Canadian Pacific Railway Gets Lean and Mean

Selling a portion of rail leads the way to a more profitable 2014.

| More on:
The Motley Fool
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Canadian Pacific Railway (TSX:CP) (NYSE:CP) recently announced its intention to sell the western portion of its Dakota, Minnesota & Eastern (DME) rail line, which was acquired in 2008 for $1.48 billion. The portion that is being sold will bring in $210 million.

The buyer, Genesee & Wyoming (NYSE:GWR), is a short line and regional freight rail operation in the U.S., Canada, and abroad. It owns and leases 15,000 miles of track across 11 regions. With this length of rail, it can interchange with other railways, including CP, Union Pacific, BNSF, and NNW. An interchange occurs when two railways meet and can pass goods from one rail to another by transferring rail cars.

The portion of rail being sold accounts for 660 miles and ships 52,000 carloads annually of grain, ethanol, fertilizer and other products. The use of the line is projected to generate approximately $65 million in annual revenue for Genesee & Wyoming.

This transaction still needs to undergo review by the U.S. Surface Transportation Board. CP is expecting the final word to be given about halfway through the year.

Even the best laid plans can run off the tracks

Back in December 2012, CP put the breaks on the Wyoming Powder River expansion — at a cost of $180 million. The original draw of the project had been that part of rail that leads to Wyoming to access the distribution for thermal coal. But with softened coal demand and now, the sale of some of the assets, CP has made a clear change of direction.

At the same time, in 2012, as part of a strategic review process, CP committed $1.1 billion to capital spending in 2013. By May 2013, cash flow was better than expected, and the company announced that it would add another $75-$100 million to fund upgrades between Winnipeg and Edmonton and signaling systems between Moosejaw and Chicago, with the overall goal of expense savings and strengthening the balanced sheet through acquisition of rail that had previously been leased.

2014

With CP’s fourth-quarter results set to be released on January 29, it will be interesting to see how far it has come in achieving its targets. The management discussion and strategic vision for the year should also lend insight to how CP will be furthering its plans to become a more profitable railway in 2014.

 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Christine Conway does not own shares in any of the above-mentioned companies.

More on Investing

Profit dial turned up to maximum
Tech Stocks

$1,000 Invested in Constellation Software Stock Would Be Worth This Much Today

Constellation Software (TSX:CSU) is trading above $2,000 today. Why this stock is so expensive, and is it worth buying?

Read more »

Dividend Stocks

Passive Income: 3 Top Canadian Stocks to Buy for Monthly Dividends

Companies such as Pembina Pipeline and Killam Apartment REIT pay investors monthly dividends, making them top bets for income-seeking investors.

Read more »

Shopping card with boxes labelled REITs, ETFs, Bonds, Stocks
Stocks for Beginners

TFSA Investors: Top TSX Stocks to Buy With $6,000

Here are two safe, dividend-paying TSX stocks for your long-term portfolio.

Read more »

Gold medal
Investing

3 Growth Stocks That Could Be Huge Winners in the Next Decade and Beyond

Are you looking for growth stocks that could be huge winners in the next decade? Here are three top picks!

Read more »

Retirees sip their morning coffee outside.
Investing

Retirees: How to Make Over $95/Week in Passive Income TAX FREE!

Canadian retirees who are hungry for passive income should look to snag stocks like Sienna Senior Living Inc. (TSX:SIA) in…

Read more »

Man holding magnifying glass over a document
Investing

Where to Invest $500 in the TSX Right Now

Given the massive correction, long-term investors can start buying stocks like Shopify and goeasy to outpace the broader markets by…

Read more »

Aircraft wing plane
Investing

Air Canada Stock Is a Fantastic Deal Right Now

Air Canada (TSX:AC) is a great stock to own, as market fear turns into hope amid falling recession fears.

Read more »

Pixelated acronym REIT made from cubes, mosaic pattern
Investing

Beginner Investors: Get Passive Income by Investing in REITs!

You can get passive income by investing in REITs like Northwest Healthcare Properties REIT (TSX:NWH.UN).

Read more »