Canadian Pacific beats estimates on higher crude shipments, cost control

(Reuters) - Canadian Pacific Railway reported a better-than-expected adjusted quarterly profit on Tuesday, as the country’s second-largest railroad operator controlled costs and earned more from moving crude, chemicals as well as plastics.

The upbeat results came against the backdrop of Alberta government’s OPEC style cap on output in January that boosted low crude prices, but made oil shipment by rail less profitable for Canadian producers.

Narrow differentials had discouraged shippers from moving crude through rail, a more expensive form of transport than pipeline, from Alberta to higher-priced U.S. markets.

Rail shipments have, however, recently recovered with some producers choosing rail again to avoid pipeline congestion.

Crude-by-rail volumes rose to 25,000 carloads in the second quarter, from 20,000 a year earlier, the company said in a post-earnings call, as production curtailments began to ease and the fundamentals improved.

Alberta Premier Jason Kenney, who took office in April, has modestly eased the curtailments, with major Canadian oil companies also holding talks with the government on ending the mandatory cuts just as added rail capacity to move crude comes online.

“Crude by rail remains very well. We expect volumes will continue to increase as production and curtailment balance stabilizes and our new contracts and existing customers continue to ramp up in the second half of the year,” Chief Marketing Officer John Brooks said on the call.

Revenue from the company’s energy, chemicals and plastics segment rose 22% on a currency adjusted basis in the reported quarter.

Total carloads, rail cars carrying freight during a specified period, rose 6% to 716,800, with the biggest gains coming from potash.

However, volumes of U.S. grain shipment fell double digits, said the company, as some export markets remained challenged due to the lingering trade dispute with China.

CP’s operating ratio, a closely watched productivity metric that measures expenses as a percentage of revenue, also improved to 58.4% from 64.2% a year ago. The lower the ratio, the more efficient a rail company is.

Revenue jumped 13% to C$1.98 billion, while expenses rose only 2.8%.

Adjusted income rose 32.9% to C$602 million ($461.87 million). The company earned C$4.30 per share, above the average analysts’ estimate of C$4.18.

The company’s shares were up more than 2% on both the Toronto Stock Exchange and the New York Stock Exchange.

Rival Canadian National Railway Co is set to report its second-quarter results on July 23.

Source: Reuters

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