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Canadian Pacific Ahead of Schedule on Job-Cut Plan, CEO Says

Canadian Pacific Railway Ltd. (CP), the least efficient North American large railroad, is ahead of its plan to eliminate more than one-fifth of its workforce, Chief Executive Officer Hunter Harrison said.

The company already has cut more than 3,000 jobs, Harrison said today at a JPMorgan Chase & Co. transportation conference in New York. He told investors in December that Calgary-based Canadian Pacific planned to trim 4,500 of about 19,000 jobs by 2016, including 2,300 in this year’s first quarter.

“Things are going well,” Harrison said on a webcast of the conference. “The plan is falling together. We’re way ahead of schedule with our workforce reductions.”

Harrison, a former CEO at larger rival Canadian National Railway Co. (CNR) who took over in June after activist investor William Ackman won a proxy fight, is trying to reduce the company’s operating ratio, an industry benchmark that compares expenses to sales. By that measure, Canadian Pacific trails other major North American railroads.

On an adjusted basis, the company’s ratio declined to 74.8 percent in 2012’s final quarter from 78.5 percent a year earlier.

Employees “are tired of being called the worst railroad in North America with the worst operating ratio,” Harrison said. “We’ve got a strong franchise. We’re proud of it.”

Making Progress

Canadian Pacific’s four-year plan to lower the operating ratio to “the mid-60s” is progressing well, Harrison said. He said he’s “very comfortable” about the company’s goal of posting a ratio “in the low 70s” this year.

“We’ve said low 70s, but if things come together and everything hits, is there a probability that we could be below that? Certainly,” he said.

If the company reaches its forecast of “high-single- digits” revenue growth this year, “it’s pretty likely that we could be bouncing against that 70 barrier,” Harrison said. Referring to the sales outlook, he said he’s “more comfortable about that all the time.”

Canadian Pacific rose 0.3 percent to C$129.80 at the close in Toronto. The shares have gained 29 percent this year, as Canadian National has advanced 15 percent.

The company has “effectively done away with contractors” and consultants, Harrison said. Canadian Pacific last year closed four hump yards, where train cars are sorted.

Service has improved “dramatically” as grain shipment velocity increased and dwell time at terminals declined, the CEO said. The railroad carried record levels of grain to Vancouver in January, Harrison said, without being more specific.

Succession Plan

The CEO has overhauled the executive ranks since his arrival, culminating with the February hiring of Keith Creel as chief operating officer from Canadian National. Harrison, 68, said today that Creel, 44, will take over when he retires.

“There’s a clear succession plan,” Harrison said. Because of Creel’s age, “those questions and issues are answered for some time. He can settle in. I think that after I leave and they give me my gold watch or whatever, you’ll see Keith bring on some other things far beyond what I had envisioned.”

Seven top executives have left Canadian Pacific since June and 12 of 15 directors who were in place last year will have been replaced once a new board lineup is announced before the next shareholder meeting, the CEO said. The company’s annual meeting will be held May 1 in Toronto, according to a filing last month.

“If you don’t like change at Canadian Pacific, it’s not the place to be,” Harrison said. “We’ve had a lot of change, and there’s going to be a lot more.”

To contact the reporter on this story: Frederic Tomesco in Montreal at tomesco@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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