(Reuters circulated the following story by Jeffrey Jones on July 24.)
CALGARY — Canadian Pacific Railway Ltd., the country’s Number 2 carrier, says its second-quarter profit sank 83 per cent, due mostly to a hefty charge related to job cuts and plans to restructure the railway’s U.S. Northeast network.
Excluding the $150 million charge and other one-time items, earnings fell 22 per cent as stubbornly high fuel prices, the strong Canadian dollar and an increase in pension costs ate into the bottom line, CP Rail said yesterday.
Those factors masked the railway’s success in expanding business, as shown by higher shipping volumes in most of the company’s main commodity groups, with the notable exception of grain, said chief executive Rob Ritchie.
Canada’s grain crop, which dwindled during two years of drought, is expected to improve to 90 per cent of normal volumes this year, spelling higher shipments in the fourth quarter and in 2004, Ritchie told analysts. Other factors also point to better times for CP Rail, he added.
“I’m optimistic and continue to believe that, over the next 18 months, the North American economy will strengthen, fuel prices will moderate and the rail industry will have stronger months ahead,” he said.
CP Rail earned $28.9 million, or 18 cents a share, down from the year-earlier $169 million, or $1.06 a share.
Net income was hammered by the charge, which was announced in June. CP Rail is intensifying job cuts to 820, or 5 per cent of the total workforce, by 2005. The charge also includes a $75 million writedown of the value of Delaware & Hudson Railway, CP Rail’s link to New York City.
The company is mulling several options for the unit, including partnerships with other rail firms and sales.
Without one-time items, profit was $87 million, or 55 cents a share, down from the year-earlier $111 million, or 70 cents a share. That slightly beat an average estimate of 51 cents a share from analysts surveyed by Thomson First Call.
Revenue was $914 million, down from $923 million.
On Tuesday, Canadian National Railway Co. reported a 13 per cent drop in profit. CNR also blamed expensive fuel and the rise in the loonie.
The Canadian dollar, which has risen as much as 15 per cent this year, cut CP Rail’s U.S.-dollar-denominated revenue $40 million in the quarter. Fuel expense increased $15 million, or 16 per cent, as crude-oil prices averaged $28.89 (U.S.) a barrel in the aftermath of the U.S.-led war in Iraq.
Those factors worsened the operating ratio, which measures expenses as a percentage of revenue, to 71.9 per cent from 76.3 per cent in the same period last year, excluding the charge.
Bright spots were truck and train intermodal shipments, which rose 9 per cent, and export potash fertilizer and sulphur carloads, up 6 per cent.