Canadian Pacific Plans Cuts in Jobs, Railcars Amid Cargo Dip

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Canadian Pacific Railway Ltd. is cutting jobs and idling some locomotives and railcars to save money and help counter a decline in cargo shipments.

Hours after trimming its forecast for full-year sales and profit growth, Canadian Pacific said it will pare the workforce by as many as 300 positions, or about 2 percent of the total. The railroad is also using about 20 percent fewer cars and locomotives, Chief Operating Officer Keith Creel said.

“We are going to continue to pace demand,” Creel said on a conference call. “If business goes down and demand reduces, then obviously headcount is going to go down in lockstep with it, and labor expense is going to reduce.”

The shares slumped to their lowest level in more than a year following Canadian Pacific’s second-quarter results, which made it an outlier among major North American railroads. Profit at the Calgary-based carrier matched analysts’ estimates, while three peers in the U.S. and Canada posted earnings in the past week that outstripped projections even as commodity carloads shrink.

Creel led the call in the absence of Chief Executive Officer Hunter Harrison, who is recovering from minor leg surgery. The CEO will return to work “soon,” Creel said without being specific.

“It’s business as usual at CP,” Creel said regarding Harrison’s absence. “I told him we’d save a boxcar or two for him to switch with his new and improved bionic legs when he gets back.”

2015 Outlook

Full-year revenue will probably rise 2 percent to 3 percent, less than a January forecast of 7 percent to 8 percent growth, Canadian Pacific said. Adjusted earnings per share will be C$10 to C$10.40, short of the C$10.63 implied by an earlier forecast for 25 percent profit growth.

Canadian Pacific fell 5.5 percent to C$194.97 in Toronto, its lowest close since July 10, 2014. The retreat extended the year-to-date decline to 13 percent.

“While the downward guidance revision may be disappointing to some, a 20 percent earnings growth rate this year would still be a very solid achievement in the context of a challenging volume environment,” Cameron Doerksen, an analyst at National Bank Financial in Montreal, said in a note. He advises clients to buy the stock.

Creel said the railroad is “striving for the higher number” of the new adjusted EPS range. “We are not accustomed to adjusting or revising our earnings, and we don’t intend to do it again.”

Canadian Pacific’s October forecast calling for per-share profit to double by 2018 remains intact, Creel said.

Several other cost-cutting initiatives will pay off in the third or fourth quarters, Creel said.

Canadian Pacific has begun to use remote-controlled locomotives in switching operations, reducing the need for engineers, Creel said. The shift, which will be completed in the third quarter, will results in savings of at least C$12 million, he said.

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