CP grows earnings despite lower volumes, revenues

Calgary-based Class I railway Canadian Pacific posted a net income of $347 million Canadian (U.S. $266.4 million) in the third quarter of 2016, a 7.4 percent increase from the same 2015 period, on revenues that fell 9.4 percent to C$1.55 billion.    Canadian Pacific Railway Ltd. grew its earnings 7.4 percent to $347 million Canadian (U.S. $266.4 million) in the third quarter of 2016 compared with the same 2015 period despite lower volumes and revenues, according to the company’s latest financial statements.
   Net earnings per diluted share (EPS) jumped 15 percent, from C$2.04 in Q3 2015 to C$2.34 per diluted share in Q3 2016, on revenues that slid 9.4 percent year-over-year to C$1.55 billion.
   CP reported an operating ratio of 57.7 percent for the third quarter, down 1.8 percentage points from the previous year and a record low for the company.
   Volumes at the railroad slipped 3 percent from the previous year to 649 million carloads. The volumes decline was led by crude oil shipments, down 80 percent year-over-year; metals, minerals and consumer products, down 14 percent; Canadian grain, down 10 percent; and automotive, down 9 percent.
   Those declines were offset, however, by increases in shipments of U.S. grain, up 11 percent; domestic intermodal, up 8 percent; forest products, up 6 percent; and chemicals and plastics, up 6 percent.
   Somewhat surprisingly, volumes of coal, which have plummeted across the board in the past year and a half due to stricter EPA regulations and an abundance of cheap alternative fuels like liquified natural gas (LNG), were flat in the third quarter, ticking up 1.2 percent compared with the prior-year period.
   Through the first nine months of 2016, earnings at CP have grown 17.6 percent compared with the first three quarters of 2015 despite revenues falling 8.6 percent to C$4.6 billion.
   “Despite decreased revenues, tied to a delayed grain harvest and stiff economic headwinds, our business model continues to perform on the cost side,” CP CEO E. Hunter Harrison said of the results. “Our commitment to efficiency, asset optimization, and operational excellence has produced yet another record-low operating ratio.
   “Given the delayed grain harvest, lower crude volumes and persistent economic challenges compounded by a strengthening Canadian dollar, we are now expecting mid-single-digit EPS growth this year,” he said. “While disappointed that we will not meet our previous forecast, I am incredibly proud that despite these challenges, CP will deliver its lowest-ever annual operating ratio. Our industry-leading operating plan and continued focus on improving service to our customers means we are well-positioned to capitalize on increasing volumes leading into 2017.”
   Meanwhile, CP has also named Nadeem Velani vice-president and chief financial officer, the company said in a separate statement. Velani joined CP in March 2013 and had been serving as VP and interim CFO since Sept. 9, 2016.
   “Working closely with the board and after performing all necessary due diligence, we are pleased to name Nadeem our Chief Financial Officer,” Harrison said of the appointment. “In Nadeem, we have a trusted and highly capable leader who will bring stability to this role for the long-term.”
   “I welcome this tremendous opportunity to work closely with the executive team as we continue to write the CP story,” added Velani. “I am proud to lead the finance team and am excited about what the future will bring under the leadership of Hunter and Keith.”
   Harrison, who took over CP at a time when it was the worst performing Class I in North America and is widely credited for its dramatic turnaround, is retiring from his role of president and CEO.
   CP announced last quarter he would be replaced by current President and Chief Operating Officer Keith Creel, effective July 1, 2017. Creel started with CP in 2013 and was named to the company’s board of directors in 2015.