October 25, 2011 / 10:34 PM / 7 years ago

WRAPUP 1-Canadian railways dismiss economic doom and gloom

* CP Rail CEO says bulk business “surprisingly strong”

* CP does see weakness in demand from N. America retailers

* CN earnings rise 19 pct; CP earnings fall 5 pct (Recasts to include CN Rail results, conference call)

By Nicole Mordant

Oct 25 (Reuters) - Canada’s two big railroads scotched doom and gloom scenarios about a recession in North America and a sharp slowdown in Asia on Tuesday, saying the outlook for traffic on their tracks was sturdy across most products.

Canadian National Railway Co (CNR.TO), as usual, painted a rosier outlook than its smaller rival Canadian Pacific Railway (CP.TO). Both companies, whose operations cross Canada and extend into the United States, released third-quarter earnings on Tuesday.

Canadian National reported a better-than-expected 19 percent rise in profit thanks to record carloadings and revenues, strong operational execution and cost controls. [ID:N1E79J1VA]

For its part, CP reported a 5 percent slide in earnings, largely as expected, on the back of ongoing clean-up costs from flooding that followed rough winter conditions. [ID:L3E7LP223]

“We are all, like everybody else, concerned about potential shocks, about confidence. But honestly, when we look at our traffic patterns we can’t see a recession in the making at the moment,” said CN Chief Executive Claude Mongeau.

Earlier in the day, his counterpart at CP, Fred Green, said the outlook for CP’s bulk shipments, which include products such as potash, coal and grains, remained “surprisingly strong”, despite media reports of a slowdown in Asia, where most of the goods are headed.

The outlook for retail shipments is, however, not as rosy, Green said, as U.S. unemployment remains high and concerns over the health of Europe’s economy abound.

Railways are often a good barometer of economic performance as their shipping operations touch a very broad cross-section of products.


Both companies laid out beefed-up winter operating plans in case the season is as harsh as last year’s when avalanches and heavy snowstorms covered tracks and disrupted rail traffic.

CP’s tracks were by far the hardest hit and the country’s No. 2 railway said it would have extra employees, locomotives and snowplows on standby to avoid the disarray its customers faced when the carrier did not have the manpower or equipment to deal with disruptions swiftly.

The railroad does run the risk of being over-resourced” and raising its costs because of the precautions it is taking, but it is the correct risk to take, analysts said.

“That’s probably the right decision to focus on regaining customer confidence as opposed to making sure that the next few months’ margins are better,” said BMO Capital Markets analyst Fadi Chamoun.

CP’s operating costs are already high as witnessed by its operating ratio, which worsened to 75.8 percent in the quarter, from 73.7 percent in the year-ago period.

The higher the ratio, which measures operating costs as a percentage of revenue, the less efficient the railway.

By comparison, CN, which is one of the most efficient railways in North America, said its ratio fell to 59.3 percent in the quarter, a 1.4-point improvement from 60.7 percent a year ago.

CN, Canada’s biggest railroad, said earnings rose to C$659 million ($646 million), or C$1.46 a diluted share, in the three months to the end of September. That compared with earnings of C$556 million, or C$1.19 a share, a year ago.

Earlier, CP reported third-quarter net income of C$186.8 million, or C$1.10 a share, down from C$197.3 million, or C$1.17 a share, in the year-before quarter.

CN’s revenue increased 9 percent to C$2.3 billion. CP’s revenue rose 4 percent to C$1.34 billion.

CP’s shares ended 0.5 percent weaker at C$59.52 on the Toronto Stock Exchange. CN’s closed 0.09 percent lower at C$75.13. CN’s results were released after the market had closed.

$1=$1.02 Canadian Reporting by Nicole Mordant in Vancouver. Additional reporting by Bhaswati Mukhopadhyay in Bangalore; editing by Rob Wilson and Peter Galloway

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