For CP, “a watershed year”

Written by William C. Vantuono, Editor-in-Chief
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Canadian Pacific President and CEO Keith Creel.

Canadian Pacific Railway on Jan. 24 announced record results for fourth-quarter and full-year 2018. “The power of the CP operating model is evident in the strong performance across the company,” said Keith Creel, President and CEO. “We set records across many lines of business in 2018, including Canadian grain, potash and domestic intermodal. 2018 was a record by almost every measure and will be remembered as a watershed year.”

CP’s 4Q18 results included revenues of C$2.0 billion, a 17% increase from the prior-year quarter; an operating ratio of 56.5%, a 370-basis-point improvement; and record operating income of C$874 million, a 28% gain. Fourth-quarter diluted earnings per share decreased 43% to C$3.83 from C$6.77. However, adjusted diluted EPS rose 41% to a new quarterly record of $4.55 from C$3.22 a year ago. (CP noted that 2017’s comparative quarterly operating ratio was restated from 56.1% to 60.2% and operating income was restated from C$753 million to C$682 million. 2017’s comparative yearly operating ratio was restated from 57.4% to 61.6% and adjusted operating ratio was restated from 58.2% to 62.4%. These restatements “reflect the adoption of the accounting standard for the presentation of ‘Other’ components of net periodic benefit recoveries.”)

For full-year 2018, revenues increased 12% to C$7.3 billion from C$6.6 billion; the operating ratio improved to a record 61.3%;, and diluted EPS decreased 17% to C$13.61 from C$16.44, while adjusted diluted EPS rose 27% to C$14.51 from C$11.39.

CP provided full-year 2019 guidance of double-digit adjusted diluted EPS growth vs. 2018 adjusted diluted EPS of C$14.51; mid-single-digit volume growth, as measured in revenue ton-miles; and capital expenditures of C$1.6 billion (essentially flat with 2018). This guidance is based on a U.S.-to-Canadian dollar exchange rate of approximately 1.30, an effective tax rate of 25.5% to 26%, other components of net periodic benefit recovery increasing by $11 million vs. 2018, and no material land sales.

CP’s C$1.6 billion capex forecast is about in keeping with what contractors and vendors were told to expect at the NRC Conference in Marco Island, Fla., in early January.

In particular, the railroad will lay some 240 miles of new rail this year, up from the 210 miles laid in 2018. CP will add about 1.2 million crossties, the same as last year, according to a presentation by John Leonardo, CP General Manager for Wayside Train Control and Communication, at the NRC Conference. Other engineering track programs planned for 2019 are:

  • ~ 30 Miles of Relay Rail.
  • ~ 70 Miles of Out of Face Ballast Renewal (BC & North Line).
  • ~ 820 Miles of Shoulder Cleaning.
  • ~ 75 Turnouts.

Spending on work on bridges and structures will be flat in 2019. But there are some historic projects planned. The most interesting and perhaps most difficult project CP will tackle in this area is a massive overhaul of its famed MacDonald Tunnel in Rogers Pass.

Other work includes:

  • ~ 65 Bridge Design or Construction Projects.
  • ~ 40 Bridge Tie Replacement Projects.
  • ~ 110 Culvert Design or Replacement Projects.

Rail grinding will be the railroad’s “most significant non-capital program investment” this year, according to Leonardo. In addition, CP plans to expand its track geometry testing program dramatically by adding a new manned geometry consist late in 2019 and bringing an additional autonomous boxcar on line in the third quarter. CP currently operates two staffed track evaluation trains, plus an autonomous car that moves in freight consists, according to a spokesperson.

Signals and communications work is expected to focus on heavily on automated testing and tunnel controls.

CP has progressed nicely with its Positive Train Control rollout; PTC work in 2019 will focus largely on deploying the system and working out bugs.

“CP continues to focus on a disciplined approach to sustainable, profitable growth— a plan rooted in the foundations of Precision Scheduled Railroading,” said Creel. “This approach in 2018 enabled CP to deliver its highest-ever revenues, lowest-ever yearly operating ratio and a 13th consecutive year leading Class I railways with the lowest train accident frequency. Each day I look at our team of railroaders and I am proud to be their CEO. We are entering 2019 with tremendous momentum and a commitment to operating the PSR model in its true form.”

Engineering Editor Paul Conley contributed to this story.

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