BUSINESS
07/27/2011 04:20 EDT | Updated 09/26/2011 05:12 EDT

Canadian Pacific Profit Weakens On Flooding

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CALGARY - Canadian Pacific Railway Ltd. said Wednesday that extensive flooding put a damper on its second-quarter earnings, but conditions have since returned to normal.

"Weather continued to mask the improvements we're making and our results reflect a very challenging quarter, pressuring both revenues and expenses," chief executive officer Fred Green told a conference call with analysts.

Canada's second-largest railway experienced nearly 90 separate outages during the quarter. Its main north-south corridor to Chicago was out of service for 23 days because of massive flooding along the Souris River, which flows through Saskatchewan, Manitoba and North Dakota.

"It's been an extraordinary first half, and while we're all frustrated, the level of commitment has been outstanding," Green said.

"Marketing has been proactively working with customers, communicating and problem solving. Operations has been extremely nimble in implementing reroutes and detours, and engineering has been truly exceptional in their efforts to sustain and rebuild the parts of the network impacted by flooding."

As of July 12, the entire Canadian Pacific network was back in service, Green added.

"We're positioned and ready to deliver second-half earnings growth and productivity improvements," he said.

"With the return to more normal conditions, we are delivering a significant sequential improvement in operational performance."

Canadian Pacific had a rough time with flooding in the second quarter of 2010, when flash floods put a portion of its main line near Medicine Hat, Alta, out of commission for 11 days. That outage paled in comparison to what the railway dealt with this time around.

"In contrast, this year multiple flooding events hampered operations throughout the quarter. In fact, we had some part of our network down for 60 out of the 90 days of the quarter," McQuade said.

The direct financial impact of the flooding in 2011 is pegged at $16 million, compared to $9 million during the 2010 deluge.

Earlier Wednesday, Canadian Pacific (TSX:CP) said net income during the second quarter was $128 million, or 75 cents per share -- beating the average analyst estimate by two cents, according to a poll by Thomson Reuters.

In the same 2010 period, profits were $166.6 million or 98 cents a share.

Revenue increased slightly to $1.26 billion, in line with analyst expectations and up from $1.23 billion, but the improvement was limited by the impact of flooding on operations.

During the period, the company said operating expenses rose to $1.03 billion from $960.1 million a year earlier. Average fuel prices rose 37 per cent to US$3.50 per gallon.

Canadian Pacific ships coal, fertilizer, grain, automobiles, consumer goods and other materials across its vast North American network.

Railways are often considered a bellwether for the state of the general economy. For instance, if fewer homes are being built, fewer carloads of lumber will be shipped.

In May, Canadian Pacific said it would boost its dividend by three cents to 30 cents, reflecting a positive long-term outlook. Canadian Pacific shares rose 14 cents to $58.51 in afternoon trading on the Toronto Stock Exchange.