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Canadian Pacific walloped by winter weather in Q1

CALGARY — Canadian Pacific Railway Ltd. said Thursday its bottom line was walloped by particularly nasty winter weather during the first quarter, and warned spring flooding may present further challenges in the months ahead.

CALGARY — Canadian Pacific Railway Ltd. said Thursday its bottom line was walloped by particularly nasty winter weather during the first quarter, and warned spring flooding may present further challenges in the months ahead.

The Canadian Rockies had the worst avalanche cycle in three decades, which caused five times as much downtime as usual for Canada’s second-largest railroad. The danger of snow slides also shut down highways, affecting the railway’s ability to shuttle around employees and supplies.

The U.S. Midwest also saw huge snowfalls, and Canadian Pacific had to undertake the complicated and time-consuming task of plowing rail yards for the first time in decades. Blowing snow across the entire network also slowed trains down.

“In all 40-plus of my years of railroading, I have never gone through a winter like we have just gone through,” said Ed Harris, who retired as executive vice-president of operations earlier this month.

“Some of these things by themselves we should have overcome, but it was the sequential nature of the outages and capacity reductions that took us out of our rhythm and extended the impacts.”

Harris has handed off the reins to senior vice-president of operations Mike Franczak, but intends to stay on in an advisory role. Harris said he decided to leave after only a year on the job because the travel demands were causing strain on his family life.

Earlier Thursday, Canadian Pacific (TSX:CP) said its net income tumbled to $33.7 million during the first three months of 2011, a steep decline from the $101 million it reported a year earlier.

The Calgary-based company’s operating expenses rose to $1.05 billion from $960.2 million, partly on higher fuel costs. Revenue declined slightly to $1.16 billion from $1.17 billion.

Canadian Pacific warned a month ago that the wintry weather would squeeze its first-quarter bottom line. It forecast diluted earnings per share of between 12 and 22 cents.

Its earnings came in on the high end of that range, at 20 cents per share, beating the average analyst estimate of 18 cents per share, according to Thomson Reuters.

UBS Investment Research analyst Tasneem Azim, who had been calling for earnings of 14 cents per share, said the beat was due to better-than-expected revenues and volumes.

In a research note, Azim called the sell-off of Canadian Pacific shares “overdone.”

Canadian Pacific chief executive officer Fred Green called the “brutal” first quarter an “anomaly,” and said the outlook for the rest of 2011 is positive.

However, with the enormous amounts of snow now melting, flooding is a near-term concern, he said.

Canadian Pacific’s main line through Manitoba is back in service after a few days of flood-related outages. A smaller southbound line from Winnipeg has been closed, and may be out of service for a few weeks. Canadian Pacific is most concerned about outages on grain handling lines in the United States, Green said.

While the current flooding is cause for concern, it’s nowhere near as bad as the Prairie deluges that caused an 11-day outage on the railway’s main line last June.

“That was a very, very significant 100-year deal,” Green said, nothing this year’s floods should be “nowhere near” as disruptive, barring new events.

Canadian Pacific ships coal, fertilizer, grain, automobiles, consumer goods and other materials across its vast North American network. As such, it is often considered a bellwether for the state of the general economy.

The railway’s shares dropped 20 cents to $60.06 in afternoon trading on the Toronto Stock Exchange.