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Despite Q4 earnings miss, CP on-track

Also: Will John Kerry's appointment as Secretary of State threaten TransCanada's application to build Keystone XL?

When he was younger, Max Fawcett wanted to make a mint in the markets. Now as the managing editor of Alberta Venture he gets to write about them. Close enough, right? He can be reached at mfawcett@albertaventure.com

Jan 30, 2013

by Max Fawcett

Don’t be fooled by the headline number. Despite the fact that Canadian Pacific’s (TSE:CP) fourth quarter profit came in at just $15 million (compared to $221 million in the same quarter last year), on an adjusted basis (after stripping out one-time charges) the company’s net income in Q4 2012 was $1.28 per share, an improvement over 2011’s figure of $1.11. As a result the company’s shares continued their climb, adding almost $5 dollars to finish at $117.70 at the close on Tuesday. The all-important operating ratio, meanwhile, came in (after excluding the one-time items ) at 74.8 per cent, a marked improvement over the 78.5 per cent operating ratio in Q4 2011.

The one-time items, of course, are all related to the diet that (relatively) new CEO Hunter Harrison has the company on right now. There was a $53 million before-tax charge associated with labour force restructuring, a US$185 million asset impairment charge attached to the disposal of its Powder River Basin assets in the U.S. Midwest and a $80 million charge associated with the write down of the value of some of the company’s locomotives. In a statement released Tuesday, Harrison was characteristically confident, noting that “management made a number of hard decisions this quarter, including booking several significant items. With these decisions now behind us, we anticipate record-setting financial and operational results starting in 2013.”

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There’s far less confidence in the business community right now about the U.S. government’s decision on the proposed Keystone XL pipeline. What was once considered a fait accompli has become an uncertainty thanks in large part to the appointment of John Kerry as Hilary Clinton’s replacement as President Obama’s Secretary of State. Kerry is an avowed environmentalist, and his appointment has given fellow travellers in the U.S. hope that he’ll reject TransCanada’s application on those grounds. Kerry was suitably ambiguous about his intentions yesterday, saying that “it will not be long before that comes across my desk, and I will make the appropriate judgments about it.” He reiterated that he “hoped” that the review would be done by the end of March, but that he could make “no promises.”

 

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