CP Rail Rewards New CEO’s Sales Push With Gains in Metals

(Bloomberg) -- Canadian Pacific Railway Ltd. is halfway to meeting new Chief Executive Officer Keith Creel’s goal of restoring sales growth after last year’s drop.

Second-quarter revenue rose 13 percent to C$1.64 billion ($1.3 billion), Canadian Pacific said in an earnings statement Wednesday. Higher demand for grains and metals and a rebound in potash shipments enabled Canada’s second-largest railroad to post its second consecutive quarterly sales increase.

The gains will help Creel meet his oft-stated target of achieving a sales rebound in his first full year at the helm. He took over in January from Hunter Harrison, who molded the railroad into one of North America’s most efficient with an approach he called “precision railroading.” Annual revenue fell last year for the first time since 2009.

“The precision railroading model is the gift that keeps on giving,” Creel said on a conference call Wednesday. “It allows us to continue to grow at low incremental cost.”

Canadian Pacific will “likely” revisit its full-year profit target at the end of the third quarter, Creel said. The company is playing safe with its forecast for a “high single digit” increase in adjusted per-share earnings because there’s too much uncertainty with oil and grain shipments, he said.

“There is some conservatism in our outlook,” Creel said. “I’d rather be right than wrong.”

Canadian Pacific, with a 12,400-mile (20,000-kilometer) network stretching east from British Columbia across Canada and down to Kansas City, Missouri, carried 8.1 percent more carloads in the period. That outstripped the 6.9 percent increase in traffic recorded by members of the American Association of Railroads.

Grain, Oil

Grain revenue, the company’s biggest line of business, increased 20 percent to C$363 million as energy, chemicals and plastics -- a category that includes crude oil -- advanced 16 percent to C$216 million. Revenue from metals, minerals and consumer products jumped 36 percent to C$190 million, while potash surged 38 percent to C$109 million.

The rise in volumes helped adjusted earnings climb to C$2.77 a share, Calgary-based Canadian Pacific said. That beat the C$2.71 average analyst estimate.

“As long as volume growth continues to be positive, Canadian Pacific’s marketing efforts and efficient network should translate those volumes into solid earnings growth,” Dan Sherman, an analyst at Edward Jones, said in a note.

Canadian Pacific fell 1.3 percent to close at C$203.60 in Toronto, before the earnings announcement. The stock has gained 6.3 percent since the start of the year, less than the 15 percent advance for Canadian National Railway Co., the country’s largest railroad, but better than the 0.3 percent decline for Canada’s benchmark S&P/TSX Composite Index.

Operating ratio, a widely watched measure of railroad productivity that compares expenses to sales, improved to 58.7 percent from 62 percent a year earlier. A lower number for the figure is considered better.

“This quarter really does demonstrate the strength of our operating model,” Chief Financial Officer Nadeem Velani said on the conference call.

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

To contact the editors responsible for this story: Brendan Case at bcase4@bloomberg.net, Bruce Rule