January 23, 2019 / 11:57 PM / 5 months ago

UPDATE 2-CP Railway sees record-setting 2019, posts strong profit

(Recasts throughout with crude outlook)

By Susan Taylor and Shanti S Nair

TORONTO/BANGALORE, Jan 23 (Reuters) - Canadian Pacific Railway Ltd expects double-digit earnings growth in 2019, the country’s second-biggest rail operator said on Wednesday, lifted by strong pricing and growing demand for shipments of crude and other commodities.

The Calgary-based company, which got a sizeable revenue lift from crude in its fourth quarter, said it expects crude shipments will increase to an annual run rate of approximately 120,000 rail cars in the second quarter from about 100,000 currently.

Reporting a bigger-than-expected profit, despite higher fuel costs, CP also forecast double-digit growth in diluted earnings per share in 2019, from C$14.51 in 2018, and mid-single-digit volume growth.

“The two most striking things were they did well on the pricing ...and they did just a fantastic job of keeping their costs in line,” said Edward Jones analyst Dan Sherman. “It sounds like they just see pretty solid sailing going forward.”

CP’s operating ratio, a closely watched productivity metric that measures operating expenses as a percentage of revenue, improved by 370 basis points to 56.5 percent in the fourth quarter.

While railways are sensitive to economic downturns or major shifts in trade, CP said it has not seen a downturn in its international intermodal container business in January or February, despite a surge of volume late in the fourth quarter.

“We entered 2019 with tremendous momentum,” said Chief Executive Keith Creel on a conference call with analysts. “Rest assured, we’re poised for another record-setting year.”

CP said it recently struck a multi-year agreement with Suncor Energy that is a C$20 million near-term opportunity that could double in later years. It also struck a multi-year deal to ship refined fuels to Southern Ontario, but did not disclose the customer.

Growing crude shipments come as output from Western Canada has outstripped pipeline capacity, prompting producers to increasingly sign transport deals with CP and its larger rival, Canadian National Railway Co.

Cenovus Energy Inc said in September it had signed three-year deals with CP and CN to transport roughly 100,000 barrels per day of crude from Northern Alberta to the U.S. Gulf Coast.

For the quarter ended Dec. 31, CP reported earnings of C$ 4.55 per share, excluding items, beating the C$4.22 consensus estimate, according to IBES data from Refinitiv.

Net income fell 45 percent, to C$545 million, compared to year-ago results buoyed by a C$527 million income-tax gain.

Revenue rose 17 percent to C$2.01 billion. ($1 = 1.3347 Canadian dollars) (Reporting by Susan Taylor in Toronto and Shanti S Nair in Bengaluru; editing by Sriraj Kalluvila and James Dalgleish)

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