CP Rail sees second quarter profit fall despite higher revenue

Canadian Pacific Railway trains sit idle on the train tracks due to the strike at the main CP Rail trainyard in Toronto on Monday, March 21, 2022. The Canadian Press

Canadian Pacific Railway Ltd. saw profits plummet in its latest quarter due to a dismal grain crop in 2021 and soaring fuel costs since February.

Net income at the Calgary-based railroad operator dropped 39 per cent year over year in the quarter ended June 30 despite a seven per cent increase in revenue.

Chief financial officer Nadeem Velani cited rising fuel prices and “the continued headwind from grain” as hurdles, partly offset by a 25 per cent increase in container shipping revenues and an earnings bump from several commodities.

Read more: ATCO to build fuelling stations in Edmonton, Calgary for CP Rail’s hydrogen locomotive program

Spiking demand for potash, metals and automotive products amid still-snarled supply chains pushed up those revenue streams between 22 per cent and 28 per cent year over year — even as potash volumes nudged up less than three per cent and auto carloads stayed flat.

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Outpacing them all however were fuel expenses, which jumped 70 per cent or $152 million, weighing on the railway’s bottom line.

Velani repeated a line from the previous quarter’s earnings call, stressing 2022 will be a “tale of two halves” and offered a buoyant view of the next five months.

“The upcoming grain harvest is looking better every day,” CEO Keith Creel told investors on a conference call Thursday.

Regulatory scrutiny of the railway’s proposed acquisition of the Kansas City Southern railway continues, with the U.S. Surface Transportation Board announcing dates for public hearings in late September. A decision from the regulator is expected early next year.

The US$31-billion deal would pave the way for North America’s only railroad stretching through Canada, the U.S., and Mexico.

“We’re in a good spot. We continue to gain ground and look forward to realizing the vision of that transformational merger as we march toward the first part of 2023,” Creel said.

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CP Rail also expects double-digit growth in revenue ton miles — a key metric measuring how much revenue a company makes per volume of freight hauled — for the back half of the year, he said.

Russia’s invasion of Ukraine has driven up energy prices across the globe, cutting into the transport industry profit margins. But its impact on fertilizer supply has been to the company’s benefit, said chief marketing officer John Brooks?.

“With the ongoing disruptions in potash supply from Belarus and Russia, we expect Canadian potash to remain a growth driver at CP,” he said.

Read more: Industry calls for ‘permanent’ supply chain solution in wake of CP Rail work stoppage

On Thursday, the company reported a net income of $765 million in its second quarter, down from $1.25 billion in the same period last year.

On an adjusted basis, CP Rail’s diluted earnings per share fell to 90 cents from $1.03 per share in 2021.

Revenue was $2.20 billion versus $2.05 billion in the same quarter last year.

On Wednesday night, the company announced its quarterly dividend would be 19 cents per share for the quarter, payable on Oct. 31.

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