RBC Expects Weaker Earnings in Q4 for Canadian Pacific Railway

Expect weaker earnings than originally anticipated, when Canadian Pacific Railway Ltd. (CP) reports fourth quarter results in the new year, says RBC Capital analyst Walter Spracklin.

Mr. Spracklin reduced his Q4 earnings estimated by C$0.19 per share to C$1.01 based on several negative factors, including a retroactive adjustment to grain revenues, three derailments during the quarter that are expected to increase casualty expenses and a coal mine shutdown. His 2009 EPS estimate is unchanged at C$4.18.

"Management indicated that Elk Valley mines are winding down production with a full shutdown scheduled from Dec. 23 to Jan. 5, 2009," the analyst told clients in a note, adding that Elk Valley, owned by Teck Cominco Ltd. (TCK), is a "substantial and high margin representing 13% of CP's revenue.

He said the mine shutdown will impact CP Rail's EPS by C$0.03 in the quarter. The impact on earnings of the retroactive adjustment to its grain revenue cap is C$0.10, while the derailments will cost the railroad C$0.06 per share.

Mr. Spracklin maintained his "sector perform" rating and left his C$54 price target unchanged.