November 13, 2008 / 9:28 PM / 10 years ago

CP Rail cautious in face of economic uncertainty

* No earnings forecasts for 2009

* Capital spending to drop 18 percent next year

* Still weighing U.S. coal line project

By Allan Dowd

VANCOUVER, British Columbia, Nov 13 (Reuters) - The economic turmoil that took a bite from Canadian Pacific Railway’s (CP.TO) profits this year has left it unwilling to provide earnings forecasts for next year.

The company said on Thursday the difficult economic situation is also part of the reason it has not decided yet if it will pursue a rail-line expansion into the coal fields of Wyoming’s Powder River Basin.

“The huge range of possible economic activity makes earnings guidance estimates too wide to be meaningful,” Chief Executive Fred Green told the company’s Investors Day meeting, at which it has usually released its forecasts for the year ahead.

The company, which has operations in both Canada and the northern United States, said it expects overall freight volumes to be down in 2009, but it said efforts to increase efficiency should raise carload yields.

Green brushed aside an analyst’s question on whether profit might rise moderately in 2009 due to cost cuts.

“The reason we pay the big bucks to guys on Wall Street is to decipher amounts of information and reach conclusions that they each get,” he said.

Green said the only financial guidance that CP, Canada’s No 2 railway, was ready to release was its announcement earlier on Thursday that it had lowered significantly its forecast for capital expenditures for 2009 due to the economic climate.

Canadian Pacific said capital investment in 2009 is expected to be C$800 million ($650.4 million) to C$820 million. That is down by about C$200 million from 2008 for the combined capital spending of CP and of Dakota Minnesota & Eastern Railroad, which CP assumed control of this year.

“Current economic conditions are slowing customer expansion plans, therefore we are pacing any future investments while ensuring that we pursue our growth options,” Chief Financial 0fficer Kathryn McQuade said.

The railway said its outlook assumes an average Canadian currency exchange rate of C$1.17 to the U.S. dollar, or 85 U.S. cents.

Green said Canadian Pacific is still deciding whether to pursue DM&E’s plans for an expansion into Wyoming’s coal fields, although it still considers that a lucrative option for the long term.

“The uncertainty driven by the economic downturn, and uncertainty in the credit markets, adds to the list of preconditions that need to be satisfied before we can make a decision,” Green told investors.

Canadian Pacific has never set a date for deciding on the expansion, although it cited the expansion as one of the reasons it purchased the DM&E.

Canadian Pacific’s executives said their focus in 2009 will be on integrating the DM&E into its operations and improving safety on the U.S. line.

The company said it would also move to increase efficiency, in part by running longer and heavier trains, and to make changes to a price surcharge system that has lagged in compensating for higher fuel prices.

Green said most customers with long-term contracts have been cooperative, and that CP has hedged some fuel purchases to compensate for some long-term contracts that were signed when diesel costs were significantly lower.

$1=$1.22 Canadian Reporting Allan Dowd, Editing by Peter Galloway

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