Canadian Pacific becomes latest to cut long-term spending

Canadian Pacific Railway Ltd. plans to slice its capital budget by 20 per cent this year, the company said Thursday — joining a long line of companies curbing capital expansion in the quickly slowing American and Canadian economies.

CPR now expects to spend between $800 million and $820 million on new tracks and other long-lived operational improvements, the Calgary-based railroad said in a press release.

"We are pacing our capital investments to match the needs of our customers, and this will result in a significant reduction in our 2009 capital spending when compared with previous years," Kathryn McQuade, the company's chief financial officer, said in a press release.

Earlier, CPR said it had forecast capital spending to top $1 billion in 2008.

The slowing economy in Canada, and especially in the United States, however, have thrown CPR's financial plans into disarray.

The company experienced a drop of 9.4 per cent in its grain-hauling revenue in the second quarter of 2008 compared to same period one year earlier.

As well, CPR's sulphur and fertilizer business slipped by 6.4 per cent when comparing the same two quarters, while its forest product work plunged 21 per cent.

Other companies cutting capital

But the Canadian railroad is far from the only company dumping capital expansion in order to conserve cash.

In the western oil patch, producers are chopping spending and mothballing projects as they deal with plunging crude prices.

Analysts now forecast a 10- to 15-per-cent drop in such spending in the oilsands area.

And some of what they are predicting is already coming true.

Suncor Energy recently cut its 2009 capital spending target to $6 billion, down from initial estimates of $10 billion.

Petro-Canada said it would stop plans to build a new oilsands upgrader in Alberta because of commodity price uncertainty.

Canadian miner Sherritt International Corp. is shelving $270 million in capital upgrades at its facilities in Cuba and Fort Saskatchewan, Alta.

In other countries and in other sectors, the story is the same.

Limited Brands Inc., the owner of Victoria's Secret and Bath & Body Works, is cutting about $100 million out of what it had planned to spend on upgrading stores and opening new outlets.

And the Garnter Group, a U.S. technology research company, said worldwide capital spending in the semiconductor area could plummet by 25 per cent to $47 billion US this year.