CP Rail Lowers 2015 Outlook After Commodities Cargo Declines

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Canadian Pacific Railway Ltd. cut its forecast for full-year revenue and earnings-per-share growth while it seeks to control costs amid a decline in demand for commodities shipments.

With the reined-in outlook, Canada’s second-largest railroad diverged from other North American peers, including Canadian National Railway Co. and CSX Corp., who have cut jobs to bolster earnings that beat estimates in recent days. The industry has suffered from a drop in coal, oil and grain, reversing last year’s surge. At Canadian Pacific, crude revenue slumped 29 percent in the second quarter, while automotive revenue dropped 13 percent.

Revenue will probably rise 2 percent to 3 percent in 2015, less than a January forecast of 7 percent to 8 percent growth, Canadian Pacific said in a statement. Annual adjusted, earnings per share will be C$10 to C$10.40, less than the C$10.63 implied by an earlier forecast for 25 percent profit growth this year.

“While the downward guidance revision may be disappointing to some, a 20 percent earnings growth rate this year would still be a very solid achievement in the context of a challenging volume environment,” Cameron Doerksen, an analyst at National Bank Financial in Montreal, said in a note. He advises clients to buy the stock.

Earnings excluding some costs and gains rose 16 percent to C$2.45 a share in the second quarter, the company said, in line with analysts’ estimates. Sales were little changed at C$1.65 billion, trailing the C$1.68 billion average estimate.

Job Cuts

Canadian Pacific “remains disciplined during this period of economic uncertainty in identifying opportunities to control costs and improve efficiency to offset near-term headwinds,” Chief Executive Officer Hunter Harrison said in a statement. The company reduced its employee count by 27 at the end of the period to 14,069. That compares with Canadian National, which said it laid off 600 workers in the second quarter.

Canadian Pacific’s efforts at becoming more “nimble,” according to Harrison, helped it to improve its operating ratio, a widely watched measure of railroad efficiency that compares expenses to revenue, by 420 basis points to 60.9 percent, the best second-quarter performance in company history. Operating ratio for 2015 will be less than 62 percent, Canadian Pacific said Tuesday, reiterating a forecast made in January.

The shares fell 0.4 percent to C$205.62 at 10:02 a.m. in Toronto. Through Monday, they declined 7.8 percent this year.

Separately, Canadian Pacific appointed Andrew Reardon chairman. He replaces Gary Coulter, who resigned today.

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