CP’s job cuts may hit 1,400 this year
CALGARY Canadian Pacific Railway Ltd. will eliminate more jobs in 2016 than originally announced, perhaps as many as 1,400.
In January, CEO Hunter Harrison said the Calgary-based company would cut 1,000 positions over the course of the year, a response to financial pressures as a result of the weak economy.
On Wednesday, railway executives confirmed that number will be higher.
“Hunter had indicated we thought we’d be down 1,000 by the end of the second quarter,” chief financial officer Mark Erceg said on a conference call. “We think there’s some additional reductions that may be made beyond that ... Maybe in the 1,300, 1,400 range.”
A spokesperson for CP would not provide details on the type or location of jobs to be eliminated, saying the reductions will take place wherever there is an opportunity to tighten up operations.
He said the vast majority of the cuts would be accomplished through attrition.
CP has already reduced its employee head count by more than 6,000 since Harrison took the helm in mid-2012, mostly through attrition.
Approximately 1,800 positions were removed in 2015.
TORONTO The collapse of Canadian Pacific Railway Ltd.’s bid for Norfolk Southern Corp. has done nothing to dissuade the company’s outspoken CEO that railway consolidation must and will happen.
In the meantime, however, CP shareholders will benefit from the cash that has been freed up by the failed merger attempt, with the company announcing Wednesday that it will buy back up to 6.91 million shares, or about five per cent of its public float, while also boosting its quarterly dividend by 43 per cent.
CP’s US$27-billion offer for Virginia-based Norfolk Southern fell apart after several stakeholders, including politicians, unions, shippers and even the U.S. army and Department of Justice, voiced their opposition.
CEO Hunter Harrison acknowledged that his approach might have been “a little aggressive,” but said the industry is naive if it thinks congestion problems can be solved without mergers.
“We’re getting ourselves further into a trap,” Harrison said in an interview. “If and when this economy bounces back and we go back to, say, 2007 volume levels on the rails, we’re going to face North American gridlock.”
The winter of 2014 — when strong volumes combined with terrible weather to create serious congestion, particularly in the key rail hub of Chicago — gave an indication of how bad it could get, Harrison said.
But the industry doesn’t seem to fully understand the risks that are facing it, he added.
“With due respect to everyone involved, there needs to be more knowledgeable railroaders that understand these issues clearly, and they’re pretty complex issues,” he said.
Harrison won’t be there to guide them, however. He reiterated twice Wednesday — first on the company’s earnings call and again at its annual meeting in Toronto — that he intends to retire when his contract expires in mid-2017.
“I would predict post-Harrison (consolidation) is going to happen,” he told analysts on the firstquarter earnings call.
“We just have to develop a little patience, which I’m not really endowed with, but it’ll happen one day soon.”
Harrison retired once before, after seven years as CEO of Canadian National Railway Co., but was tapped by activist investor Bill Ackman to lead CP following a heated proxy battle with the railway’s former management.
“I failed retirement once and I can’t fail again, but I’m excited to watch from the sidelines what this group produces,” Harrison said on the earnings call.
That doesn’t mean he’ll leave the industry entirely. Harrison, who is in his early 70s, said he plans to return to Connecticut and focus on his hobby: training horses for show jumping.
“Look, if there’s anything I can do in an advisory capacity in the industry, it’s the industry I spent 50 years in and I happen to love, but there’s no plans for me to do anything but go take my horses and win the Olympics,” he told the Financial Post.
Despite the tepid economy, CP reported a record first-quarter operating ratio — a key measure of efficiency for railroads, for which a lower number is better — of 58.9 per cent, down 430 basis points.
Adjusted earnings rose to $2.50 per share, beating the average analyst estimate of $2.42, while revenue fell four per cent to $1.59 billion.
Net income rose 69 per cent to $540 million.
“Q1 results reaffirmed our view that amid a weak volume environment, management can deliver on solid cost reductions while focusing on service improvements,” RBC analyst Walter Spracklin wrote in a note to clients.
“We continue to favour CP on the back of solid efficiency gains and — despite weak demand — lower top-line risk relative to U.S. peers.”
Bond-rating service Moody’s, however, raised concerns about the company’s debt levels, lowering CP’s Baa1 outlook to negative from stable.
“The negative outlook reflects the company’s high leverage, which was 3.3x at year-end 2015 and our expectation that it will only decline moderately below 3x in 2016,” Jamie Koutsoukis, Moody’s vicepresident and senior analyst, said in a statement.
“The company’s announced share repurchase program ... over the next 12 months is aggressive for the Baa1 rating and does not allow for the level of deleveraging we had previously expected.”