Canadian Pacific Railway Ltd.’s grain-hauling revenues took a hit in the fourth quarter of 2021, even as the company increased corn shipments from south of the border to address a livestock feed shortage in Western Canada.
The Calgary-based railway company saw freight revenue from grain tumble to $440 million in the quarter ended Dec. 31, 2021. That represents a 13 percent decline from the same period in 2020, when grain represented CP’s top revenue source at $508 million.
CP says its total grain volumes transported were down 21 percent in its most recent quarter, a decline the company attributes to this year’s widespread drought that affected crop outputs in Western Canada.
“The 40 percent reduction in the Canadian crop is driving this decline in volumes,” said John Brooks, CP’s chief marketing officer, on a conference call with analysts Thursday. “The good news is, we’ve taken the decline in the Canadian grain crop and created an opportunity.”
Cattle feed shortage
Brooks added CP worked with shippers and receivers to create a new supply chain moving corn from south of the border to Canadian cattle feedlots suffering from a lack of livestock feed in the wake of the drought.
“We had an all-time record quarter and year for our U.S. grain franchise,” he said.
Last week, Western Canadian agriculture groups publicly criticized CP for slow train shipments which they said have exacerbated an unprecedented livestock feed shortage on the Prairies.
In an emailed statement Thursday, federal Agriculture Minister Marie-Claude Bibeau confirmed she has since been in touch with the railway company over the issue.
“I recently expressed my concerns about the dangerously low feed supply for cattle across the Prairies to the CEO of Canadian Pacific Railway, who recognized the sense of urgency and assured me that this is top of mind for CP,” Bibeau said.
The Canadian Cattlemen’s Association said in an email Thursday that some of the awaited shipments of feed corn arrived over the weekend and more are expected in the coming days.
“We appreciate the high priority that CP has placed on addressing the shortage,” said CCA spokeswoman Michelle McMullen. “This has put us in much better shape, and we are not aware of anyone who is not able to get the feed they need this week. But the feed supply remains tight.”
Covid and winter challenges
For its part, CP said it has been challenged by a number of issues this winter, including the Omicron variant and an increase in the number of employees out sick as well as extreme cold that has forced the company to run shorter trains and at reduced speeds.
CP was also impacted in the fourth quarter by November’s extreme flooding in B.C. The company’s rail corridor sustained damage in some 30 locations between Vancouver and Kamloops, B.C., and hundreds of employees and contractors worked around the clock for days to restore service in the area.
Brooks said Thursday the railway expects its revenue challenges with respect to Canadian grain to continue until this year’s harvest.
“We will start to get some better visibility into the potential of the 2022 crop in the spring, but we are certainly happy to see snow on the ground across the Prairies providing much needed moisture,” he said.
CP earned $532 million, or 74 cents per diluted share, in the fourth quarter, down from $802 million, or $1.19 per diluted share in the same quarter of 2020.
On an adjusted basis, CP said it earned 95 cents per diluted share for the quarter, down from $1.01 a year earlier.
Total revenues for the company increased one percent to $2.04 billion, up from $2.01 billion in the fourth quarter of 2020.
Its operating ratio, a key industry measure of railroad efficiency where a lower number is considered better, increased to 59.2 per cent from 53.9 per cent.
Operating ratio affected by KCS deal
CP said its operating ratio in the fourth quarter included $36 million in costs related to the acquisition of Kansas City Southern, a US$31-billion deal that paves the way for North America’s only railroad stretching through Canada, the U.S., and Mexico.
The deal closed into voting trust in December, but is still awaiting final approval from U.S. regulators.
CP did not issue any forward earnings guidance Thursday, in part because CP and KCS are still operating as two separate companies and CP had no control over KCS’ 2022 business plan.
“With the timing and conclusion of the regulatory process in the hands of the STB (Surface Transportation Board) as well as with Omicron and other macro factors presenting some near-term uncertainty, we felt it was prudent not to provide formal guidance,” CP’s chief financial officer Nadeem Velani told analysts.