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Canadian Pacific Warns Of “Tremendous Pressure”, “Strong Headwinds” For Economy

January 21, 2016

Canadian Pacific Warns Of “Tremendous Pressure”, “Strong Headwinds” For Economy

One week ago, when we explained why “Things Just Went From Bad To Worse For U.S. Railroads,” we said that “the rail industry is about to be slammed with a dramatic repricing, one which is only the start and the longer oil prices remain at these depressed levels, the lower the rents will drop (think Baltic Dry but on land), until soon most rails will lose money on every trip and will follow the shale companies into a race to the bottom, where “they make up for its with volume.”

Today, none other than railroad titan Canadian Pacific (whose stock is down 4% despite the torrid surge higher in risk assets) confirmed that not only are things “worse”, but the bottom may have fallen out from what until recently was one of Warren Buffett’s favorite industries, after missing on both the top and bottom line, but especially during its conference call in which CEO Hunter Harrison admitted that he see “tremendous pressure” on the top line, and expects “challenging times” for revenue growth.

Then COO Keith Creel said that he expected volume in 2016 to be notably down from 2015, warns of strong headwinds for the US economy in the first half of 2016 and says CP is storing at least 600 locomotives in anticipation of better times.

Then the CFO also warned that compensation and benefit costs would be lower in the coming year.

Finally, the CEO warned that in addition to the already cut 7,000 jobs another 1,000 workers are about to “potentially” get pink slips.

Finally, and most ominously, CP warned that it sees delay in the Norfolk Southern deal timeline, and may change its strategy regarding the Norfolk Southern transaction.

We conclude with the warning issued by Bank of America one week ago:

…click on the above link to read the rest of the article…

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