April 21, 2011 / 12:06 PM / 7 years ago

UPDATE 3-Weather woes weigh on Canadian Pacific results

* Q1 EPS C$0.20 vs C$0.60 year ago

* Q1 rev C$1.16 bln vs C$1.17 bln year ago

* Says this year’s weather unusually harsh (Adds details on operating ratio, paragraph 10)

By Allan Dowd

VANCOUVER, April 21 (Reuters) - Harsh winter weather that helped knock down Canadian Pacific Railway’s CP.TO CP.N first-quarter profit by 67 percent will not set back long-term efforts to improve efficiency, the company said on Thursday.

This winter, avalanches buried its mainline in British Columbia and heavy snow snarled switch yards in the Canadian Prairies and U.S. Midwest, driving up costs in a quarter when revenues were nearly flat from a year ago.

The carrier had warned in March that quarterly profit would be down sharply. It said operations and revenue are recovering, although spring flooding has caused problems in recent weeks and remains a threat. [ID:nN20170778]

The railway, which operates across Canada and in the northern United States, said the culmination of weather events in January and February was an “anomaly” that did not reflect a weakness in its operating model.

“I’ve railroaded a long time, and in all 40-plus of my years of railroading I have never been through a winter like the one we’ve just gone through,” chief operating officer Ed Harris told analysts. [ID:nN02185071]

Profit fell to C$33.7 million ($35.5 million) in the quarter, or 20 Canadian cents a share, from C$101 million, or 60 Canadian cents a share, in the same period of 2010.

Revenue fell slightly to C$1.16 billion, from C$1.17 billion. Expenses increased C$94 million to C$1.1 billion, driven by higher fuel prices and idled trains that burned fuel and crew costs as they wait for tracks to be cleared.

Analysts on average expected earnings of 18 Canadian cents a share, on revenue of C$1.17 billion, according to Thomson Reuters I/B/E/S.

Canadian Pacific has set a goal of improving its operating ratio -- a measure of expenses relative to revenue -- to the low 70 percent range over the next two to four years.

Its operating ratio in the first quarter was 90.6 percent, compared with 82.3 percent in the same quarter a year ago and 77.6 percent for 2010 as a whole.

Executives said that target was set knowing the railway will have to deal with harsh winter weather and spring floods and with the expectation that fuel prices will rise.

Harris, a respected veteran in train operations, dismissed concern over his surprise decision in March to retire only a year after joining CP as part of the effort to improve the operating ratio. [ID:nN02278090]

He said the decision was because of family concerns, and he would continue working as a consultant.

Walter Spracklin, of RBC Capital Markets, said the challenge for investors will be gauging CP’s results against rival carriers that have not faced the same sort of weather problems this winter.

”Valuation in our view will largely depend on how much of a discount the market will apply to the volatility in earnings associated with weather impact on a run-rate basis,’ Spracklin said in an investment note.

Canadian National Railway CNR.TO, CPR’s larger rival, is scheduled to report its results next week.

CP’s shares were off 40 Canadian cents at C$59.86 on the Toronto Stock Exchange Thursday afternoon.

$1=$0.95 Canadian Editing by Janet Guttsman and Jeffrey Jones

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