TORONTO — Canadian Pacific Railway stock slipped on Tuesday following a weak U.S. manufacturing report, which suggested a softening of rail freight volumes, reports a wire service.
CP Rail shares were down 70 Canadian cents, or 2 percent, at C$31.70 on the Toronto Stock Exchange early Tuesday afternoon after dipping as low as C$31.00 — their lowest level since February.
The U.S. Institute for Supply Management (ISM) said on Tuesday its August monthly manufacturing index was at 50.5, posting a seventh month of growth but falling short of analysts’ expectations of 51.6.
A reading above 50 signals growth, while one below 50 indicates contraction in a sector that makes up roughly 17 percent of the U.S. economy.
“The ISM is a reflection of what’s happening in the general manufacturing sector and that’s largely a reflection of the customer base of railroads,” said Randy Cousins, an analyst for BMO Nesbitt Burns.
“So to the extent that manufacturing has weakened and stays weak, it has negative implications for volumes for the railroads from their general freight customers.”
CP Rail shares have been in a steady decline over the past month. In addition to soft U.S. manufacturing numbers, Cousins said a weak grain market in Canada and high fuel costs have contributed to the dip in the company’s share price.
“What you’ve got is a combination of events. You’ve got the weak grain crop, you’ve got an industrial economy that seems to be treading water, and the other thing you’ve got to keep in mind has been the escalation of fuel. Higher fuel costs are not a positive for a railroad,” Cousins said.
“So those three fundamentals would go to speak as to why the stocks been weak over the last couple of weeks.”
Shares of Canadian National Railway Co. (Toronto:CNR.TO – News), CP’s main competitor and Canada’s largest railway, were also down by early afternoon, falling C$1.01, or 1.5 percent, to C$67.00.