(Canadian Pacific issued the following news release on April 28.)
CALGARY — Canadian Pacific Railway reported net income of $81 million in the first quarter of 2005, more than triple first-quarter 2004 net income of $24 million. CPR seized opportunities in expanding markets to grow revenue in six of its seven business lines, metallurgical coal rates increased significantly, and freight volumes reached a first-quarter record level as railway fluidity increased. The improvements propelled diluted earnings per share to $0.50 in the three-month period ended March 31, compared with $0.15 in first-quarter 2004.
SUMMARY OF FIRST-QUARTER 2005 COMPARED WITH FIRST-QUARTER 2004
– Operating income up 54 per cent to $179 million
– Revenue up 14 per cent to $1,014 million, a first-quarter record
– Operating expenses up 8 per cent
– Operating expenses up just 4 per cent excluding the impact of
significantly higher fuel prices
– Operating ratio of 82.4 per cent, a 4.5-percentage-point improvement
Excluding foreign exchange losses on long-term debt, CPR increased its after-tax income by 124 per cent to $85 million or $0.53 per diluted share in first-quarter 2005, compared with $38 million or $0.24 per diluted share in the same period of 2004.
“CPR’s performance in the quarter was exceptional,” Rob Ritchie, President and Chief Executive Officer of CPR, said. “Yield continued to strengthen. We delivered greater operating leverage, taking more of the revenue growth to the bottom line. Productivity and fluidity continued to improve as freight car velocity increased and our team handled more freight than in any previous January-to-March period.”
CPR reached a five-year contract agreement with Elk Valley Coal Partnership, retroactive to April 1, 2004, that included an increase in freight rates. Coal revenues in the first quarter of 2005 were adjusted by $17 million to reflect the higher rates applicable in the period from April 1 to Dec. 31, 2004.
In other developments, CPR announced a $160-million capacity expansion on its track network between the Prairies and the Port of Vancouver. The work, which will be completed in the fourth quarter this year, will increase CPR’s capacity in western Canada by more than 400 freight cars a day as offshore demand for Canadian resources and imports of consumer goods continue to increase.
Multi-year contracts were concluded with CPR’s three largest unions. “CPR now has contracts in place with 96 per cent of its unionized employees in Canada and with almost 80 per cent of its unionized workforce across North America,” Mr. Ritchie said. “We have achieved a stable labour environment that enables all stakeholders to benefit from continued growth in demand for rail service, and we have done it with labour contracts that provide for continued productivity improvements.”
REVENUE
Revenue growth was strong across CPR’s entire bulk commodity sector in the first quarter of 2005, compared with first-quarter 2004, led by coal and grain, which increased 44 per cent and 23 per cent, respectively. Revenue was also up in forest products as pulp and paper volumes increased, and in the industrial products sector where demand was strong for chemicals, aggregates and steel. Containerized intermodal freight continued its record of uninterrupted growth, with gains in both the import-export and domestic markets.
OPERATING EXPENSES
Operating expenses increased as a result of high fuel prices, business growth, and the impact of rising share prices on stock-based compensation programs.
“There will be ongoing focus on expense management and railway fluidity as we continue to grow our business, generate higher yield and improve our operating leverage,” Mr. Ritchie said. “The base of business covered by fuel surcharges will continue to expand in 2005 and, together with fuel efficiency measures and hedging, will further offset the impact of high oil prices.”
OUTLOOK
CPR expects to grow revenue in the range of 12 per cent to 14 per cent in 2005. Diluted earnings per share, excluding foreign exchange gains and losses on long-term debt and other specified items, are expected to be between $3.15 and $3.25, assuming oil prices averaging US$55 per barrel and an average exchange rate of $1.23 per U.S. dollar (US$0.81).
Capital investment in 2005 is expected to be in the range of $900 million to $920 million, including the $160-million cost of the capacity expansion program. CPR expects that, in the first full year when the additional capacity is completely utilized, it would translate into incremental earnings per share in the range of $0.25 to $0.40. Free cash flow after dividends is expected to be approximately $50 million to $100 million in 2005.
FOREIGN EXCHANGE LOSSES ON LONG-TERM DEBT
CPR had a foreign exchange loss on long-term debt of $3 million ($4 million after tax) in the first quarter of 2005, compared with a loss of $13 million ($14 million after tax) in the same period of 2004.