By Solarina Ho and Peter N Henderson
TORONTO, July 24 (Reuters) - Canadian Pacific Railway said its long-haul crude-by-rail business should pick-up later this year as price spreads for crude widen.
That crude business was a key driver in its latest record quarterly profit. However, those results, released on Wednesday, slightly missed trade forecasts as floods and a number of high-profile derailments increased costs, sending its shares lower.
“Rail is going to be a permanent part of the transportation of crude to the marketplace,” said Jane O‘Hagan, chief marketing officer, in a conference call with analysts on Wednesday.
The pace of crude-by-rail growth moderated in recent months as spreads between benchmark world oil prices narrowed, she added.
CP said record floods last month in the Canadian oil and gas capital of Calgary, Alberta, curbed revenue growth by C$25 million, or 2 percent. The flooding caused extensive network outages, including more than 40 track washouts over a four-day period.
The company, Canada’s second-biggest railroad operator behind Canadian National Railway Co, also incurred about C$35 million in train accident-related expenses, compared with a more typical C$15 million, BMO analyst Fadi Chamoun said in a note to clients.
Shares of CP fell as much as 3.9 percent to C$125.09 in Toronto. The stock is still up about 70 percent since Hunter Harrison, an industry veteran, joined the then underperforming company in June 2012 to turn it around.
CP has been plagued this year by a series of high-profile derailments and accidents involving petroleum products, raising questions of safety amid its huge efficiency campaign and job cuts.
Late last month, five rail cars carrying hazardous petroleum products derailed on a broken bridge in Calgary in the aftermath of the devastating flood that probably caused billions of dollars in damage.
In May, five tankers containing oil derailed near Jansen, Saskatchewan, and one of the cars spilled 575 barrels (24,150 gallons) of crude.
Chief Operating Officer Keith Creel said CP faced reliability issues with some “catastrophic” failures of wheels due to extended harsh winter weather. But he said the company had not cut back on its inspectors or its safety standards.
Second-quarter net income rose to C$252 million ($244.86 million), or C$1.43 per share, from C$103 million, or 60 Canadian cents per share, a year earlier.
Analysts on average had been expecting earnings per share of C$1.49, according to Thomson Reuters I/B/E/S.
Revenue increased 10 percent to C$1.50 billion, missing analysts’ estimates of C$1.52 billion.
Operating expenses fell 4 percent to C$1.1 billion, while operating income soared 76 percent to C$420 million.
The company said its operating ratio, the percentage of revenue needed to maintain operations, had fallen to 71.9 percent, a quarterly record.
CP maintained its 2013 forecast of high-single-digit revenue growth and an operating ratio in the low 70s.
CN Rail, which reported a better-than-expected quarterly profit earlier this week, said it expects the boom in crude-by-rail shipments to continue.