31 January 2006
Canadian Pacific Railway Revenue Growth Propels Earnings to Fourth-Quarter and Full-Year Records in 2005
Canadian Pacific Railway reported that strong revenue growth propelled net income to a record
$543 million, a 32 percent increase over 2004. Net income in 2005 included a $72-million after-tax
decline in foreign exchange gains on long-term debt and a favourable $35-million after-tax
reduction in special charges for labour restructuring and environmental remediation, compared with 2004.
Q4 2005 Earnings Release and Financial Reports
Summary of full-year 2005 compared with full-year 2004
Excluding foreign exchange gains on long-term debt and other specified items:
- Operating income broke through the billion-dollar mark for the first time, increasing 27 percent to $1,001
million;
- Diluted earnings per share increased 45 percent to $3.30;
- Revenue grew 13 percent to $4,392 million, with increases in six of seven business lines;
- Operating ratio improved 2.6 percentage points to 77.2 percent.
Rob Ritchie, Chief Executive Officer of CPR, said: "Our results for 2005 are very strong. It was the busiest and most
successful year in CPR's history. We told shareholders we would grow this business by double-digits, generate higher
yield, recover fuel cost increases and grow share earnings significantly. We met every one of these commitments while completing a
major track capacity expansion - the biggest such rail expansion program in Canada in a decade - under record levels of
traffic."
Summary of 4th quarter 2005 compared with 4th quarter 2004
Net income in fourth-quarter 2005 was $135 million, compared with $129 million in the fourth quarter of 2004. This
included a $61-million after-tax decline in foreign exchange gains on long-term debt and a
favourable $15-million after-tax reduction in special charges for labour restructuring and environmental
remediation.
Excluding foreign exchange gains and losses on long-term debt and other specified items:
- Operating ratio improved by 3.1 percentage points to 74.1 percent;
- Income up 45 percent to a fourth-quarter record $169 million or $1.06 per diluted share;
- Operating income up 30 percent to $302 million.
"Our solid performance as we ended the year illustrates the high level of engagement by our workforce, outstanding execution
of scheduled operations, and our success in improving yield," Mr. Ritchie said.
CPR grew revenue by 14 percent to $1,167 million in the fourth quarter of 2005, compared with $1,022 million in the same period of
2004. There were double-digit increases in five of seven business lines, reflecting a combination of increased price
and the benefit of CPR's diversified revenue base.
Operating expenses excluding other specified items were $865 million in fourth-quarter 2005, compared with $789
million in the fourth quarter of 2004. Approximately 60 percent of the increase was due to higher fuel costs, driven largely by
record high crude oil prices and increased refining margins. CPR recovered all of its fuel price increases through surcharges and
hedging.
"We have a tested and proven business model that is producing quality service, giving CPR pricing strength in our
markets," Mr. Ritchie said. "Our franchise is sized and positioned for more success in what is expected to be a
continuing strong market environment characterized by growing demand."
Outlook
CPR's outlook for diluted earnings per share in 2006 remains unchanged at a range of $3.60 to $3.85, excluding foreign exchange
gains and losses on long-term debt and other specified items. This outlook assumes oil prices averaging US$58 per
barrel and an average exchange rate of $1.18 per U.S. dollar (US$0.85). CPR expects to grow revenue in the range of 5 percent to
8 percent and expenses are expected to increase by 3 percent to 6 percent in 2006. Capital investment is anticipated to be between
$810 million and $825 million in 2006 and free cash is expected to exceed $200 million for the year.
Foreign exchange gains and losses on long-term debt and other specified items
Results for full-year 2005 included a foreign exchange gain of $45 million ($22 million after tax) on
long-term debt, compared with a gain of $94 million ($94 million after tax) on long-term debt in 2004.
Results for the fourth quarter of 2005 included a foreign exchange loss of $1 million ($5 million after tax), compared with a gain
of $57 million ($56 million after tax) in the same period of 2004.
Other specified items in 2005 were related to a special charge and a partial reduction of a special charge originally taken in
2004, which had a net impact of $10 million ($8 million after tax). CPR began in 2005 a program to reduce management and
administrative staff by approximately 400. The program, which is to be largely completed by the end of 2006, resulted in a special
charge of $44 million ($28 million after tax) in the fourth quarter. This special charge was partially offset by a reduction,
booked in the third quarter, of $34 million ($20 million after tax) to a special charge of $91 million ($55 million after tax)
taken in 2004 for environmental remediation of a property in the United States. The reduction reflected a settlement of litigation
related to remediation of the environmental contamination.
Other specified items in 2004 were related to special charges taken in the fourth quarter that had a net impact of $72 million
($43 million after tax). These included the environmental special charge of $91 million ($55 million after tax), partially offset
by a reversal of $19 million ($12 million after tax) from a labour restructuring provision taken in 2003.
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