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To say a flooding outbreak in the second quarter submerged Canadian Pacific’s financial results is an understatement. A series of prolonged floods in the Canadian prairies and U.S. Midwest, and subsequent train re-routes and detours severely hampered revenue and income generation, drove up expenses and hindered productivity, CP senior executives said yesterday during an earnings teleconference and webcast.

“We had almost 90 separate outages during the quarter and our engineering team worked as swiftly as possible to bring the track back," said President and Chief Executive Officer Fred Green.

Some parts of CP’s network were out of commission for 60 days while a key north-south corridor to Chicago was out of service for 23 days because of Souris River flooding in North Dakota. CP’s entire network has only been back in service since July 12.

Because of the difficult operating environment, 2Q financials results (in Canadian dollars) show revenue increased only 2 percent to $1.3 billion, diluted earnings per share tumbled 23 percent to 75 cents, net income dropped 23 percent to $128 million, operating income dipped 16 percent to $231 million, volume declined 4.3 percent to 647,100 units and the operating ratio climbed 4 points to 81.8 compared with second-quarter 2010 figures.

In addition, total operating expenses rose 8 percent to $1 billion. Fuel costs shot up 33 percent to $237.4 million, as the average price per gallon rose from $2.55 in second-quarter 2010 to $3.50 in the prior quarter.

Flood-related costs drove up operating expenses by $16 million, said Executive Vice President and Chief Financial Officer Kathryn McQuade, adding that excluding the floods’ effects, CP’s traffic likely would have increased about 3 percent, which would have been in line with other Class Is’ average carload gains.

“The conditions reduced operational capacity and consumed the resources we had in place to move more business,” she said. “As a result, productivity and asset utilization lagged typical second-quarter norms, and our operating ratio remained well above our expectations.”

The series of floods caused “start-stop operations” that hampered fluidity and “masked the progress we are making,” said McQuade. On a year-over-year basis, second-quarter average train speeds fell from 23.3 mph to 20 mph, average terminal dwell time increased from 19.9 hours to 20.1 hours and average car velocity tumbled from 169.2 miles per car per day to 154.3.

“The first half was difficult, but we have the opportunities to turn things around for the balance of 2011 as we put the detours behind us and get assets moving efficiently to meet the volume levels and service needs ahead of us,” said EVP of Operations Mike Franczak. “The operating metrics have been showing steady improvement as the flooding and its impacts have subsided.”

— Jeff Stagl