Canadian Pacific Earnings Exceed Estimates on Cost Cutting

Don MacKinnon/Bloomberg News

Canadian Pacific Railway reported second-quarter earnings that topped analysts’ estimates as the carrier reduced costs by cutting jobs and running longer trains to make up for a cargo slump.

Adjusted earnings fell to C$2.05 a share, Calgary-based Canadian Pacific said in a statement July 20. That exceeded the C$2.01 average of analyst estimates compiled by Bloomberg News.

Like major peers across North America, Canada’s second-largest railroad is responding to shrinking cargo volumes by parking locomotives and reducing staff. Freight volume in the second quarter declined the most since 2009, according to data from the American Association of Railroads.

Canadian Pacific also struggled in the quarter with a stronger Canadian dollar and wildfires in northern Alberta that disrupted production of crude oil. Revenue from crude shipments fell 72%, adjusted for currency exchange rates, the company said. Sales dropped 22% from Canadian grain and 12% from coal. One of the few bright spots was forest products, for which revenue increased 11%.

“The worst is behind us,” the company said in a slide presentation. Revenue declined 12% to C$1.45 billion ($1.11 billion), in line with the C$1.46 billion estimate.

Operating ratio, a widely watched measure of railroad productivity that compares expenses to sales, deteriorated to 62% from 60.9% a year earlier, matching the railroad’s forecast last month.

Canadian Pacific made formal the widely anticipated decision that Chief Operating Officer Keith Creel will become CEO in July 2017 to replace Hunter Harrison, 71. Creel, who is also the carrier’s president, took over temporarily last year while Harrison recovered from leg surgery. Harrison, who was brought in from retirement in 2012 by billionaire investor Bill Ackman to run Canadian Pacific, has a three-year consulting agreement after stepping down.