Canadian Pacific Railway will reduce its North American workforce by as many as 1,000 people this year in response to reduced freight volumes, lower demand for rail services and improved operational efficiencies that reduce labour requirements.
In a Jan. 21 conference call with investors, CP chief executive officer Hunter Harrison said most job cuts would take place by the end of May.
The company has reduced its workforce by about 6,500 people over the past four years, primarily through attrition.
In 2015, the company’s head count was reduced by roughly 12 percent.
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“I think with some of the operating initiatives … and productivity gains … there are probably another 1,000 additional heads to come out, potentially in 2016,” Harrison said.
“This is across the board — labour, management, everywhere.”
CP president Keith Creel said productivity gains combined with lower demand for rail services has prompted the company to reduce costs.
“Simply said, less demand, when you put that in conjunction with continuing improvements in productivity, must produce an environment where you have fewer assets — fewer locomotives, fewer cars, fewer people,” Creel said.
As well, CP has almost 600 locomotives in storage, a reflection of lower traffic volumes and a sluggish economic outlook.
On a full year basis, CP posted record revenues of $6.71 billion in 2015.
However, its fourth quarter performance fell short of expectations, hampered by sluggish North American demand for rail service and falling commodity prices.
The Calgary-based company reported adjusted earnings per share of $2.72 in the three months ending Dec. 31, 2015, slightly below analysts’ expectations of $2.76.
The company’s fourth quarter operating ratio, a key measurement of operational efficiency, was 59.8 percent, identical with the company’s record setting performance the previous year.
For 2016, Harrison projected double digit earnings per share growth and a full year operating ratio below 59 percent.
The fourth quarter of 2015 presented its share of challenges to the North American railway industry.
CP, which collects more than half of its annual revenue in U.S. dollars, benefitted from a weak Canadian loonie, but freight revenue was down in the fourth quarter and the economic outlook for 2016 is uncertain.
Fourth quarter 2015 freight revenues at CP were listed at $1.65 billion compared to $1.72 billion in the fourth quarter of 2014.
Net income for the quarter was $319 million, down from $451 million a year earlier.
On the expenditure side, fourth quarter fuel costs were down significantly at $166 million from $255 million in the fourth quarter of 2014.
Freight revenue was down in most areas, but income from Canadian grain was up 11 percent in the quarter, suggesting that increased grain shipments have helped the company weather revenue losses in other sectors.
Fourth quarter grain revenues were listed at $296 million, compared to $267 million a year earlier.
Fourth quarter freight revenues were also up in the fertilizer and sulfur segment (up 18 percent), forest products (up 20 percent) and automotive (up nine percent).
Revenues from crude oil were down 19 percent at $105 million.
Canadian National Railway was scheduled to report its quarterly and year end earnings Jan. 26.
brian.cross@producer.com
