Canadian Pacific Kansas City Ltd. enjoyed a jump in profits last quarter despite a costly derailment and a labour disruption that forced the railway to wind down operations over a two-week stretch last summer.
On a conference call Wednesday, CEO Keith Creel highlighted “a very challenging operational quarter” but said the company bounced back to keep it on track for double-digit earnings growth this year.
Net income climbed seven per cent year-over-year in the third quarter and revenue rose six per cent, the Calgary-based company reported.
CPKC took a $60-million “expense hit” after rail cars carrying hazardous material derailed and burst into flames in a remote area of North Dakota in July, said chief financial officer Nadeem Velani.
In August, CPKC and rival Canadian National Railway Co. grappled with a countrywide work stoppage that ground Canadian Pacific to a halt for four days, capping off a two-week operational wind-down.
The shutdown dented revenue ton miles — a key metric measuring how much revenue a company makes per volume of freight hauled — by three per cent, the company said Wednesday.
“The good news is the bulk of that business was our bulk business. It was potash, coal, grain. Opportunities like that simply will roll forward” — rather than being lost — said chief marketing officer John Brooks.
“No doubt there’s certain areas we’re feeling more pressure. Certainly the intermodal space, with all the trucking capacity and the cheaper spot rates for trucks, that has been a little more challenging,” he qualified.
Revenues from container shipments slipped four per cent year-over-year amid softer consumer demand brought on by inflation and higher interest rates.
However, revenues for CPKC’s two biggest categories last quarter — grain and energy, plastics and chemicals — both surged by 11 per cent. The railway road a bumper wheat crop and greater shipments to Mexico from the Prairies — one example of “synergy wins and more market share gains” that spanned various commodities, said Brooks.
The efficiencies stem largely from Canadian Pacific’s takeover of Kansas City Southern in December 2021. The acquisition marked North America’s first major rail merger in decades, but operations merged only in April of last year following regulatory approval of the deal.
Due largely to CPKC’s continent-wide network — none of North America’s five other major railways span all three countries — sales from automotive shipments soared by 25 per cent year-over-year, topping company records, Brooks said.
The larger economic environment “remains challenging in a few areas,” but Brooks said earnings should continue to grow next year regardless. He highlighted container shipping through the Port of Lazaro Cardenas, Mexico’s largest seaport, as well as CPKC’s monopoly on single-line freight service between that country and the U.S. Midwest as selling points.
Creel was undaunted by legislation passed by the Mexican senate last week that would hand the government greater control over rail operations.
“The best way to summarize the way I feel about it is encouraged,” the CEO said.
“The vision is: protect freight — create a dedicated corridor for two passenger tracks in the adjacent right of away” rather than run trains on CPKC lines and thus clog traffic, he said.
In a bid to roll back privatization laws from the 1990s, the bill would allow the president to award concessions to companies aiming to provide passenger service and would give those service operators priority over freight trains.
As an item of constitutional reform, the bill must be ratified by at least 17 of Mexico’s 32 states.
On Wednesday, CPKC said net income increased to $837 million in the three months ended Sept. 30 from $780 million in the same period the year before.
Third-quarter revenues rose to $3.55 billion from $3.34 billion a year earlier, the company said.
On an adjusted basis, core combined diluted earnings rose to 99 cents per share from 92 cents per share, coming in two cents short of analysts’ expectations, according to financial markets firm LSEG Data & Analytics.
This report by The Canadian Press was first published Oct. 23, 2024.
Companies in this story: (TSX:CP, TSX:CNR)
