CP shrugs off winter, strike in big quarter
CEO calls posted operating ratio unparalleled and expects further improvement
Canadian Pacific Railway Ltd. overcame wintry weather and a brief strike in the first quarter to report the best operating ratio in company history — and CEO Hunter Harrison says there’s still plenty of room for improvement.
CP’s operating ratio — a key measure of efficiency, in which a lower number is better — fell nearly nine percentage points to 63.2 per cent, a number Harrison called “staggering.”
“I don’t think any railroad has ever achieved an operating ratio of that level in the first quarter,” Harrison said on a conference call Tuesday. This is despite a harsh winter, particularly in Central and Eastern Canada, and a two-day strike in February that ended when both sides agreed to binding arbitration.
Harrison said the comparable number in the first quarter of 2011, before he took over as CEO following a proxy fight for control of the underperforming railway, was 90.6 per cent.
“The real question is going to be, ‘Well, where does he go from here?’ ” he asked.
The company is sticking by its forecast for a full-year operating ratio below 62 per cent, but Harrison said Tuesday that a sub-60 number is “in the cards.”
“I can see it from here. I just don’t know the timing exactly,” he said.
However, it’s not all smooth sailing. Harrison said his biggest concerns this year are volumes of energy-related commodities, which have taken a hit from weak crude prices, and grain, which is unlikely to top last year’s record harvest.
“If Canadian grain is normal and we’re close on estimates for crude, then it’s all pretty well upside,” Harrison said.
CP reiterated that it still expects to ship 140,000 carloads of crude this year. On Monday, Canadian National Railway Co. cut its growth outlook for energy-related commodities to 40,000 carloads from 75,000.
“There are certainly headwinds on the horizon for both the Canadian rails, but the tailwinds still outweigh those,” Raymond James analyst Steve Hansen said in an interview, pointing to the weaker Canadian dollar and lower fuel prices.
Unexpectedly, Harrison also said Tuesday that he’s no longer interested in industry consolidation, something he was vocally pushing for only a few months ago following failed merger talks with CSX Corp.
“There are a lot of things that have to work to make these (mergers) happen, to make them accretive, to make them smart for your shareholders, and those things aren’t happening,” he said, refusing to elaborate further.
CP reported record first-quarter profit of $320 million, up 33 per cent.
Adjusted earnings per share came in at $2.26, well ahead of the $2.17 expected by analysts. Revenue rose 10 per cent to $1.67 billion, another first-quarter record.
“There are a lot of things that have to work to make these (mergers) happen, to make them accretive, to make them smart for your shareholders, and those things aren’t happening. HUNTER HARRISON CANADIAN PACIFIC RAILWAY CHIEF EXECUTIVE