(Updates to include CN Rail's results and conference call
By Solarina Ho
April 22 Canada's two largest railroads reported
stronger-than-expected profits on Tuesday, results that could
prompt fresh criticism from farmers already unhappy with the
handling of a massive crop backlog during one of the harshest
winters in decades.
Canadian Pacific Railway Ltd and Canadian National
Railway Co have come under enormous pressure to clear
the backlog, which resulted from a record harvest last year and
subsequent disruptions of service caused by a frigid winter.
The problem prompted the Canadian government to impose
minimum weekly grain delivery volumes on the railways for a
limited period. In addition, legislation is moving through
Parliament that would give the government authority to set
minimum targets for grain movement.
CP's record first-quarter profit did not sit well with Jim
Wickett a Rosetown, Saskatchewan, farmer who served as chairman
of the Western Canadian Wheat Growers Association. It "rubs me
a little bit," he said
"Western Canada had a bumper crop and we didn't really get
to reap the benefits of that," he said. Railways "only ran
trains when they could gain the maximum amount of profit. And as
farmers we just have to sit and take it."
CN Rail, Canada's largest railway, said net earnings rose to
C$623 million ($564.44 million), or 75 Canadian cents per share,
from C$555 million, or 65 Canadian cents, a year earlier.
Adjusted earnings per share were 66 Canadian cents, topping the
62.5 Canadian cents expected by analysts, according to Thomson
Earlier on Tuesday, CP, the country's No. 2 operator,
reported a record first-quarter profit of C$254 million, or
C$1.44 a share, up from C$217 million, or C$1.24, a year
Analysts had trimmed expectations throughout the quarter and
were, on average, expecting earnings of C$1.41 a share.
CP, whose shares closed 5.3 percent higher at C$172.62 after
the results, said the winter held back the results by 30 to 35
Canadian cents a share.
MINIMUM VOLUME TARGETS
Canadian rail executives have been highly critical of the
proposed legislation to set targets for grain movement, calling
"What they have done is given super priority to the grain
business. I think other commodity shippers are going to have to
step back and ask themselves was that a good thing?" said CN
Chief Executive Claude Mongeau on Tuesday.
Both railways have staunchly defended their service
performance, stressing the challenges of what CP CEO Hunter
Harrison said was "the worst operating condition I have ever
"With due respect, I am not sure (Canadian regulators)
understand really what they are dealing with," Harrison told
analysts in a conference call on Tuesday.
Harrison also criticized a component of the legislation
involving interswitching, the transfer of cars from one
railway's line to the line of another railway.
"Will it be less efficient? Yes. Do the regulators
understand that? No. But once again, we had very little if any,
dialogue or feedback or interplay," said Harrison. He said the
railways were getting a black eye and that the industry needed
to communicate better with the public and regulators.
CP said it transported record grain volumes last fall, and
that it moved 15 percent more Western grain in February despite
the weather and 20 percent more in March than the previous year.
The company said it was exceeding the weekly minimum 5,500
carloads of grain imposed by the government. It expected to ship
in the second quarter as much as it had during last year's peak
Mongeau told analysts that CN was moving just above 5,000
cars of grain, in line with what grain elevator companies are
able to unload.
CP revenue rose about 1 percent to C$1.51 billion, in line
with estimates. CN's rose about 9 percent to C$2.69 billion.
CP's operating ratio improved 380 basis points to 72 percent
in the first quarter, while CN's slipped 120 basis points to
69.6 percent. Operating ratio is the percentage of revenue
needed to maintain operations and is a key measure of railroad
efficiency. The lower the number the better.
($1 = 1.1038 Canadian Dollars)
(Additional reporting by Rod Nickel in Winnepeg and Ashutosh
Pandey in Bangalore; Editing by Maju Samuel, Peter Galloway and