Canadian Pacific Railway Q2 coal revenues, volumes fall on year

Canadian Pacific Railway reported a decrease in coal volumes and revenues in the second quarter of 2020, due to the coronavirus pandemic and production challenges at the coal mines.

The Calgary-based railroad reported Q2 coal volumes of 59,400 carloads, down from 63,800 carloads in the prior quarter and 77,700 carloads in the year-ago quarter, according to its second quarter earnings report filed July 22.

However, of the total 631,000 carloads reported in Q2, coal volumes represented 9.4%, up from 9.2% in the previous quarter, but down from 10.8% in the year-ago quarter.

"Canadian coal volumes declined as a result of softer demand related to COVID, production at the mines and limited port capacity due to the ongoing expansion at the Neptune terminal," said Executive Vice President and Chief Marketing Officer John Brooks. "We expect 2020 tonnage to be lower than 2019, and Neptune is expected to be shut down through the end of September."

In the second quarter, coal revenues totaled $131 million, down from $150 million in the previous quarter and $173 million in the year-ago quarter. Revenues through the first half of the year were at $281 million, down from $331 million in the same period a year ago.

Average revenue per coal carload totaled $2,205/car in Q2, down 6.2% from $2,240/car in Q1 and also 1% lower than $2,227/car in the year-ago quarter. However, year-to-date average RPU is at $2,281/car, up 2% from $2,235/car a year ago.

Coal carloads through the first six months of 2020 are down 17% year on year at 123,200.

The railroad reported total Q2 freight revenues of $1.75 billion, down from $2 billion in Q1 and $1.93 billion a year ago, while total carloads were down 12% year on year at 631,000 carloads.

The company's operating ratio, or operating expenses as a percentage of its revenue, fell to a second quarter record-low 57%, down from 59.2% in Q1 and 58.4% in the year-ago quarter.

Net income fell to $635 million, down from $724 million in the year-ago quarter.

Canadian Pacific handles mostly metallurgical coal destined for export for use in the steelmaking process, with the majority of its coal traffic originating from Teck Resources Limited's mines in southeastern British Columbia. In the US, the railroad moves thermal coal from connecting railways, serving coal mines in the Powder River Basin in Montana and Wyoming.

In the company's Q1 earnings call in April, Brooks said the company is estimated to haul roughly 23 million mt of coal for Teck in 2020, but noted that Teck has not provided any formal guidance.