CALGARY - Canadian Pacific Railway Ltd. more than doubled its profit, increased revenue 10 per cent and improved operating efficiency dramatically during the second quarter — all despite historic flooding in southern Alberta in late June.
Still, Canada's second-largest railroad missed analyst expectations and the company's stock slid as much as 3.9 per cent Wednesday on the Toronto Stock Exchange before closing down two per cent at $127.44.
CP (TSX:CP) posted a second-quarter profit of $252 million, or $1.43 per diluted share, up from $103 million or 60 cents per diluted share a year ago.
Analysts had been expecting CP to post a profit of $1.49 per share, according to data compiled by Thomson Reuters.
Over four days of flooding in Alberta, Canadian Pacific dealt with more than 40 washouts. The disruptions cut the railway's revenue growth by about $25 million, or two per cent.
In his 50 years working on railroads, CEO Hunter Harrison told an analysts conference call that he's never seen anything like it.
"It's one thing to get knocked down. . . . But it's really the way this team recovered and got back up" Harrison said that made him the most proud.
To say that the second quarter was a challenge would be an understatement, added chief operating officer Keith Creel.
"Just to grasp the order of magnitude, in a 24-hour span, we lost both our core routes west to Vancouver from Calgary as well as our southern route through the coal territory," Creel said.
"Our railroad was essentially cut off west of Calgary completely. To imagine a team that would be able to rebuild bridges, repair washouts and restore service — and in most cases within 48 to 96 hours — was beyond even my aggressive expectations."
Despite the dramatic end to the quarter, CP's operating ratio — how much it costs to operate a railway as a percentage of revenues — improved to 71.9 per cent, up more than a percentage point to an all-time quarterly record for CP.
Its revenue increased to nearly $1.5 billion, up from $1.37 billion a year earlier.
The quarter marks about one year of a new management regime, brought in following a bruising proxy fight led by activist investor Bill Ackman.
Harrison, who had retired as chief executive of rival Canadian National Railway Co. (TSX:CNR) in 2009, was praised as a hands-on executive with a record of turning CN into North America's most efficient major rail carrier.
Harrison has since made many changes at CP, including moving its headquarters out of downtown Calgary to the suburbs and cutting thousands of jobs.
With pipeline projects mired in regulatory delays, oil producers have been increasingly turning to rail to get their crude to market.
Canadian Pacific has said it expects to ship 70,000 carloads of crude by the end of this year, and doubling that by the end of 2015. It's main rival, Montreal-based Canadian National has also been getting in on the oil-by-rail trend.
However, the derailment and explosions of an oil-laden train in Lac-Megantic, Que., earlier this month — a disaster that is believed to have killed 47 people — will likely heighten scrutiny on shipping crude by rail.
The train was travelling from North Dakota's oil-rich Bakken region on the Montreal Maine and Atlantic Railway, a small U.S. company, to an Irving refinery in Saint John, N.B.
In light of the Lac-Megantic disaster, Canadian Pacific said last week it would tighten some of its safety procedures. For instance, locomotives will always be locked when left unattended outside of yards or terminals and trains carrying dangerous goods will not be left unattended on main line tracks.
CP's move came ahead of emergency Transport Canada directives announced on Tuesday.
Canadian Pacific's own safety record was in the spotlight earlier this summer, when severe flooding caused a company-owned rail bridge crossing the Bow River in Calgary to collapse.
Five railcars containing petroleum distillate were safely drained and removed, but the event caused Calgary Mayor Naheed Nenshi lash out at the railway for recent layoffs.
Canadian Pacific has also experienced derailments in Minnesota, Ontario and Saskatchewan this year.
"Contrary to what some of suggested or would like to assume, the root cause of our track derailments were not the result of, or even remotely connected to, cutting back assets, be they manpower or the capital we invest to keep our infrastructure safe at CP," said Creel.
"The facts are, we have not reduced the workforces that maintain or inspect our track. We've not reduced our inspection standards. We made them more rigid. And we actually increased our capital investment in basic infrastructure, which we reported earlier in the quarter, by an additional $100 million in 2013."