CP Rail Drops to Lowest Since February After Outlook Disappoints

  • Second-quarter earnings forecast trails analysts’ estimates
  • Goal of boosting profit 10% is in danger, Desjardins says

Canadian Pacific Railway Ltd. dropped to the lowest level in four months after the carrier provided a second-quarter profit outlook that fell short of estimates amid a plunge in sales.

Revenue for the period ending June 30 will probably drop 12 percent, resulting in adjusted per-share profit of about C$2 ($1.56) and an operating ratio of about 62 percent, Calgary-based Canadian Pacific said Tuesday in a statement. Canada’s second-largest railroad had been expected to earn C$2.45 a share, the average estimate in a Bloomberg survey of 25 analysts.

Like all major North American railroads, Canadian Pacific is grappling with weaker demand for shipments of commodities such as coal and potash. The company’s goal of boosting 2016 profit by at least 10 percent is now imperiled after wildfires in Alberta delayed some crude shipments and a strengthening Canadian dollar reduced the value of U.S. shipments.

Tuesday’s profit outlook reflects a “challenging volume environment and raises questions on CP’s ability to achieve full-year guidance,” Benoit Poirier, a Desjardins Capital Markets analyst, said in a note to clients. Investors will probably “remain skeptical about CP’s ability to achieve its 2016 guidance in light of the lack of visibility on a volume recovery” in the second half, said Poirier, who has a hold rating on the stock.

Canadian Pacific dropped 2.6 percent to C$158.81 at 10:10 a.m. in Toronto after falling to as little as C$156.01, the lowest intraday level since Feb. 3.

To make up for reduced carloads, Canadian Pacific has parked locomotives and started to reduce staff. As many as 1,500 jobs may be cut by July, up from a previous goal of 1,300, Chief Operating Officer Keith Creel said last week at an investor conference.

“CP will continue to focus on controlling costs in a difficult environment,” Chief Executive Officer Hunter Harrison said in the statement. “While we acknowledge the environment remains challenging, additional cost reduction opportunities and the potential for stronger volumes in the back half of the year still lead us to believe that achieving double-digit EPS growth in 2016 is a possibility.”