(The Canadian Press circulated the following on October 20.)
TORONTO — Canadian Pacific Railway Ltd. (TSX:CP) laid out a rosy outlook for 2008 on Tuesday, despite suffering a number of bumps and bruises throughout 2007.
“We are gaining momentum,” CEO Fred Green said in a release. “Canadian Pacific is in motion and our focus on execution excellence will continue to deliver results in 2008.”
The outlook for next year foresees diluted earnings per share, excluding currency impacts and other items, of $4.70 to $4.85. That would be up from about $4.30, the lower end of the 2007 guidance range.
The railway expects revenue to increase by four to six per cent next year, while operating costs rise by three to five per cent. That amounts to growth of nine to 13 per cent in adjusted earnings per share.
The 2008 estimate assumes crude oil prices averaging US$80 a barrel, a Canadian dollar at parity with the U.S. dollar and North American economic growth of 2.5 per cent.
Canadian Pacific expects its capital budget to be flat at $885 million to $895 million.
“Q3 was a busy time for CP,” said Green in a conference call with investors. He said his railway moved record volumes, managed a heavy track maintenance program, announced the acquisition of a major U.S. rail property and reached a tentative agreement with the Teamsters union.
“We have confidence in our products and our operational capabilities and we are on track to deliver on our 2007 goals,” he said, adding the strong third-quarter results announced Monday were due to a “focus on expense control.”
Canadian Pacific managed to get through a litany of challenges throughout 2007, said Kathryn McQuade, chief operating officer.
The railway was hampered by major flooding in the U.S. Midwest, a major line outage in northern Ontario and delays in its track maintenance program as a result of a 26-day strike during the second quarter.
“While I’m not completely satisfied with our overall performance on our fluidity goals, we can say that this quarter was about continued recovery through good planning and execution,” McQuade told investors in the conference call.
“Train speed has remained stubbornly below 2006 levels, due to more bulk trains that operate at slower speeds in our western corridor and significant floods we’ve experienced in the Midwest.”
McQuade said the railway also experienced a setback in Federal Railroad Administration safety statistics during the third quarter.
“Both reportable personal injury and train incident frequencies increased over the excellent quarter we posted in 2006,” she said. “Even with these setbacks, we continue to be the industry leader in train operation safety. And we are confident that the long-term trend of improved performance will continue.”
Chief financial officer Mike Lambert said the railway has also been hurt by the strengthening Canadian dollar’s impact on U.S. revenue and fuel price pressures.
Developments in the commodities market also had an impact on Canadian Pacific, said Marcella Szel, vice-president of marketing and sales.
Demand for grain, coal and industrial products were high, so the railway moved increased volumes in those sectors. Growth in the oilpatch was also a boon.
On the down side, the U.S. housing crunch meant there was less demand for lumber, steel and other materials related to construction.
Canadian Pacific reported late Monday it earned a third-quarter profit of $219 million or $1.41 per share. That compared with $164 million or $1.04 per share a year ago.
Quarterly revenue improved to $1.19 billion from $1.15 billion.
Canadian Pacific signed a deal in September to expand in the U.S. Midwest by paying at least US$1.48 billion for the Dakota, Minnesota & Eastern Railroad Corp.
CPR shares were down $1.73 or 2.1 per cent to $65.52 in midday trading Tuesday on the TSX.