CP Rail ups dividend as its profit soars
Railway’s merger with Norfolk Southern failed, but will still happen, CEO says
Canadian Pacific Railway CEO Hunter Harrison has had to abandon his latest attempt at a big railway merger with Norfolk Southern Corp., but he remains convinced it will happen someday.
However, he may not be the one leading the change as the longtime railway executive is slated to retire in 2017, having already extended his contract at CP by an extra year.
“It’s with mixed emotions that I am looking at the twilight of my career,” Harrison said, sounding a little wistful, during the end of a conference call with analysts Wednesday.
He said the organization has exciting challenges ahead, vowing that it will establish itself as the No. 1 railroad in North America.
“This group is extremely bullish on the future, rightfully so,” Harrison said. “I just wish I had a few more years ahead of me to be a part of it . . . but I’m excited to watch from the sidelines.”
Harrison is credited with the turnaround at CP, which was consistently an industry laggard. He had led Canadian National Railway and Illinois Central Railroad, but came out of retirement in 2012, tapped by Bill Ackman of hedge fund Pershing Square Capital Management, which won a bitter proxy fight at CP.
The company has slashed jobs, cut costs and improved its bottom line performance under Harrison.
For the first quarter, CP says it earned $540 million or $3.51 per diluted share, up from a profit of $320 million or $1.92 per diluted share a year ago. Revenue slipped to $1.59 billion compared with $1.67 billion in the first three months of 2015, blamed on a weak economy.
CP also reported that its operating ratio, which is a measure of efficien- cy, was 58.9 per cent in the first quarter, better than 63.2 per cent a year ago. Officials are hoping to get to the mid-50s in the coming years.
The firm plans a share buyback of up to 6.91 million common shares, representing 5 per cent of the company. As well, it is hiking the quarterly dividend 43 per cent from 35 cents to 50 cents, beginning in July.
Harrison has stated railway mergers are inevitable, but this month, CP abandoned efforts to take over Norfolk Southern, the second-largest railroad in the east, amid opposition from shippers, other railways and the U.S. Justice Department.
It also tried to acquire Floridabased CSX railroad in 2014, but that bid was also rejected.
“We are continually looking for opportunities, strategically, for this organization to grow and take advantage of our strengths,” Harrison said.
While the merger with Norfolk Southern was abandoned after sweetening the offers and months of trying, he insisted “it’s not the end of the world.”
But in the conference call, Harrison suggested the process to review potential railway mergers in the United States quickly turns political. “If Congress does not want mergers, then why don’t they create a law that says you can’t have a merger?”
He defended CP’s proposal, calling it “pro-competitive,” insisting it opened up competition as well as shareholder value.
“I’m not worried about my legacy about creating some lasting merger. That’s not what I’m about,” he said. “I’m about shareholder value.
“It’s frustrating, but I would predict post-Harrison, it will happen. People will come to their senses.”