New CEO’s emphasis on boosting sales raises volume and profit at Canadian Pacific
Canadian Pacific Railway Ltd. is halfway to meeting new chief executive officer Keith Creel’s goal of restoring sales growth after last year’s drop.
Second-quarter revenue rose 13 per cent to $1.64 billion, Canadian Pacific said in an earnings statement Wednesday. Higher demand for grains and metals and a rebound in potash shipments enabled Canada’s second-largest railroad to post its second consecutive quarterly sales increase.
The gains will help Creel meet his oft-stated target of achieving a sales rebound in his first full year at the helm. He took over in January from Hunter Harrison, who moulded the railroad into one of North America’s most efficient with an approach he called “precision railroading.” Annual revenue fell last year for the first time since 2009.
“The precision railroading model is the gift that keeps on giving,” Creel said on a conference call Wednesday. “It allows us to continue to grow at low incremental cost.”
Konark Gupta, a Macquarie Capital Markets analyst in Toronto, predicted “2017 is the year of volume recovery” in a note to clients published before the results were released.
Canadian Pacific, with a 20,000-kilometre network stretching east from British Columbia across Canada and down to Kansas City, Missouri, carried 8.1 per cent more carloads in the period. That outstripped the 6.9 per cent increase in traffic recorded by members of the American Association of Railroads.
Grain freight revenue, the company’s biggest line of business, increased 20 per cent to $363 million as energy, chemicals and plastics — a category that includes crude oil — advanced 16 per cent to $216 million. Revenue from metals, minerals and consumer products jumped 36 per cent to $190 million, while potash surged 38 per cent to $109 million.
The rise in volumes helped adjusted earnings climb to $2.77 a share, Calgary-based Canadian Pacific said. That beat the $2.71 average analyst estimate.
Canadian Pacific fell 1.3 per cent to close at $203.60 in Toronto. The stock has gained 6.3 per cent since the start of the year, compared with a 0.3 per cent decline for Canada’s benchmark S&P/TSX Composite Index.
Operating ratio, a widely watched measure of railroad productivity that compares expenses to sales, improved to 58.7 per cent from 62 per cent a year earlier. A lower number for the figure is considered better. “This quarter really does demonstrate the strength of our operating model,” chief financial officer Nadeem Velani said on the conference call.