Canadian Pacific Railway Outlook Disappoints as Sales Plunge
Canadian Pacific Railway provided a second-quarter profit outlook that fell short of estimates amid a plunge in sales.
Revenue for the period ending June 30 probably will drop 12%, resulting in adjusted per-share profit of about C$2 ($1.56) and an operating ratio of about 62%, Calgary, Alberta-based Canadian Pacific said in a statement June 21. Canada’s second-largest railroad had been expected to earn C$2.45 a share, the average estimate in a Bloomberg News 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% is now imperiled after wildfires in Alberta delayed some crude shipments and a strengthening Canadian dollar reduced the value of U.S. shipments.
The June 21 profit outlook reflects a “challenging volume environment and raises questions on CP’s ability to achieve full-year guidance,” Desjardins Capital Markets analyst Benoit Poirier said in a note to clients. Investors probably will “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.
To compensate 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 target 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,” CEO 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.”
