OTTAWA — Despite a 5-per-cent drop in revenue, Canadian Pacific Railway Co. posted improved first-quarter results yesterday, thanks to a one-time tax benefit and cost-cutting measures, the Globe and Mail reports.
The company’s profit was about 10 per cent better than analysts were expecting. Results were released after the close of trading, where CPR shares gained 51 cents to close at $31.50 on the Toronto Stock Exchange.
“CPR is well positioned for an upturn in the economy and there are now prospects for modest recovery in the second half of the year,” president and chief executive officer Robert Ritchie said. “At the same time, our team will not let up on expenses. We will maintain tight cost control going forward while managing our people, resources and processes to enhance safety and service.”
CPR posted a first-quarter profit of $136.4-million or 86 cents a share for the three months ended March 31, compared with $34.8-million or 22 cents a year earlier. Revenue dropped to $875.4-million, compared with $918.3-million.
The bottom-line improvements were largely because of a one-time $72-million income tax benefit.
Excluding non-recurring items, first-quarter profit was $68-million or 43 cents a share, compared with $62-million or 39 cents a year earlier. Analysts had been looking for a profit of 39 cents, according to Thomson Financial/First Call.
CPR’s expenses fell $67-million because of lower fuel prices and by cuts to labour costs and expenses on materials and services.
In a report earlier this month, UBS Warburg Inc. analysts picked Calgary-based CPR as the best buy in the rail sector — ahead of Montreal-based Canadian National Railway Co. and larger U.S. rivals. UBS Warburg recommends buying the two Canadian railways and holding their U.S. counterparts.
“The North American rail sector typically trades tightly as a group. In spite of these correlations, we believe that the Canadian railroads — at current prices — represent investors’ best prospects for outperformance based on a 12-month horizon,” analysts Rick Paterson and Fadi Chamoun wrote.
CPR’s operating ratio — the key measure of efficiency in the industry — fell to 79.9 per cent from 83.4 per cent. The lower the operating ratio, the better.
CPR said it is sticking to its goal of bringing its operating ratio down to 73 per cent in 2004. The company said price increases will get the railway closer to that goal. Economic growth will also help. The company said that if anticipated growth does not occur, the railway will have to cut costs more aggressively to reach its target.
CPR’s freight revenue from automotive shipments rose 10.2 per cent in the quarter, while revenue from forest products was up 3.6 per cent. Revenue from intermodal shipments, in which goods are transported by trucks and rail, was flat, while other sectors were down.