CALGARY, Alta. A strong fourth quarter helped propel Canadian Pacific Railway to increased profits in 2007. In the fourth quarter, CP’s net income increased to $342 million in 2007 compared with $146 million in 2006 primarily due to lower future Canadian income tax rates. For the full year 2007, net income improved 19% to $946 million compared with $796 million in 2006. This improvement was driven by an increase in operating income and a foreign exchange gain on long-term debt, company officials said.

In 2007, CP recorded a full year future tax benefit of $163 million compared with a tax benefit in 2006 of $176 million, both due to lower future Canadian income tax rates. Diluted earnings per share was $2.21 in fourth-quarter 2007 compared with $0.92 in fourth-quarter 2006 and $6.08 for the full year 2007 and $5.02 in 2006.

Income before foreign exchange gains and losses on long-term debt and other specified items increased 2% to $185 million from $181 million, due primarily to lower income tax rates in the quarter. Diluted earnings per share increased 4% to $1.20 from $1.15 excluding foreign exchange gains and losses on long-term debt and other specified items.

Operating ratio was 74.3% compared with 73.1% in 2006 and total revenues were flat at $1.19 billion.

“We delivered earnings growth in 2007 in a year that brought us many challenges,” said Fred Green, CP president and CEO. “Most recently, in December, our operations were hit hard by harsh weather that affected the entire supply chain, including high winds that shut down port and terminal operators for several extended periods. This restricted our ability to move the freight volumes we’d planned.”

Freight revenue, excluding the impact of foreign exchange, grew in the fourth quarter by 5%, however this growth was more than offset by the impact of the stronger Canadian dollar, resulting in a decline in freight revenue of 1% to $1.14 billion when compared with fourth-quarter 2006. Operating expenses increased 1% to $883 million in the fourth-quarter 2007 compared with $870 million driven mainly by an increase in fuel prices offset, to a degree, by foreign exchange.

“Even with the impact of foreign exchange, we had revenue growth in some sectors, including industrial and consumer products, intermodal and automotive,” Green added. “However, the rapid rise in the cost of fuel, and the inherent lag in our fuel recovery programs combined with the net negative impact of foreign exchange to reduce our operating income.”