Canadian Pacific Railway Closes First Quarter With Strong Momentum
27 Aprile 2004 - 2:30PM
PR Newswire (US)
Canadian Pacific Railway Closes First Quarter With Strong Momentum
- Operating income, excluding impact of foreign exchange, up 9% -
Freight volumes up 11%, despite weather-related service disruptions
- Strong finish provides momentum into second quarter CALGARY,
April 27 /PRNewswire-FirstCall/ -- Canadian Pacific Railway
(TSX/NYSE: CP) reported a decline in net income to $24 million in
the three- month period ended March 31, 2004, from $102 million in
the same period of 2003. On the same basis, diluted earnings per
share (EPS) were $0.15, compared with $0.64. The railway said the
$78-million decrease in net income was due to a net loss of $14
million in foreign exchange on long-term debt in the first quarter
of 2004, compared with a net gain of $64 million in the same period
a year earlier. On an ongoing basis, CPR's results improved
operationally throughout the first quarter of 2004. Excluding
foreign exchange gains and losses on long- term debt, net income of
$38 million (non-GAAP) and EPS of $0.24 (non-GAAP) in first-quarter
2004 were slightly ahead of $37 million and $0.23 in first- quarter
2003. This was achieved despite disruptions caused by severe
weather and a major avalanche in January. Rob Ritchie, President
and Chief Executive Officer, said: "The worst avalanche in eight
years and severe weather early in the quarter hit us hard in our
western corridors over a two-week period. With heavy freight
volumes fully consuming available capacity, there was no
opportunity to recover the lost volumes in the quarter. This took
approximately $25 million out of operating income and cost us about
$0.10 on EPS. However, we staged a comeback that saw our railway
running more efficiently than ever, and exited the quarter with
very strong business fundamentals. In March, compared with
February, overall business (revenue ton-miles of freight) increased
sharply by 17 per cent, and average train weight climbed 5 per
cent. This momentum has carried into the second quarter." CPR's
operating income in the first quarter of 2004 was $116 million,
compared with $118 million in the same period of 2003. Its
operating ratio for the three-month period was 86.9 per cent,
compared with 86.6 per cent. The Canadian dollar's 16 per cent
year-over-year gain against the U.S. dollar had a substantial
negative impact on operating income in the first quarter of 2004,
compared with first-quarter 2003. Fluctuations in the value of the
Canadian dollar affect CPR's results because U.S.
dollar-denominated revenues and expenses are translated into
Canadian dollars. A stronger Canadian dollar reduces U.S.
dollar-denominated revenues and expenses. Operating income is also
reduced because more revenues than expenses are generated in U.S.
dollars. In the first quarter, revenues were reduced by
approximately $59 million, operating expenses by approximately $46
million, and operating income by approximately $13 million.
After-tax income, excluding foreign exchange on long-term debt, was
reduced by $4 million, or $0.02 per fully diluted share. Total
revenues in the first quarter of 2004 were $887 million, compared
with $879 million in the same period a year earlier. Revenues in
CPR's bulk commodity sector increased $19 million, or 5 per cent
over revenues in first- quarter 2003 as a result of strong demand
from Pacific Rim countries for raw materials. Intermodal revenue
increased $27 million, or 12 per cent, reflecting higher volumes at
the ports of Vancouver and Montreal and a temporary market shift
caused by a month-long strike at CN. In the merchandise sector,
which includes forest and industrial products and automotive,
revenues declined $27 million, or 10 per cent, largely due to the
stronger Canadian dollar. Operating expenses were $771 million in
the first quarter of 2004, compared with $761 million in the same
period of 2003. Compensation and benefits expense increased 8 per
cent over first-quarter 2003. The increase was driven by hiring to
handle the 11-per-cent volume growth, higher pension costs and
inflation. These higher costs were partially offset by the
beneficial impact of foreign exchange and cost containment
measures, including job reductions as CPR continued to meet targets
announced in June 2003. Depreciation and amortization expense
increased 10 per cent, reflecting CPR's investments in new assets
and depreciation rate revisions. Although higher freight volumes
and fuel prices drove up fuel expense, the increase was more than
offset by improved fuel efficiency and foreign exchange rates.
Materials, equipment rents and purchased services declined by 6 per
cent. Excluding foreign exchange gains and losses on long-term
debt, CPR's effective income tax rate rose to 34 per cent in
first-quarter 2004, compared with 32 per cent in the same period of
2003. The increase was largely due to the government of Ontario's
repeal of previously announced future income tax rate reductions.
