Calgary, AB — Canadian Pacific Railway Ltd. reported a record fourth-quarter profit as it seized on higher crude volumes and overcame a late grain harvest and other headwinds to boost profits by 22 per cent.
“Global economic uncertainty caused by geopolitical and macroeconomic challenges slowed rail volumes across North America,” chief executive Keith Creel said.
“2019 marked the second consecutive year we’ve led the industry in volume growth. And as we enter into 2020, I certainly expect to continue that trend.”
Income from energy, chemicals and plastics shot up by one-third last quarter, with crude volumes reaching a company record at more than 36,000 carloads.
A diluent recovery unit expected to become operational next year near at CP Rail’s terminal in Hardisty, Alta., will allow about 30 per cent more crude in each tank car, “making crude-by-rail costs competitive with pipe,” marketing head John Brooks said.
However, he told a conference call with financial analysts Wednesday that said the quarter was “not without its challenges.”
Mine maintenance and wet weather on the West Coast pushed down coal revenue by 10 per cent, while potash volumes dropped 29 per cent due partly to delays in international contract negotiations, Brooks said.
CP managed to harness a large, but delayed grain harvest to deliver the biggest shipments in its 139-year history — 7.9 million tonnes — which capped off a record grain year.
Driving the numbers were higher soybean shipments to East Asia, “as positive U.S.-China trade settlement talks have helped rally spot grain movements,” Brooks said.
“CP’s operational performance continues to be very strong and we see some volume tailwinds and easier comparables — Q1 notably — driving growth in 2020,” said National Bank of Canada analyst Cameron Doerksen in a research note.
The results come a day after CP rival Canadian National Railway Co. reported plunging fourth-quarter profits due to a week-long strike and thinner freight demand.
CP Rail reported a fourth-quarter net income of $664 million, up from a profit of $545 million in the same period a year earlier. The Calgary-based railway said its profit amounted to $4.82 per diluted share for the quarter ended Dec. 31, up from $3.83 per diluted share a year ago.
Revenue for the quarter totalled nearly $2.07 billion, up from nearly $2.01 billion in the same quarter a year earlier.
On an adjusted basis, CP Rail says it earned $4.77 per diluted share in the quarter, up from $4.55 per diluted share a year ago.
Analysts on average had expected a profit of $4.66 per share for the quarter and $2.02 billion in revenue, according to financial markets data firm Refinitiv.
CP’s operating ratio, an industry metric where a lower ratio means more efficient operations, rose to 57.0 per cent for the last three months of 2019 compared with 56.5 per cent in the fourth quarter of 2018.
For the full year, the railroad operator reported net income of $2.44 billion or $17.52 per diluted share on $7.79 billion in revenue. That compared with net income of $1.95 billion or $13.61 per diluted share on nearly $7.32 billion in revenue in 2018.
The company’s operating ratio for 2019 improved to 59.9 per cent compared with 61.3 per cent in 2018.
On an adjusted basis, CP said it earned $16.44 per diluted share in 2019, up from an adjusted profit of $14.51 per diluted share in 2018.
In its outlook for 2020, the railway said it expected single-digit to low double-digit adjusted diluted earnings per share growth relative to 2019.
Volume growth this year is expected to be in the mid-single digits as measured by revenue ton miles, while capital expenditures are forecast at $1.6 billion.