CALGARY — Canadian Pacific Railway Ltd. (TSX:CP; NYSE:CP) saw a 74 per cent bump in first-quarter profits as the economy began to recover from last year’s deep downturn, but the company’s CEO says it’s too soon to tell how long the strength will last.
Net income at Canada’s second-biggest railway company was $100 million during the first three months of the year, compared with $57 million during the same period of 2009, when the recession was hitting full-force.
“Last year we demonstrated our ability to react to the declining market. This quarter, we demonstrated our ability to react to a market rebound,” chief executive officer Fred Green told analysts on a conference call Wednesday to discuss his firm’s quarterly results.
“We still have very limited visibility into demand beyond (the second quarter) and are fully cognizant that markets are likely to recover in fits and starts.”
Canadian Pacific had net earnings of 59 cents per share. On an adjusted basis, it had 60 cents per share of earnings above analyst estimates of 51 cents per share, according to figures compiled by Thomson Reuters.
Revenues rose five per cent to $1.2 billion, as customers began to ship more of their goods along Canadian Pacific’s vast network, which stretches across Canada and into the northern United States.
Observers often look to railway companies for clues about the health of the overall economy or individual sectors. If demand is up for a certain commodities, Canadian Pacific will ship more.
The volume of fertilizers transported by Canadian Pacific during the first quarter rose 78 per cent year-over-year, thanks to a growing global appetite. Grains, automobiles and coal also showed signs of strength, though not as dramatically.
“Am I delighted with the speed of the bulk recovery? You bet. We had no way to predict that,” Green said.
“The issue that we all face is simply the sustainability of the demand... The reality is, we don’t really know what’s going to happen beyond the second quarter and I don’t think our customers do.”
In addition to the higher volumes, Canadian Pacific’s bottom line also benefited from its efforts to lower costs by making its business run more efficiently. Operating expenses fell two per cent to $962 million from $977 million.
On the flipside, the company was negatively affected by the strengthening Canadian dollar against its U.S. counterpart, reporting a net foreign exchange loss after tax of $3 million on long-term debt in the first quarter, reversing a $7 million gain a year earlier.
“We should continue to see a continued (foreign exchange) headwind as the Canadian dollar is expected to remain strong,” said chief financial officer Kathryn McQuade.
“Our rule of thumb remains, one cent strengthening in the Canadian dollar decreases EPS for the year by a penny.”
Montreal-based Canadian National Railway Co. (TSX:CNR)., the country’s largest railway operator, reported sharply higher net profits earlier this week and said its outlook for the rest of the year is positive.
Canadian Pacific shares jumped nearly five per cent to $61 on the Toronto Stock Exchange in afternoon trading.