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Weak grain crop, supply chain challenges attributed to CP Rail lowering its volume outlook for Q3

Government of Canada grain car on a CP Rail line at Gravelbourg, Saskatchewan. The Canadian Press Images / Larry MacDougal

Canadian Pacific Railway Ltd. lowered its volume outlook for the year as a weak grain crop and supply chain challenges weighed on its third-quarter results.

The company said Wednesday that it now expects low single-digit volume growth this year, as measured in revenue ton-miles, compared with last year, while in July CP said it expected high single-digit growth.

Read more: CN, CP notch record Q3 grain hauls as global demand continues to surge

However, the railway says it remains confident that it will deliver full-year double-digit adjusted diluted earnings per share growth.

“There’s certainly challenges as well look forward,” said chief executive Keith Creel told a conference call with financial analysts to discuss its results.

“We’ve got a smaller Canadian grain crop, we’ve got some supply chain issues, challenges that the balance of the industry are also experiencing, but the macro environment is extremely strong.”

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Grain revenue was down 21 per cent compared with a year earlier as the crop is expected to be 40 per cent smaller than last year because of dry conditions on the Prairies.

Automotive revenue was down eight per cent as a semiconductor chip shortage has hit production in the industry. Shipping was also disrupted by wildfires that damaged tracks in British Columbia.

Click to play video: 'Contract concerns mount as harvest produces low yields for some' Contract concerns mount as harvest produces low yields for some
Contract concerns mount as harvest produces low yields for some – Sep 2, 2021

Meanwhile demand for materials and goods was up, leading to a 35 per cent climb in revenue for metal, minerals and consumer products, a 27 per cent climb for energy, chemicals and plastics, and a 22 per cent increase for coal.

Overall, the increase in some segments helped push CP revenue to $1.94 billion for the quarter, up from $1.86 billion in the same quarter last year.

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Earnings came in at $472 million or 70 cents per diluted share for the quarter ending Sept. 30, down from $598 million or 88 cents per diluted share a year ago as the company’s operating ratio worsened from last year.

On an adjusted basis, CP says it earned 88 cents per diluted share in the quarter, up from an adjusted profit of 82 cents per diluted share a year ago.

Read more: Statistics Canada: Saskatchewan crop yields expected to be very low compared to 2020

RBC analyst Walker Spracklin said in a note that the results were slightly below consensus expectations of 92 cents per diluted share, but he considered it neutral for the stock because the challenges around supply chains and wildfires look to be transitory.

In the quarter the company beat out Canadian National Railway to seal a deal to buy the Kansas City Southern railway after a drawn-out bidding process.

“Obviously it’s been a journey, an epic journey,” Creel said. “It’s been a great battle, one for the ages but one we were extremely proud to participate in and extremely pleased with the outcome.”

Click to play video: 'Crop yields expected to be very low compared to 2020 harvest' Crop yields expected to be very low compared to 2020 harvest
Crop yields expected to be very low compared to 2020 harvest – Sep 23, 2021

He said the company has set a shareholder meeting for Dec. 8 to vote on the deal worth about US$31 billion including debt, and that he expects the takeover to close in the fourth quarter or possibly early into next year.

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