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October 20, 2021 6:30 PM, EDT

Canadian Pacific Reports Mixed Q3 Earnings

Company Says Merger With KCS Is on Track
Canadian Pacific train Don MacKinnon/Bloomberg News

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Canadian Pacific Railway reported mixed third-quarter earnings on Oct. 20, when the Calgary, Alberta-based carrier said combined freight and nonfreight revenue increased 4.3% year-over-year to C$1.94 billion from C$1.86 billion a year ago.

However, net income declined year-over-year to C$472 million, or C$0.71 per share, compared with C$598 million, C 82 cents, in the same period in 2020.

According to Zacks Consensus Estimate, the company’s earnings missed Wall Street’s expectations, which was for C75 cents per share.

Keith Creel

Creel

“The third quarter presented challenges across the supply chain, but the CP team’s commitment to the foundations of precision scheduled railroading enabled us to respond quickly and effectively to changing environments,” CEO Keith Creel said. “We are committed to controlling what we can control, as CP continues to focus on providing service excellence to our customers and driving value for our shareholders.”

The company said its operating ratio worsened slightly to 60.2 from 58.2. The company cited the increased costs relating to the acquisition of Kansas City Southern due to the higher operating ratio.

The operating ratio measures a company’s operating expenses as a percentage of revenue and measures efficiency. The lower the ratio, the greater ability the company has to make a profit.

Across the various business sectors of the railroad services, the results were mixed.

Grain shipments in the third quarter fell by 29.8% to C$352 million from C$457 million the previous year.

Coal notched up 21% to C$158 million from C$130 million.

Potash dropped 16.8% to C$113 million from C$132 million in 2020.

Fertilizer and sulphur moved up to C$72 million from C$65 million.

Forest products increased 4.7% to C$89 million from C$85 million.

Energy, chemicals and plastics moved up 22.1% to C$392 million from C$321 million.

Metals, minerals and consumer products moved up 28.9% to C$196 million from C$152 million.

Automotive shipments declined to C$83 million from C$94 million primarily because of the worldwide shortage of computer chips and other parts, forcing several vehicle manufacturers to reduce or stop production at their facilities.

Intermodal freight rose 14.5% to C$441 million from C$385 million.

“So there’s certainly challenges ahead as we look forward to our base business,” Creel said. “We’ve got a smaller Canadian grain crop. We’ve got some supply chain issues, challenges that the balance of the industry are also experiencing, but the macro-environment is extremely strong.”

RELATED: Kansas City Southern Reports Mixed Q3 Results

The railroad’s average head count during the quarter increased by 3% to 12,485 from 12,156.

Kansas City Southern locomotive

The merger with Kansas City Southern is progressing. (Kansas City Southern)

On a conference call with reporters and analysts after the financial report was released, Creel said the merger with Kansas City Southern is moving along at a pace he is comfortable with, now that the U.S. Surface Transportation Board has approved what’s called a voting trust application. The voting trust would allow Canadian Pacific’s management team to operate the railroad as officials review the merger in the U.S., Canada and Mexico.

“It’s been a journey, an epic journey. It’s been a great battle, I think, one for the ages, but one we were extremely proud to participate in and extremely pleased with the outcome,” Creel said. “So speaking to the path forward, as we’re all aware, September 30, the STB reaffirmed our trust approval, which certainly we were pleased by that decision. We plan on filing a merger application with the STB before the end of this month. We continue to expect to close the transaction actually in the fourth quarter.”

Mexican regulatory approval is required because Kansas City Southern is the only railroad that operates deep into Mexico, which is one of the reasons it has been so highly sought after by both Canadian National and Canadian Pacific.

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