As adjustment is not expected until the New Year, Canadian Pacific Railway is modeling this impact through the balance of 2008 and for the second half, remodeling the 2008-2009 crack year at 44.5 million metric tons, slightly below the average. The company was encouraged by reports, particularly good conditions in the Southern part of the Canadian draw territory.
Coal had another solid quarter up 7% from a year ago.
The company moved 4% more tonnage for Elk Valley in the quarter. Export pricing now reflects the year-over-year gain following the rate increase on April 1, 2008. Canadian Pacific Railway continues to model about one-and-a-half million export tons over the 2007 actual volume and is progressing work on the upcoming Elk Valley contracts renewal at the end of the first quarter 2009.
Oakland Fertilizer Revenue was down 1% with units 13% lower.
The lower units’ year-over-year is the result of tough compared to record potash volume in the second quarter 2007 due a carry-in from a difficult first quarter. An early maintenance turnaround this year at a major potash mine and the reduction in sulfur volume due to declining Southern Alberta sour gas production, the strong export potash volume over the balance of the year will be largely offset by other mix changes.
Most notably the decline in sulfur, revenues will be up close to 10%.
The CAMSA TECH announcement to invest in ports to almost double their capacity adding 11 million tons of port capacity by 2012 is a world co-affirmation of the continuing great prospects to this market. As its Potash Corporation of Saskatchewan’s announcement last week of their plans to further increase their plant mine capacities now targeted at 18 million tons up from 10.2 today.
In forest products, overall revenues were up 15% from the quarter due to lumber and panel products.
The outlook reflects the 10% decline for the full year with easier comps in the second half. As a recurring and sharp contrast, industrial product was up 23% reflecting the continued strength in the Alberta energy economy for products that compensates on aggregate.
On the automotive side, revenues were up 3% despite lower volumes due to weak US sales and the impact of the American axle strike on General Motor.
- Price, fuel, and new long coal revenues within the mix, resulted in the net gain in the quarter. Full year revenue expectations remain below 2007.
- Intermodal was up 11%.
- Both domestic and international saw a modest volume gain but the key driver was price, primarily fuel.
- With higher bunker fuel cost, Canadian Pacific Railway has seen shipping lines rationalizing routes and low margin business, a domestic assault of the North American economic impacts in areas such as building products.
Revenue breaks out as follows:
- Price, including fuel, was the key component of 9.6% with the fuel surcharge delivering about half.
- The CTA grain provision takes the company down 1.1%.
- Volume and mix is -3.4% and FX reduced revenue by 3.5%.
- This leads to the own and reported revenue growth of 1.6%.
- Contract renewal continues to deliver solid results with 7.4% of the quarter, now 6.5% year-to-date.
Canadian Pacific Railway faced record highs in fuel with WTI up of 80% and crack margins up over 60% versus last year.
After including fuel surcharges and delay, the net EPS impact was $0.12 in the quarter. Other notable items in the quarter included the flooding in the Midwest and the reduction in the company’s grain revenue entitlement by the CTA. Removing these three impacts from the operating ratio would leave Canadian Pacific Railway flat with the second quarter a year ago.
Total revenues were up 4%, while operating expenses declined 10%.
- As a result, operating income fell 16% with fuel and the economy as primary drivers.
- Canadian Pacific Railway gained $13 million after tax from the DM&E.
- Interest expense increased 35% consistent with expectations.
- Income taxes fell by 36% due to lower earnings and lower tax rates in Canada.
The price of fuel which was the basic headwind and cost the company $0.43 before any revenue offset.
The flooding in the Midwest which left the company’s mainline out of service for about 20 days cost approximately $0.03, the flaw in North American economy continued to impact the volume and mix story as automotive and port products both stop car loads fall by more than 10%.
Overall, car loads were down by almost 2% which is substantially below the company’s expectation going into the quarter but this 2007, volumes and mix, net of expenses cost us $0.11. Other revenue was down $0.06 as a result of fewer land sales and finally, casualty cost were up costing us $0.04.
The strike Canadian Pacific Railway faced in the second quarter last year gave the company a $0.04 tailwind.
|
