CPR profit more than doubles, girds for
Published: January 30, 2008
Source: Reuters - By Jonathan Spicer
TORONTO (Reuters) - Canadian Pacific Railway (CP.TO: Quote) said
on Tuesday lower future income tax rates helped it more than double
its fourth-quarter profit, but that the outlook for North American
growth remained uncertain.
Shares of Canada's No. 2 railway climbed 3.4 percent to C$67.13 in
afternoon trading as investors lauded the results, even though
quarterly revenue was flat due to harsh weather and the appreciation
of the Canadian dollar.
CP Rail earned a profit of C$342 million, or C$2.21 per share, in
the last quarter of 2007. That's up from C$146 million, or 92
Canadian cents a share, a year earlier.
Excluding foreign exchange gains, losses on long-term debt and other
items, diluted earnings per share rose four percent to C$1.20.
The railway, which has operations in Canada and the United States,
said poor weather and high fuel costs restricted its ability to move
freight volumes as planned.
"We're in an industry that has a lot of promise, and even in these
economic-uncertainty times, pricing discipline continues," Chief
Executive Fred Green said during a conference call with analysts and
The company reiterated its earnings forecast for 2008 of C$4.70 to
C$4.85 per share before items, up from C$4.32 in fiscal 2007,
suggesting strong demand for its bulk portfolio should drive
earnings this year.
Although CP Rail, which ships forest products and other construction
material, is vulnerable to a slowing U.S. economy, Green said
high-growth Asian economies will help bolster demand.
"As a consequence, while (the U.S. economy) is important, it's not a
critical matter in our economic outlook," Green said, adding the
company expects a "soft landing" rather than a recession in the
TAX CHANGE BOOST
Changes to Canada's income tax rates gave Canadian Pacific a C$145.8
million boost in the quarter ended December 31, lifting the
company's earnings above expectations.
Avi Dalfen, analyst at Blackmont Capital, said the earnings were
boosted primarily by better fuel refining costs, lower compensation
expenses and a contribution from Dakota Minnesota and Eastern
Railroad (DM&E), which CP Rail acquired last year for about US$1.5
Blackmont maintained its C$67 stock target, and a "hold"
Quarterly revenue was C$1.19 billion, roughly unchanged from a year
earlier. The company's operating ratio was 74.3 percent, compared
with 73.1 percent a year earlier.
Fadi Chamoun, analyst at UBS, said the expectation-beating result
was "not a high-quality beat but a good end to the year
Looking ahead, the company expects total revenue to grow by four to
six percent in 2008, and "essentially flat" capital investment in
the range of C$885 million to C$895 million.
However, "economic uncertainty also demands that we prepare
ourselves for a possible downturn," said CP Rail's Green.
The outlook includes projected earnings from DM&E.
DM&E shares are currently in a voting trust, and the company said
during the conference call that it expects a regulatory decision on
the takeover by the end of September.
(Reporting by Jonathan Spicer; Editing by Bernadette Baum)