(Reuters) - Canadian Pacific Railway Ltd (CP.TO) said on Thursday it is weighing strategic deals to boost crude-by-rail shipments in 2018, after reporting fourth-quarter profit that beat analysts’ estimates.
Canada’s second-largest railway said it expects revenue growth in the mid single digits this year, boosted by strong global potash demand, strength in energy and chemicals, and sees better pricing because of tighter capacity. CP said adjusted earnings per share growth would be in the low double digits.
“We see solid momentum growth heading into 2018,” Chief Marketing Officer John Brooks told analysts.
Canadian crude-by-rail shipments rose in 2017 in the latest sign that tight pipeline capacity is pushing more oil onto railroads.
Canadian railway executives, however, remain cautious about crude-by-rail demand after they were forced to slash rates for shipping crude in 2015 due to a rout in global oil prices.
“Certainly the demand has come on strong in that area. But we’re being really strategic in how we’re bringing it on,” Brooks said. “I think there’s going to be opportunity as the year progresses. But we’re going to pick our partners wisely.”
CP Chief Executive Keith Creel said the railway was looking for customers that do business in both crude and in other lines to mitigate any future fall in oil prices.
CP also sees potential for higher pricing in 2018 as capacity gets tighter on rising demand.
“As shipment volumes expand, capacity tightens, and rail companies are able to negotiate slightly higher rates from their customers,” wrote Edward Jones analyst Dan Sherman in a note to clients.
CP reported an operating ratio — operating costs as a percentage of revenue — of 56.1 percent for the fourth quarter, slightly down from 56.2 percent a year earlier. The lower the ratio, the more efficient the railroad.
Creel said he expects flattish headcount in 2018 and saw opportunity for further improvements in the operating ratio.
CP’s net income soared to C$984 million ($792 million), or C$6.77 per share, in the quarter ended Dec. 31, from C$384 million, or C$2.61 per share, a year earlier.
The jump in profit was mainly due to an income tax gain of C$527 million related to the new U.S. tax code.
Excluding items, the company earned C$3.22 per share, narrowly beating analysts’ estimate of C$3.20, according to Thomson Reuters I/B/E/S.
The Calgary-based company’s total revenue rose about 4 percent to C$1.71 billion.
Reporting by John Benny in Bengaluru and Allison Lampert in Montreal; Editing by Maju Samuel and James Dalgleish