Canadian PressIn
its outlook, Canadian Pacific Railway Ltd (TSX:CP) it expects revenue
growth this year to be two to three per cent, with an operating ratio
below 62 per cent.
Kristine Owram
Canadian
Pacific Railway Ltd.’s chairman and another member of its board
resigned “over disagreements relating to corporate governance matters”
Tuesday, shaking shareholder confidence as the railway cut its full-year
forecast in response to a slowing economy.
CP said chairman Gary Colter and director Krystyna Hoeg resigned and Andrew Reardon was elected chairman in Colter’s place. The resignations follow on the heels of Stephen Tobias’s decision to step down from the board for “personal reasons” earlier this month.
President and chief operating officer Keith Creel wouldn’t provide more details about the dispute.
“It’s a simple issue of disagreement over the governance issue,” Creel said in an interview. “It has nothing to do with the value or the performance of this company. It’s not material, the board is functioning extremely well, we’re united on a go-forward basis, and this issue is behind us.”
Although the Calgary-based company reported record net income and operating ratio — a key measure of efficiency — in the second quarter, it also lowered its full-year forecast for revenue and earnings growth, sending shares down 5.37 per cent to their lowest close in a year.
But Creel said the unexpected weakness in volumes won’t affect the railway’s four-year plan, which aims to double earnings per share from 2014 levels by 2018.
“When we wrote out our plan, we definitely had a different view on the economy,” Creel said.
“But we can make it work either way. If the economy starts to grow, which we think it will, then it’s really more of a top-line revenue growth story. … If it were to contract then we have an ability to take cost out and still produce earnings growth.”
It was left to Creel to reassure shareholders Tuesday after Harrison was forced by his doctor to take some time off.
The outspoken chief executive recently underwent surgery that Creel described as “some minor maintenance procedures to his lower extremities” and returned to work too quickly.
“Although Hunter has many great attributes, patience is not one of them,” Creel said on a conference call with analysts.
“You combine that with the fact that he’s not really accustomed to being told what to do, and he didn’t exactly follow the doctor’s orders about his recovery time.”
However, Harrison still can’t bring himself to stay away entirely, and Creel said he spent six hours on the phone with his executive team last Thursday, “roaring like a lion.”
He has reason to roar, as a combination of weak demand for steel-making coal, a slowdown in crude-by-rail shipments and a smaller grain harvest are all weighing on volumes at North America’s railways.
In the second quarter, CP’s revenue ton-miles — a measurement of the total amount of freight shipped — fell six per cent and revenue was flat at $1.65 billion. However, improvements to efficiency helped boost net income to a record quarterly high of $390 million or $2.45 a share. Operating ratio — where a lower number is better — fell 420 basis points to 60.9 per cent.
CP cut its full-year revenue growth outlook to a range of two to three per cent, down from an earlier forecast of seven to eight per cent. Earnings per share are now expected to grow approximately 20 per cent, down from an earlier forecast of more than 25 per cent.
“While the downward guidance revision may be disappointing to some (although not a surprise to us), a 20 per cent earnings growth rate this year would still be a very solid achievement in the context of a challenging volume environment,” National Bank analyst Cameron Doerksen wrote in a research note.
Creel said the railway has taken several steps to offset weaker demand, including laying off approximately 700 employees, with another 200 to 300 layoffs planned by the end of the year.
But he remains concerned about crude volumes, which fell 27 per cent in the second quarter and are now expected to be down about 15 per cent for the year.
CP said chairman Gary Colter and director Krystyna Hoeg resigned and Andrew Reardon was elected chairman in Colter’s place. The resignations follow on the heels of Stephen Tobias’s decision to step down from the board for “personal reasons” earlier this month.
President and chief operating officer Keith Creel wouldn’t provide more details about the dispute.
“It’s a simple issue of disagreement over the governance issue,” Creel said in an interview. “It has nothing to do with the value or the performance of this company. It’s not material, the board is functioning extremely well, we’re united on a go-forward basis, and this issue is behind us.”
Although the Calgary-based company reported record net income and operating ratio — a key measure of efficiency — in the second quarter, it also lowered its full-year forecast for revenue and earnings growth, sending shares down 5.37 per cent to their lowest close in a year.
But Creel said the unexpected weakness in volumes won’t affect the railway’s four-year plan, which aims to double earnings per share from 2014 levels by 2018.
“When we wrote out our plan, we definitely had a different view on the economy,” Creel said.
“But we can make it work either way. If the economy starts to grow, which we think it will, then it’s really more of a top-line revenue growth story. … If it were to contract then we have an ability to take cost out and still produce earnings growth.”
The outspoken chief executive recently underwent surgery that Creel described as “some minor maintenance procedures to his lower extremities” and returned to work too quickly.
“Although Hunter has many great attributes, patience is not one of them,” Creel said on a conference call with analysts.
“You combine that with the fact that he’s not really accustomed to being told what to do, and he didn’t exactly follow the doctor’s orders about his recovery time.”
However, Harrison still can’t bring himself to stay away entirely, and Creel said he spent six hours on the phone with his executive team last Thursday, “roaring like a lion.”
He has reason to roar, as a combination of weak demand for steel-making coal, a slowdown in crude-by-rail shipments and a smaller grain harvest are all weighing on volumes at North America’s railways.
In the second quarter, CP’s revenue ton-miles — a measurement of the total amount of freight shipped — fell six per cent and revenue was flat at $1.65 billion. However, improvements to efficiency helped boost net income to a record quarterly high of $390 million or $2.45 a share. Operating ratio — where a lower number is better — fell 420 basis points to 60.9 per cent.
CP cut its full-year revenue growth outlook to a range of two to three per cent, down from an earlier forecast of seven to eight per cent. Earnings per share are now expected to grow approximately 20 per cent, down from an earlier forecast of more than 25 per cent.
“While the downward guidance revision may be disappointing to some (although not a surprise to us), a 20 per cent earnings growth rate this year would still be a very solid achievement in the context of a challenging volume environment,” National Bank analyst Cameron Doerksen wrote in a research note.
Creel said the railway has taken several steps to offset weaker demand, including laying off approximately 700 employees, with another 200 to 300 layoffs planned by the end of the year.
But he remains concerned about crude volumes, which fell 27 per cent in the second quarter and are now expected to be down about 15 per cent for the year.