TORONTO, April 22 (Reuters) - Canadian Pacific Railway Ltd (CP.TO) reported a 29-percent drop in first-quarter profit on Tuesday, hurt by higher fuel costs and a stronger Canadian dollar, and leading the company to lower its earnings expectations for the year.
The carrier earned C$90.8 million, or 59 Canadian cents a share in the quarter ended March 31. That compares with a profit of C$128.6 million, or 82 Canadian cents a share, in the same quarter a year ago.
The company cut its forecast for 2008 and now expects diluted earnings per share before items of between C$4.40 and C$4.60, down from C$4.65 to C$4.80.
Canadian Pacific, which operates in Canada and the northern United States, said quarterly revenue grew 3 percent to C$1.15 billion.
It took a foreign exchange loss of C$16 million in the period, as well as a charge of C$21 million related to its investments in Canadian asset-backed commercial paper.
Profits were eroded by heavy snowfall, which hurt its supply chain, and slower economic growth, the company said.
"We faced a tough first quarter with substantial headwinds, and as we look to the balance of the year, we anticipate the continuing effects of a slowing North American economy on our business," Mike Lambert, the chief financial officer, said in a statement.
The carrier expects about C$200 million in free cash this year, down from C$250 million, due to lower operating income.
It had warned in February that it was facing "headwinds" at the start of the year, including from some new locomotives that were not operating as reliably as the company had expected.
It was also feeling the impact of a Canadian government ruling on grain rates, some of which was applied retroactively to the start of the current grain season.
CP Rail said its operating ratio, or its operating expenses as a percentage of revenue, was 82.7 percent, up from 79.5 percent a year ago. A ratio of 80 or lower indicates that a company is operating efficiently.
$1=$1.01 Canadian Reporting by Jonathan Spicer; Editing by Bernadette Baum