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Similar to Canadian National Railway Co., Canadian Pacific reported lower fourth-quarter earnings because of a tax adjustment, but higher revenue due to the impact of a stronger U.S. dollar vs. the Canadian dollar.

CP’s net income totaled $164 million and earnings totaled $1.05 per diluted share vs. $278 million and $1.80, respectively, in fourth-quarter 2007. Excluding a future tax benefit recorded in fourth-quarter 2007, earnings dropped only 4 percent. Quarterly operating income of $248.5 million was flat despite a $19 million charge associated with a federal court decision on a retroactive grain revenue adjustment for the 2007/2008 crop year.

Revenue rose 9 percent year over year to $1.05 billion even though volume declined 6 percent to 643,200 units. Freight revenue increased 10 percent to $1.02 billion because of continued pricing strength, the favorable foreign exchange rate and inclusion of Dakota, Minnesota & Eastern Railroad Corp.’s (DM&E) revenue for the quarter’s last two months. Industrial and consumer product revenue jumped 37 percent, grain revenue rose 19 percent, and coal and automotive revenue both increased 6 percent, while intermodal revenue was flat, forest products revenue declined 7 percent and sulphur/fertilizers revenue decreased 3 percent.

CP’s operating ratio increased 2.2 points to 76.5 and operating expenses rose 13 percent to $810 million — primarily because of the foreign exchange and inclusion of two months of the DM&E’s expenses — compared with fourth-quarter 2007 totals. The stronger U.S. dollar negatively impacted expenses that were denominated in U.S. currency. The Canadian dollar weakened from 80 cents per U.S. dollar in fourth-quarter 2007 to 95 cents per U.S. dollar in fourth-quarter 2008.

For the full year, CP reported net income of $505 million and earnings of $3.24 per diluted share vs. $771.5 million and $4.95, respectively, in 2007 because of a large foreign exchange gain on long-term debt and large future income tax benefit recorded in ’07. Total revenue increased 5 percent to $4 billion, operating expenses rose 9 percent to  $3.2 billion and the operating ratio increased 3.3 points to 78.6.

The Class I also announced that capital spending in 2009 will range between $800 million and $820 million, down about $200 million compared with combined CP and DM&E capital expenditures in 2008.