(The following story by Angela Barnes appeared on the Globe and Mail website on October 29.)
TORONTO — Analysts have been trimming their profit estimates for Canadian Pacific Railway Ltd. in recent days, only too well aware of the impact the high-flying dollar and soaring oil prices are likely having on the rail company’s bottom line. They will learn today just how much effect those factors have had and how much they’ve been offset by volume growth and robust pricing when Calgary-based CPR rolls out its third-quarter report.
Analysts’ consensus has CPR’s third-quarter profit rising to about $1.18 a share, a healthy increase over the $1.06 of the comparable period last year. That would be a considerably better performance than that of Montreal-based competitor Canadian National Railway Co., which reported last week. CN’s numbers came in on the soft side, as its profit slipped 2.4 per cent from a year earlier.
Analyst Walter Spracklin, who follows CPR for RBC Dominion Securities Inc., recently lowered his estimate for the full year to $4.42 a share from $4.47, to reflect near-term headwinds such as the dollar, rising energy costs and softness in the North American economy.
And analyst Fadi Chamoun at UBS Securities Canada Inc. has lowered his fourth-quarter share profit forecast to $1.22 from $1.25, but that still represents a sizable advance from year-earlier results. He also cut his 2008 estimate to $4.80 from $5.05. His estimate for 2007 is $4.31.
The strength of the loonie compared with a year ago was the key reason behind the changes in analysts’ earnings forecasts. Mr. Chamoun, for example, believes the high-flying currency will negatively affect CPR’s third-quarter profit by 2 cents a share, its fourth-quarter profit by 6 cents a share and next year’s profit by 11 cents.
Mr. Chamoun also said in a report last week that the strong loonie will put pressure on Canadian exports to the United States and reduce the profit contribution from Dakota Minnesota & Eastern Railroad Corp. of Sioux Falls, S.D., which CPR announced in September that it would acquire for $1.48-billion (U.S.) in cash.
Analyst Avi Dalfen at Blackmont Capital, is less optimistic than either Mr. Spracklin or Mr. Chamoun. He anticipates CPR will earn $1.09 (Canadian) in the third quarter and $4.12 for the year as a whole.
But he is quick to point out that CPR has advantages over other major North American railways. For example, it has the least exposure to the U.S. economy, which is having its share of problems these days. Also, it is experiencing sustained growth in intermodal transportation. And it stands to benefit from rising coal export shipments.
Its established relationships with auto makers Toyota and Honda are also expected to be a plus for CPR.
For their part, investors appear to have some concerns. They have been taking some money off the table recently, dropping CPR shares from $73.47 on Sept. 4 to a closing price of $66.60 Friday on the Toronto Stock Exchange. While that is well off the $91 intraday high in mid-July, it’s still comfortably up from the $60 near the beginning of the year.