Winter weather whacks Canadian Pacific’s first quarter earnings NEWSWIRE

CALGARY, Alberta — Canadian Pacific’s first quarter earnings were negatively affected by harsh winter weather and derailments that curtailed volume and increased the railway’s expenses.

CEO Keith Creel began the railway’s earnings call on Tuesday by remembering the three railroaders killed in the Feb. 4 derailment of a runaway grain train between the Spiral Tunnels in British Columbia.

“Rest assured our CP family members will forever be remembered and honored,” Creel says.

The wreck, which remains under investigation, came amid a long stretch of winter weather that was unusually cold, even by Canadian standards. CP’s gross ton miles sank to their lowest levels in eight years during February.

“The challenges have been real,” Creel says.

CP’s operating income rose 1%, to $543 million, as revenue grew 6%, to $1.76 billion. The railway reported adjusted earnings per share of $2.79, a 3% increase that missed analyst estimates of $3.01, according to I/B/E/S.

CP’s operating ratio rose 1.8 points, to 69.3%, as expenses climbed 9%. CP expects its operating ratio to start with a five for the rest of the year, Chief Financial Officer Nadeem Velani says.

CP’s volume for the quarter was down 2% based on carloads and 1% when measured by revenue ton miles, the favorite metric of the Canadian railways.

Potash; forest products; energy, chemicals and plastics; automotive; and intermodal all grew on a revenue ton-mile basis in the first quarter, but that was more than offset by grain declines as well as double-digit slumps in fertilizers and sulphur as well as metals, minerals, and consumer products traffic.

Despite the slow start to the year, CP maintained its outlook for mid-single digit growth in revenue ton miles, capital expenses of around $1.6 billion, and double-digit growth in earnings per share.

CP officials said volume is rebounding nicely in the first three weeks of the second quarter, helped in part by rebounding operations that included 8% higher average train speeds in March compared to a year ago.

In CP’s bulk segment, demand is expected to remain strong for potash as the new K+S mine ramps up production and Canpotex capacity is sold out through June, Chief Marketing Officer John Brooks says. Grain volumes, which slumped 4% on a revenue ton-mile basis, are expected to be solid into the summer.

The railway’s merchandise segment saw growth in energy, chemicals, and plastics traffic thanks to record volumes of LPG, plastics, and refined products, as well as success of the “energy train” that links production areas around Edmonton, Alberta, with Vancouver, British Columbia.

CP has won a long-term contract to serve the Inter Pipeline Heartland Petrochemical Complex northeast of Edmonton that will convert locally produced propane into plastics. The $3.5 billion facility, set to open in late 2021, will generate up to $40 million in revenue for CP, Brooks says.

Automotive traffic was up 10% for the quarter based on revenue ton miles, a trend CP expects to continue due in part to the opening of its new Vancouver auto terminal, Brooks says.

Also a help: the Toyota assembly plant in Cambridge, Ontario, is shifting production from the Corolla to the top-selling RAV4, which Brooks says should add up to $20 million in additional revenue to CP’s auto business.

Intermodal volumes recovered last month, with domestic intermodal notching a record March. CP expected continued intermodal growth this year due to diverting business off the highway and expansion of the GCT Deltaport terminal in Vancouver.

CP’s share of international intermodal traffic at GCT Deltaport has hit 50%, up from 20% “not too long ago,” Brooks says.

CP’s key operating metrics were mixed during the quarter. Terminal dwell was unchanged compared to a year ago, while average train speed was up 2%.

The railway’s safety measures deteriorated during the quarter, with the FRA personal injury rate up 25% and the FRA train accident rate up 36%.