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A Canadian Pacific sits in a rail yard in Calgary, AB on 08 Aug, 2021.Gavin John/The Globe and Mail

Canadian Pacific Railway Ltd. has posted a 20-per-cent drop in quarterly profit and cut its freight volume forecast amid supply chain snarls and costs owing to the pursuit of Kansas City Southern.

Calgary-based CP said third-quarter profit fell to $472-million or 70 cents a share, from $598-million (88 cents) in the same period a year ago. Revenue rose by 4 per cent to $1.9-billion, for the three months ending on Sept. 20.

The operating ratio, a measure of costs versus sales, deteriorated to 60.2 per cent from 58.2 per cent, CP said on Wednesday morning.

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CP revised its freight volume forecast for 2021 to low single-digit growth, from the near 10-per-cent outlook the rail company issued in April.

CP is sticking with its forecast for double-digit growth in per-share profit for 2021, Keith Creel, CP’s chief executive officer, said on a conference call with analysts on Wednesday morning.

The railway, like others in the freight business, is faced with clogged ports and delayed shipments because of raw material and manufacturing shortages. Additionally, dry weather in Western Canada has reduced the expected harvest by 40 per cent.

“We can’t make it rain but we can remain in game shape,” Mr. Creel said.

Grain, CP’s largest line of business, fell by 27 per cent in volume in the quarter. Potash, a fertilizer, fell by 22 per cent.

John Brooks, CP’s marketing chief, called the hurdles “frustrating” but “temporary.”

“As much as we’re frustrated, we’ve had a good ride in Canadian grain over the years,” Mr. Brooks said, adding that CP sees new opportunities moving more U.S. crops.

“Despite global supply chain issues and a challenging Canadian grain crop, we remain confident in our ability to deliver full-year double-digit adjusted diluted EPS growth,” CP said in a statement accompanying the earnings results.

“The underlying demand environment remains strong, and our commitment to generate sustainable, profitable growth will not be distracted by elements outside our control.”

CP recently emerged as the winner in the high-stakes contest to buy Kansas City Southern, a railway that extends from the U.S. Upper Midwest into Mexico. CP says the bigger network will allow it to offer customers new markets with access to sea ports on Mexico’s Pacific and Gulf coasts.

KCS’s board agreed to CP’s US$27.2-billion offer in September, terminating a takeover agreement with Canadian National Railway Co. and ending a seven-month battle for the Missouri-based railway.

The combined companies would be called CPKC, employ about 20,000 people and operate a 32,000-kilometre network that runs across Canada, through the United States and into Mexico.

Mr. Creel said he expects the deal could receive shareholder approval in the fourth quarter.

The combined companies will provide faster, more efficient service across borders, “at a time it’s never been needed more,” Mr. Creel said.

The U.S. Surface Transportation Board review of the takeover is expected to last until late 2022, and the Mexican antitrust review could last for four months.

CP announced its financial results on Wednesday morning, the day after Jean-Jacques Ruest, Canadian National Railway Co.’s chief executive officer, surprised markets with the announcement of his retirement in January.

CN is under pressure from British investor Christopher Hohn to improve its operations and performance, which have become industry laggards. Mr. Hohn, whose TCI Fund Management Ltd. owns 5.2 per cent of CN, has called for Mr. Ruest and chairman Robert Pace to resign, accusing them of “weak” leadership and mishandling the attempt to buy KCS. Mr. Hohn has put forth a slate of independent directors and a chairman he wants voted to the board.

Konark Gupta, a Bank of Nova Scotia stock analyst, said CN’s new plan to improve operations and Mr. Ruest’s departure could “bridge some of the gap” between Mr. Hohn and CN. This could help the company avoid a costly proxy battle, for which a vote has been set for March 22.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 3:45pm EDT.

SymbolName% changeLast
CNR-T
Canadian National Railway Co.
+0.05%178.72
CP-T
Canadian Pacific Kansas City Ltd
-0.17%119.87

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