(The following story by Gina Teel appeared on the Calgary Herald website on April 24, 2009.)
CALGARY, Alberta — Unprecedented drops in freight traffic volumes in crucial markets saw Canadian Pacific Railway Ltd. post a 31 per cent decline in first-quarter profits.
Canada’s second-largest railway blamed the global economic meltdown for the steep declines in traffic volumes, led by an eye-popping 70 per cent drop in potash, followed by haircuts of 43 per cent and 30 per cent in automotive and Canadian coal, respectively.
Total carloads declined by 19 per cent in the first quarter.
The extreme decline in potash carloads was put into perspective by Marcella Szel, CPR’s senior vice-president for sales and marketing.
“In March we moved 11 export potash trains to Vancouver. In normal times, we ran this same volume over the course of three to four days,” she told analysts in a conference call to discuss CPR’s firstquarter financial results.
Calgary-based CPR posted first-quarter profits of $62.5 million, or 39 cents per share, compared with $90.7 million, or 59 cents per share, in the same period in 2008.
Adjusted earnings were 34 cents per share, down 55 per cent from the same period in 2008 — representing the biggest year-over-year drop of all major North American railways, analysts said.
Fred Green, CPR chief executive, said the results reflect”the impact of a very difficult environment for many of our customers, and therefore CP.”
The steep decline in traffic has resulted in more than 2,400 employee layoffs to date, he said.
Currently, these are classified as temporary layoffs due to the drop in traffic, officials said.
CPR also announced plans to trim its 2009 capital program to a range of$ 720 million to $740 million from the original outlook of $800 million to $820 million, and discussed cost-control measures deployed by the railway.
CPR’s earnings missed market expectations of 48 cents per share.
In a research note to clients, UBS analyst Fadi Chamoun said, “Q1 ’09 underwhelms.” UBS was expecting 37 cents per share.
“Notwithstanding benefit from favourable FX (foreign exchange) and pricing, which resulted in a 12 per cent improvement in yields, CPR’s revenues declined by 13 per cent, overwhelming the company’s cost reduction efforts,” he wrote.
Analyst Randy Cousins with BMO Capital Markets said the big issue for CPR is that it’s getting hit by a”double-whammy” –weak demand for potash and metallurgical coal.
The combination “is a one-two punch resulting in a double-digit drop” in revenue ton-miles, he said.
CPR’s revenue ton-miles in sulphur and fertilizers, for instance, fell 60 per cent in the quarter.
For the quarter, total revenues fell 13 per cent to $1.07 billion, compared with $1.23 billion.
Operating income sank 35.4 per cent to $139.4 million.
CPR’s bright spot was Canadian grain, with revenues up by 17 per cent when adjusted for foreign exchange.
A large crop of 54.5 million tonnes and exports of 27 million tonnes supported the strong export program and resulted in several weeks of record deliveries, Szel said.
However, month to date in April, potash volumes are down 85 per cent over last year, as international and domestic buyers continue to defer purchases as fluctuations in commodity prices affect demand for crop nutrients, she said.
Coal revenues were down 23 per cent, reflecting the overall reduction in metallurgical coal due to falling global steel production.
Szel said CPR has modelled this year’s coal volumes to be lower than last year, noting April month-to-date carloads for export coal are down 55 per cent.
Additionally, TeckResources Ltd. said this week it expects its 2009 coal sales to be between 18 million and 20 million tonnes, though volumes will depend on developments in global steel markets.
CPR’s Teck export coal contract expired March 31. As commercial terms aren’t yet settled, Szel wouldn’t comment on the matter, citing it as confidential.
The results of the Dakota, Minnesota&Eastern Rail-road are fully consolidated in CPR’s first-quarter results. For comparison, first-quarter 2008 results are presented on a pro forma basis.
CPR’s shares closed up $1.42 to $42.42 on the TSX.