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Canadian Pacific Railway paid the price for a record winter snowfall, strong Canadian dollar and high fuel prices in the first quarter.

Although revenue increased 3 percent to $1.15 billion, net income dropped 29 percent to $91 million, diluted earnings per share fell nearly 30 percent to 59 cents, income before foreign exchange gains and losses on long-term debt decreased 5 percent to $116 million and the Class I's operating ratio rose 3.2 points to 82.7 compared with first-quarter 2007 totals.

Freight revenue would have increased 10 percent year over year because global demand for bulk products remained solid, but the foreign exchange impact of a stronger Canadian dollar reduced the gain to 3 percent. Grain, coal and sulphur and fertilizers posted revenue growth in the 6 percent to 7 percent range; industrial and consumer products revenue increased 10 percent; and intermodal revenue rose 4 percent, CPR said. However, forest products and automotive revenue plummeted 19 percent and 12 percent, respectively.

In addition, operating expenses jumped 13 percent to $948.7 million compared with first-quarter 2007's total primarily because of escalating fuel costs (up 34 percent to $230.2 million) and less efficient operations resulting from severe winter conditions.

"We continued to face remarkable year-over-year increases in both fuel prices and the Canadian dollar," said CPR President and Chief Executive Officer Fred Green in a prepared statement  "At the same time, we had a difficult winter with prolonged cold spells and record snowfall, which affected the entire supply chain and resulted in very tough operating conditions throughout the central and eastern parts of our network."

Despite the operational and financial challenges, CPR will continue to focus on execution and "exploit all opportunities to improve efficiency including cost management, yield improvement and other strategic initiatives," said Green. The Class I still expects total revenue to increase 4 percent to 6 percent in 2008 vs. 2007, and total operating expenses to rise 6 percent to 8 percent mainly because of a 3 percent to 5 percent hike in annual fuel costs.