OTTAWA — Lower costs propelled Canadian Pacific Railway Co. to stronger first-quarter results, despite a decline in revenue, the National Post reports.
The Calgary-based railway exceeded the First Call/Thomson Financial consensus for earnings and managed to knock 3.5 points off its operating ratio, a key measure of efficiency.
“Running a scheduled railway is allowing us to sweat the assets,” said Robert Ritchie, president of the company.
CP reported yesterday net income of $68-million or 43¢ per share excluding one-time items, up from $58-million (39¢) the previous year. In the quarter, it had non-recurring income tax benefit of $72-million and a foreign exchange loss of $4-million that pushed earnings up to $136-million (86¢). A year earlier one-time costs reduced earnings to $35-million (22¢).
First Call/Thomson Financial’s consensus was for the railway to earn 39¢. The results were reported after markets closed yesterday, with CP shares finishing up 50¢ at $32.50.
Revenue fell $43-million to $875.4-million, but costs at the railway decreased faster, dropping $67-million. The savings included $30-million on fuel — mainly due to lower fuel prices –and another $20-million attributable to savings on variable costs arising from lower volumes. The company’s staff was down 1,700 in the quarter from the previous year to 15,247 on average.
“We watched very closely our variable expenses but most importantly we continued to lower our permanent cost base,” Mr. Ritchie said.
As a result, CPR’s operating ratio, the percentage of each dollar of revenue needed to run the railway, improved 3.5 points to 79.9%.
“Usually the first quarter for CPR is one of our tougher quarters and we’re pleased with what we’ve been able to do,” said Mr. Ritchie, adding the results move the company toward its goal of a 73% operating ratio in 2004.
By comparison, Canadian National Railway Co. reported on Monday that its first-quarter operating ratio had edged up 0.6 points to 73.1% and investors punished the firm by knocking $5.77 or 7% off its stock the following day.
Mr. Ritchie said he is confident cost savings can be maintained through the year, although the company is carefully watching the Canadian grain crop and fuel prices.
In the quarter, CP saw freight revenue from four of its seven business segments drop. These included grain down 19.7%, industrial products down 6.5%, coal off 2.5% and sulphur and fertilizers down 2.4%. Automotive was up 10.2%, forest products were up 3.6% and intermodal was relatively flat, up only 0.3%.