CP cost cutting, high volumes increase revenue

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Published: February 8, 2013

Canadian Pacific Railway earned record revenues for moving North American grain to market in the last three months of 2012.

Fourth quarter earnings from transporting grain were higher than at any other three-month period in CP’s history, said chief marketing officer Jane O’Hagan.

“In grain, for the quarter, revenue was up 12 percent and we had a record revenue for grain in a quarter,” O’Hagan said during a Jan. 29 conference call with investors.

“Our units were up one percent, reflecting a strong demand domestically and globally, (and) volumes were well above our three- and five-year averages, approaching our record Q4 of last year.”

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She said short haul grain exports to the United States were down, but CP did a good job capturing Canadian grain business and is well positioned to service an integrated North American grain market.

“We’ve had great feedback from our customers on servicing grain … and we are now moving more grain with fewer assets based on new levels of productivity and velocity,” O’Hagan said.

“With our strong service and unique network, we are very well positioned to leverage the movement to a North American grain marketplace, post the Canadian Wheat Board.”

CP’s overall freight revenue from all business segments was up 10 percent in 2012, or nine percent after currency adjustments.

Overall 2012 volumes were up three percent from 2011 and average revenue per rail car was up seven percent.

The company’s operating ratio, which expresses operating expenses as a percentage of revenue, fell below 75 percent in the fourth quarter of 2012, said CP president Hunter Harrison.

The ratio is expected to drop even further this year as CP continues to streamline operations and realize benefits stemming from fleet improvements, staff reductions and other cost cutting measures implemented over the past few months.

Cutting costs and increasing operational efficiencies were central components in Harrison’s plan to restructure CP and turn it into North America’s most efficient rail carrier in North America.

In December, about five months after his arrival at CP, Harrison announced plans to cut 4,500 jobs by 2016, nearly one-quarter of the workforce.

About half of those cuts will be completed by April, he said. An additional 700 positions will be cut by the end of the year.

CP will also continue to reduce its rolling stock and get rid of inefficient locomotives that are costly to maintain and disrupt traffic flows.

In the end, CP says it will emerge as a more efficient railway company with fewer assets, fewer workers and bigger profits.

“The plan is working. It’s clearly ahead of schedule,” Harrison said.

“Our labour issues are generally behind us. We’ve signed recently four collective bargaining agreements so those issues are out of the way. We continue to fine tune the reorganization … and we are seeing improved service across the board, so I couldn’t be more pleased.”

CP’s earnings per share were down sharply in the fourth quarter, despite a double digit increase in freight revenues in 2012, which reflected extraordinary expenses related to the company’s restructuring efforts.

Extraordinary expenses reported in CP’s fourth quarter included:

  • A $53 million charge related to labour force adjustments.
  • An $80 million charge related to improving the railway’s locomotive fleet.
  • A $185 million charge related to infrastructure investments in Wyoming’s coal-rich Powder River Basin.

After accounting for those items, CP’s fourth quarter earnings per share came in at eight cents per share, down sharply from $1.30 per share recorded in the fourth quarter of 2011.

“Management made a number of hard decisions this quarter, including booking several significant items,” Harrison said.

“With these deductions now behind us, we anticipate record setting financial and operation results starting in 2013.”

In mid-January, the company also announced the opening of its new intermodal facility at Saskatchewan’s Global Transportation Hub.

The new facility is located on CP’s main line between Regina and Moose Jaw, Sask., and is capable of processing up to 250,000 containers a year, about five times more than CP’s former terminal in Regina.

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Brian Cross

Brian Cross

Saskatoon newsroom

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