Canadian Pacific reports generally positive results in its first quarter

Image courtesy of Canadian Pacific Railway

“This past winter was one of the most challenging in my railroading career,” Canadian Pacific (NYSE: CP) president and chief executive officer Keith Creel said. “I applaud our employees for their resiliency in overcoming loss and pushing through extraordinary conditions and challenges throughout February and March. Our commitment to precision scheduled railroading [PSR] enabled a strong recovery, and gives us a solid foundation moving forward.”

Creel made these remarks after CP released its earnings on April 23.

First quarter 2019 profit for CP jumped 25 percent compared with the same period in 2018 amid a 6 percent increase in revenue and a decrease in carload volume. Adverse weather conditions in February and March hampered rail movements during the quarter, the company said.

Net income totaled C$434 million in the first quarter of 2019, compared with C$348 million for the first quarter of 2018. (All monetary figures are reported in Canadian dollars; a Canadian dollar is currently valued at US$0.75.) Diluted earnings per share (EPS) in the first quarter totaled $3.09, compared with $2.41 per share in the first quarter of 2018.

Adjusted diluted EPS totaled $2.79 per share in the first quarter of 2019, compared with $2.70 per share for the same period last year.

Total revenue was nearly $1.77 billion in the first quarter of 2019, compared with $1.66 billion for the same period a year ago. Operating expenses were $1.22 billion, an increase when compared with $1.12 billion in the first quarter of 2018.

First quarter operating ratio was 69.3 percent, compared with 67.5 percent in the first quarter of 2018. (The lower the operating ratio the better, so the first quarter of 2019’s results were not as good as the first quarter of 2018.) However, CP anticipates achieving an operating ratio of under 60 percent because the one-time operating expense items in the first quarter shouldn’t be a factor in subsequent quarters. Volumes should also be higher in the second quarter, according to CP chief operating officer Nadeem Velani.

Average train speed increased to 21.1 mph in the first quarter, compared with 20.6 mph in the first quarter of 2018. Average terminal dwell, or the amount of time a train stayed at a terminal, was unchanged at 7.9 hours.

First quarter freight revenues rose for grain, coal, forest products, energy and plastics and chemicals, and automotive and intermodal, but they fell for potash, fertilizers and sulfur and the category of metals, minerals and consumer products. Freight revenue per ton mile rose for all categories except potash and automotive; intermodal was flat year-over-year.

Carload volumes for almost all commodities fell in the first quarter of 2019 compared with the first quarter of 2018, except for potash, forest products and the category of energy, chemicals and plastics. First quarter carloads totaled 635,600, down when compared with 649,100 in the same period for 2018.

But despite lower volumes in the first quarter compared with the prior year, CP expects carload volumes to bounce back in the second quarter and for the remainder of the year. Some carloads that didn’t ship in the first quarter because of adverse weather conditions are getting shipped in the second quarter, which will help increase the pricing levels for revenue per ton mile, Velani said.

Meanwhile, a higher-than-normal casualty fee of $50 million contributed to higher operating expenses in the first quarter, Velani said during the earnings call. Volumes should also be higher in the second quarter, according to Velani.

If capacity needs to grow in 2019 and in subsequent years, CP has a list of capital projects it can pursue, such as investing in its corridors going into Calgary (Ontario), St. Paul and other U.S. locations, CP officials said.

If CP needs to create surge capacity, the railway will likely focus on its own assets rather than acquiring assets outside the company, such as trucking ventures, Creel said during the first quarter earnings call.

“We have capacity across our network that represents meaningful opportunities to invest organically on own physical footprint to grow our revenue streams,” Creel said. “Unless there is something compelling that presents itself, our focus in the next three to four years is inward, not outward.”

Although CP incorporated PSR in its network operations several years ago, the company approves of the decision by other Class I railroads to transition to the operating tool. Creel said the railroads’ move to PSR, which focuses on streamlining operations and scheduling trains to run on a fixed schedule, ultimately results in producing additional capacity throughout the U.S. and Canadian rail network.

“It’s early in the game, but what I’m seeing I’m encouraged by,” Creel said.

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Joanna Marsh

Joanna is a Washington, DC-based writer covering the freight railroad industry. She has worked for Argus Media as a contributing reporter for Argus Rail Business and as a market reporter for Argus Coal Daily. Her transportation background extends to writing about automotive fuels and additives for Hart Energy Publishing and producing summaries on advanced transportation research for a federal government agency. In her spare time, she likes writing travel articles, taking photographs, and singing and dancing. She has a bachelor's degree in music and political science from Barnard College, a master's in journalism from Boston University, and a master's in musical theater from Boston Conservatory.

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