Demand for chemicals, plastics drive Canadian Pacific profits
July 17, 2019
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Canadian Pacific Railway reported a better-than-expected adjusted quarterly profit on Tuesday, as the country’s second-largest railroad operator controlled costs and earned more from moving crude, chemicals as well as plastics.
The upbeat results come against the backdrop of Alberta government’s cap on output in January that boosted low crude prices, according to Reuters, but made oil shipments by rail less profitable for Canadian producers.
Narrow differentials between U.S. and Canadian crude discouraged shippers from moving it through rail, a more expensive form of transport than pipeline, between Alberta and higher-priced U.S. markets.
Rail shipments have, however, recently recovered with some producers choosing rail again to avoid pipeline congestion.
Crude-by-rail volumes jumped by about a quarter to 25,000 carloads in the second quarter, while total carloads, rail cars carrying freight, rose six per cent.
Alberta Premier Jason Kenney, who took office in April, has modestly eased the curtailments, with major Canadian oil companies also holding talks with the government on ending the mandatory cuts.
In a post earnings call with analysts, CEO Keith Creel told Reuters a resolution to the output cuts would take “at least another couple of months, maybe more of our Q4 story.”
“We expect volumes will continue to increase as production and curtailment balance stabilizes and our new contracts and existing customers continue to ramp up in the second half of the year,” Chief Marketing Officer John Brooks told Reuters.
The company estimates crude carloads to ramp up to 30,000 in third quarter, with potential for upside.
Revenue from energy, chemicals and plastics segment rose 22% on a currency adjusted basis in the second quarter.
While U.S. grain shipment fell double digits as some export markets were challenged due to the lingering trade dispute with China, the company said it expects upside in grain in the third quarter.
CP’s operating ratio, which measures expenses as a percentage of revenue, also improved by 580 basis point to 58.4 per cent.