fell 11 cents to C$49.02 at 4:10 p.m. in Toronto trading.
Coal, Grain, Sulfur
The company’s coal revenue increased 42 percent in the first nine months of 2005 after a rate dispute was settled. Grain sales climbed 13 percent in the same period, and sulfur fell 1.9 percent.
President Fred Green said on a Webcast that continued expansion of international trade would lead the revenue growth. Vancouver’s port is beginning work to triple its capacity over 15 years, and potash exports are projected to rise by 2.7 million tons within 18 months. Revenue growth will be about evenly split between price increases and additional volume, he said.
Green said the profit margin next year should improve to about 25 cents per sales dollar, better than the 21.7 cents on that basis in this year’s first three quarters.
Costs are expected to increase 4 percent to 6 percent, Chief Financial Officer Michael Waites said, reflecting rising fuel costs and savings such as a 2 percent reduction in total employees. The railway had about 17,000 workers at the end of the third quarter.
The company also said it would reduce capital spending as much as 12 percent to as little as C$810 million. This year’s capital plan included C$160 million to increase capacity by 12 percent in western Canada and the U.S.
As much as 20 cents per share of the annual earnings improvement is linked to increased business from the capacity- expansion programs, Green said.
The profit forecast was based on oil prices of $58 a barrel and an exchange rate of C$1.18 for each U.S. dollar. The forecasts exclude costs such as revaluing U.S. dollar-denominated debt to Canadian currency.
Canadian National Railway Co. of Montreal, the country’s biggest railway, will give an outlook for 2006 and beyond on Nov. 18 at an investor meeting in New York.