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UPDATE 2-CP Railway profit misses as harsh winter raises costs

(Adds CFO comment, details on crude-by-rail)

April 23 (Reuters) – Canadian Pacific Railway Ltd missed analysts’ estimates for quarterly profit on Tuesday as the railroad operator spent heavily to combat a harsh winter that impacted its operations.

Canada’s challenging winter conditions extended to February, with a winter storm dumping heavy snow and ice pellets on the most populated parts of the country, paralyzing transportation.

The operations of the second-largest railroad operator in Canada was also hampered in February by a derailment in British Columbia’s Rocky Mountains, a busy part of the company’s network, killing three crew members.

Overall operating expenses, which included casualty costs of C$69 million, rose 9 percent to C$1.22 billion ($908.4 million) in the first quarter.

This resulted in its operating ratio, a closely watched productivity metric that measures expenses as a percentage of revenue, to rise 180 basis points to 69.3 percent. The lower the ratio, the more efficient a railroad is.

Total carloads, the amount of freight loaded into cars during a specified period, fell 2 percent in the first quarter, the company said.

Crude-by-rail shipments also declined 17,000 carloads sequentially as Alberta’s forced output cuts resulted in narrow differentials between Canadian crude and U.S. crude prices, making it uneconomical for oil producers to ship crude by rail.

In the second quarter, CP however sees shipments to get back up to 20,000 to 25,000 carloads, Chief Financial Officer Nadeem Velani said in a conference call with analysts.

The railroad operator currently has contracts with oil-producing province of Alberta and oil producers such as Suncor Energy and Cenovus Energy to ship crude by rail as an alternative amid pipeline congestion.

However, uncertainty around Alberta’s contracts has gained ground after United Conservative Party leader Jason Kenney who had vowed to rip up the contracts won the provincial election.

“We spent…a fair amount of time working with the Alberta government in putting this contract together. I didn’t do it to have it be ripped up,” said Velani.

The company said net income rose to C$434 million, or C$3.09 per share, in the three months ended March 31, from C$348 million, or C$2.41 per share, a year earlier.

Excluding items, CP earned C$2.79 per share, missing analysts’ average estimate of C$3.01, according to IBES data from Refinitiv.

The Calgary-based company’s revenue rose 6.3 percent to C$1.77 billion. ($1 = 1.3430 Canadian dollars)

(Reporting by Shanti S Nair in Bengaluru; Editing by Sriraj Kalluvila and Arun Koyyur)

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