CALGARY — The volume of goods being transported across North America by rail is expanding, an investment bank says, but Canada’s second-biggest railway is still cautious about the overall economic outlook for this year.
Canadian carloads are 15 per cent higher so far in 2010 compared with the year-earlier period, when the recession ate away at demand for many of the products that move across the continent by rail, UBS Investment Research wrote in a note to clients Thursday.
UBS cited “notable strength” in automotive, metals, building materials, chemicals, coal and intermodal goods at Canada’s two main railways, industry leader CN Rail of Montreal and CP Rail.
Railways are often considered a bellwether for the state of the wider economy. For instance, if consumers are buying fewer vehicles or fewer homes are being built, railways will be the first to observe it through how many automobiles or how much lumber customers want shipped.
Calgary-based Canadian Pacific Railways Ltd. (TSX:CP) has seen its total carloads rise 10.6 per cent to date, the UBS note said.
Canadian Pacific chief financial officer Kathryn McQuade said while the improvements are heartening, there is still a lot of uncertainty as Canada and the U.S. recover from the recession.
“There’s a lot of industries that still need healing and that’s what makes me cautious,” she told an investor conference this week.
“It does appear the consumer is beginning to open their purse a little bit and beginning to spend. But will that be the same case in October, November, December? That’s where I don’t have clarity.”
Government stimulus spending is also making it difficult to ascertain exactly how healthy the underlying economy truly is, McQuade said.
“I still want to see corporate spending, corporate investment — that’s the true sign that someone is really believing in the economy,” she said.
In January, Canadian Pacific began reporting its financial results according to U.S. accounting rules. It had previously reported according to Canadian standards.
In 2011, Canadian companies will be required to switch to international reporting standards if they aren’t already reporting according to U.S. Generally Accepted Accounting Principles.
“The move to U.S. GAAP allows CP to maintain comparability with the other Class 1 railways,” comptroller Brian Grassby said on a conference call Thursday to go over the changes.
Late Wednesday, Canadian Pacific re-stated its earnings to reflect the changes.
Net income for 2009 was $555.4 million, or $3.33 per diluted share, compared to $635.6 million, or $4.09 per diluted share.
The railway said previously in January, when it calculated its results under Canadian standards, its 2009 profits were $612 million, compared to $607.2 million in 2008.
The revenues Canadian Pacific reported in January were $4.3 billion, compared to $5.2 billion.
On Wednesday, the company said its revenues were $4.4 billion, compared with $5 billion a year ago, under the U.S. rules.
Canadian Pacific’s shares rose 2.3 per cent to $55.90 Thursday on the Toronto Stock Exchange.