Outlook "There has been a dramatic surge in demand across most of
CPR's lines of business and we are working with our customers to
assess the sustainability of this new level of demand," Mr. Ritchie
said. "Our short-term response is to hire crews for trains,
increase the number and productivity of freight cars and bring on
41 high-performance locomotives in the second quarter of 2004 and
another 25 in the fourth quarter. We are continuing to drive
improved efficiency into our intermodal trains through changes to
our integrated operating plan. Despite these measures, we expect
capacity in some areas of CPR's network to remain tight in the
medium term, particularly for bulk and intermodal traffic on our
western corridors. In addition, current market conditions are
favourable for CPR to deliver price increases." Should the currency
environment remain unchanged, the year-over-year impact of foreign
exchange on quarterly financial results is expected to ease
beginning in the second quarter. Given revised 2004 assumptions of
an average exchange rate of $1.33 per U.S. dollar (US$0.75) and a
grain crop approaching normal production, CPR expects 2004 revenues
to grow in the range of 4 per cent to 6 per cent over 2003.
Assuming an average West Texas Intermediate oil price of US$33 per
barrel and factoring in the impact of the previously reported
change in tax rates in the province of Ontario, CPR is now
targeting diluted EPS growth in 2004, excluding foreign exchange
gains and losses on long-term debt, of 5 per cent to 10 per cent
over restated and adjusted EPS of $2.07 in 2003. RESTATEMENT OF
COMPARATIVE FIGURES FOR 2003 Comparative figures for prior periods
have been restated (see appendix) for retroactively applied
accounting changes. The changes relate to the implementation of new
accounting rules under Canadian Generally Accepted Accounting
Principles (GAAP) for asset retirement obligations introduced in
the first quarter of 2004 and for the expensing of stock options
introduced in the fourth quarter of 2003. The combined impact of
the changes is a decrease of $0.4 million in net income, or $0.01
in basic EPS previously reported for the first quarter of 2003.
Notes 2, 6 and 9 to the financial statements further describe the
impact of the accounting changes. FOREIGN EXCHANGE GAINS AND LOSSES
ON LONG-TERM DEBT In the first quarter of 2004, CPR had a foreign
exchange loss on long- term debt of $13 million ($14 million after
tax), compared with a gain of $71 million ($64 million after tax)
in the same period of 2003. PRESENTATION OF NON-GAAP EARNINGS CPR
presents non-GAAP operating earnings to provide a basis for
evaluating underlying earnings trends that can be compared with the
prior period's results. Non-GAAP earnings exclude foreign currency
translation effects on long-term debt, which can be volatile and
short term and are not among CPR's normal ongoing revenues and
operating expenses. The impact of volatile, short-term rate
fluctuations on foreign-denominated debt is only realized when
long-term debt matures or is settled. A reconciliation of income,
excluding foreign exchange gains and losses on long-term debt, to
net income as presented in the financial statements is detailed in
the attached Summary of Rail Data. It should be noted that CPR's
operating earnings, excluding foreign exchange gains and losses on
long-term debt, as described in this news release, have no
standardized meanings and are not defined by Canadian generally
accepted accounting principles and, therefore, are unlikely to be
comparable to similar measures presented by other companies. Note
on Forward-Looking Statements This news release contains
forward-looking information. Actual future results may differ
materially. The risks, uncertainties and other factors that could
influence actual results are described in CPR's annual report and
annual information form, and may be updated in CPR's consolidated
interim financial statements and interim Management's Discussion
and Analysis, which are filed with securities regulators from time
to time. However, CPR undertakes no obligation to update publicly
or otherwise revise any forward-looking information, whether as a
result of new information, future events, or otherwise. Financial
results in this news release are reported in Canadian dollars.
Canadian Pacific Railway is a transcontinental carrier operating in
Canada and the U.S. Its 14,000-mile rail network serves the
principal centres of Canada, from Montreal to Vancouver, and the
U.S. Northeast and Midwest regions. CPR feeds directly into
America's heartland from the East and West coasts. Alliances with
other carriers extend its market reach throughout the U.S. and into
Mexico. Canadian Pacific Logistics Solutions provides logistics and
supply chain expertise worldwide. For more information, visit CPR's
website at http://www.cpr.ca/.