CP Rail profit weaker than expected but outlook lifts shares

Wed Jan 29, 2014 11:13am EST
 
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By Solarina Ho

TORONTO (Reuters) - Canadian Pacific Railway (CP.TO: Quote) (CP.N: Quote), the country's second largest railroad, reported a weaker-than-expected quarterly profit on Wednesday, but forecast adjusted earnings would climb at least 30 percent in 2014 as revenue rises.

Shares of the Calgary, Alberta-based railway rose 2.5 percent to C$162.05 on the Toronto Stock Exchange aftersinking briefly in early trade.

The company said freight revenue rose 7 percent in the fourth quarter, bolstered by a 23 percent jump in revenue from shipments of industrial and consumer products, including crude oil.

Shipping crude via railroads has surged across North America in the past few years as a boom in oil production has exceeded pipeline capacity. But a series of disastrous train derailments has put oil-by-rail under intense scrutiny as its safety is questioned.

CP Rail said on Wednesday it expects 2014 adjusted earnings to increase 30 percent or more and revenue to grow by 6-7 percent from 2013.

"While the Q4 results were only slightly below, and the language around guidance suggests upside, we believe management's tone on the call will largely determine the extent to which the market measures the conservativeness of this forecast," RBC Capital Markets analyst Walter Spracklin said in a client note.

"It's our guess that the tone will be very optimistic and therefore, we would expect the market to ultimately react favorably to this report."

BMO analyst Fadi Chamoun, who expects CP to buy back shares this year, said in a note that the railroad performed well despite challenging weather conditions during the quarter. He noted that CP improved its operating ratio by nearly 900 basis points in the quarter.   Continued...