CP Rail Profit Jumps 29 Percent Despite Drought

www.morningstar.ca 27 Jan 03(6:48 PM) |  E-mail Article to a Friend

By Jeffrey Jones

CALGARY, Alberta (Reuters) - Canadian Pacific Railway <CP.TO> said on Monday its fourth-quarter profit rose 29 percent as the country's No. 2 railroad had a foreign exchange gain and weathered the impact of the drought-stricken western grain crop.

But operating income at CP Rail, which just wrapped up its first full year as a stand-alone firm after its spinoff from defunct Canadian Pacific Ltd., slipped a bit as expenses like employee bonuses and purchased services nudged up 3 percent.

It earned C$126 million ($83 million), or 79 Canadian cents a share, in the fourth quarter, up from year-earlier C$98 million, or 62 Canadian cents a share.

That beat an average estimate of 71 Canadian cents a share among analysts polled by Thomson First Call.

Net income included a C$6.1 million gain from the impact of a strong Canadian dollar on its long-term debt. Without one-time items, profit was C$120 million, down from C$124 million.

Revenues were C$950 million, about flat with the fourth quarter of 2001.

For the full year, net income jumped 33 percent to a company record of C$496 million, or C$3.11 a share, from C$373 million, or C$2.34 a share.

CP Rail said quarterly results were cushioned from an 18 percent drop in grain revenue and a 16 percent fall in coal shipments by large gains in fertilizer, industrial, automotive and especially truck-train intermodal revenues.

This year's grain crop outlook remains a big unknown after two years of drought have led to poor harvests, it said.

The results contrasted sharply those of top competitor Canadian Natural Railway Co. <CNR.TO>, which reported last week its net income fell sharply because of charges from layoffs and asbestos-related injury claims.

"The bottom line is I'm very pleased with what we accomplished this year in spite of the worst Canadian grain crop since I can remember," CP Rail chief executive Rob Ritchie told reporters.

Ritchie predicted similar pressures in 2003, including economic uncertainty and high fuel prices, but said he expected the railway to manage those factors.

"Assuming a grain crop approaching normal levels, we expect to see revenue growth in the 3 to 4 percent range for 2003," he said. Much of that rests on the likelihood of a stronger economy in Canada compared with the United States, he said.

The carrier's operating ratio, or expenses as a percentage of revenues, weakened to 75 percent from 72.5 percent in the fourth quarter of 2001. But it improved to a company record of 76.6 percent for the year and Ritchie said CP Rail was on track to achieve its target of 73 percent in 2004.

During the quarter, fuel costs rose only 0.8 percent despite world oil prices surging 38 percent over fears of a war with Iraq and the protracted strike that has cut shipments from major exporter Venezuela.

Executives cited CP Rail's fuel hedging activities as well as conservation initiatives for the showing.

Chief financial officer Mike Waites said the railway would also reap rewards in the current quarter with 41 percent of fuel needs locked in at C$21.95 a barrel, compared with the current price of more than $32.

Shares in CP Rail fell 52 Canadian cents to C$29.38 in Toronto on Monday, representing a nearly flat performance since the start of the fourth quarter. The Toronto Stock Exchange's main index has risen about 5.5 percent during the same period.

($1=$1.52 Canadian)