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‘Amazon effect’ not a concern for Canadian Pacific Railway

‘Amazon effect’ not a concern for Canadian Pacific Railway
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Looking forward to what they are calling a record-setting third quarter, executives at Canadian Pacific Railway Ltd. said the “Amazon effect” poses no threat to the company and raised its full-year financial guidance amid a strong outlook for the remainder of the year.

“Some consumers want to buy (products) from Amazon, some want to buy it from Home Depot,” said CP vice-president Jonathan Wahba.

“We have the courier base, and we have the big-box stores … We’re not concerned about the shift in consumer behaviour because we believe it’s going to come through us either way,” he added, referring to what he called the “Amazon effect.”

Amazon handled roughly 44 per cent of all American e-commerce sales last year, contributing to total sales of $177.9 billion (U.S.), or about 4 per cent of all U.S. retail sales, according to e-commerce analytics firm One Click Retail. The online retail giant is expected to rake in about half of all revenue from internet purchases in 2018.

Amazon relies on a network of delivery services to handle its shipments, but its fleet of trucks and airplanes is growing. In June, it announced a new program to spur people to start their own businesses delivering packages for the company, threatening to sidestep major couriers.

Wahba and CP chief executive Keith Creel stressed higher efficiency through algorithm-based scheduling, which they said has shored up business from delivery companies such as Purolator Inc. and United Parcel Service.

“We’ve reinvented ourselves at this company. And it’s based on a model of precision-scheduled railroading,” Creel told investors at CP headquarters in Calgary on Thursday.

The railway has beefed up capacity by levelling out the “peaks and troughs” of intermodal train traffic within each week, allowing for more consistent train lengths and higher volume, Wahba said.

“Today we’re selling it like we’re FedEx” — which uses a graded pricing system based partly on speed of delivery — he said.

CP forecast its adjusted earnings per share will grow by more than 20 per cent for the year, compared with an earlier guidance for low-double-digit growth.

“This is a strong indication that the momentum CP achieved in Q3 is likely to continue into Q4,” said RBC Dominion Securities Inc. analyst Walter Spracklin in a note to investors.

In its preliminary third-quarter results, the Calgary-based company estimated revenue grew by 19 per cent to a record high of about $1.9 billion.

CP said it expects reported diluted earnings per share to be about $4.35 for the third quarter while adjusted diluted earnings per share are forecast to reach about $4.10 — the highest in the company’s history.

Analysts on average had expected CP to earn $3.64 per share in the quarter, according to Thomson Reuters Eikon.

The railway’s operating ratio for the quarter — a key measure of efficiency where a lower number is better — is projected to be under 58.5 per cent.

Analysts expect volume growth to hit 5 per cent and earnings per share to grow by 13 per cent between 2018 and 2020.

Spracklin said he was “particularly impressed” with the guidance and results as well as the management team’s “energy.”
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