CP’s efficiency on track for CEO’s long-term plan
‘quarter was fine’
MONTREAL • Canadian Pacific Railway Lt d. , spurned in a bid to merge with CSX Corp., reported its most-efficient operations ever last quarter while working to untangle lingering track congestion.
Operating ratio, an industry benchmark comparing expenses to revenue, improved 3.1 percentage points to 62.8%, CP said Tuesday. Third-quarter profit fell short of analysts’ estimates as the carrier’s surging share price boosted stock-based compensation and benefits more than fourfold.
“When your operating ratio is improving and you are buying back a ton of your stock, there’s really nothing here tell- ing me that the story is getting incrementally worse,” Jeff Nelson, an Edward Jones & Co. analyst, said in a telephone interview. “The quarter was fine.”
Canada’s second-largest railroad is working to deliver on a plan unveiled three weeks ago by chief executive officer Hunter Harrison to more than double profit over four years in part by running longer and faster trains. CP said yesterday exploratory talks on a possible merger with CSX to form a transcontinental railway have ended, while signalling it will keep pushing for consolidation.
CP is still open to a merger with one of the two bigger eastern U.S. carriers even after talks with CSX failed, though a hostile bid is unlikely, Mr. Harrison said on a conference call Tuesday.
“We had some fascinating conversations about the po- tential, but it became evident that we saw the world a little differently, which is fine ... I’ve learned ‘ never say never,’ but I can’t contemplate any kind of hostile activity.”
He says creating a new transcontinental railway could improve congestion around Chicago, where eastand west-based railways meet and hand off cargo, a process that can take days.
A combined company would have taken a “substantial amount” of traffic out of Chicago and rerouted it though cities such as Albany, N.Y., and Buffalo, he said.
“Chicago is fragile at best, it’s not where it should be in terms of providing service,” Mr. Harrison said. “It’s certainly a pinpoint that offers a lot of challenges.”
He said he had no other deals in the works, declaring U.S. carrier Kansas City Southern “very expensive.”
Improving operations has been a focus for Mr. Harrison, who was hired in 2012 after activist investor Bill Ackman’s Pershing Square Capital became the carrier’s largest shareholder and pushed to oust then-CEO Fred Green. CP had long been North America’s least-efficient carrier.
The operating ratio will probably drop to “the low 60s” by the end of 2018, Mr. Harrison said Oct. 1.