CP Rail Braces for `Short-Term Pain' as Canada Strike Risk Looms

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(Bloomberg) -- Canadian Pacific Railway Ltd. is prepared to live with the “choppiness" of a looming strike of train conductors rather than agree to a labor deal that cripples its long-term earnings power, Chief Executive Officer Keith Creel said.

A walkout would begin at 12:01 a.m. Eastern time Saturday and affect more than 3,300 employees, including conductors and electrical workers, among others. On Tuesday, the Teamsters Canada Rail Conference and the International Brotherhood of Electrical Workers each gave Canadian Pacific a 72-hour notice of their plan to strike.

If an agreement isn’t reached to avoid the strike, a work stoppage threatens to severely hamper Canadian Pacific’s ability to provide freight service, the country’s second largest railroad said Friday. All commodities would be affected amid soaring demand for shipping. Passenger train commuters would also suffer in Canada’s three largest cities -- Toronto, Montreal and Vancouver -- because the trains they ride on use Canadian Pacific’s tracks.

“CP cannot be put in a position where we are held hostage,” Creel said Wednesday on a conference call with analysts. “We can’t take a position that’s going to destroy our long-term ability to be on solid financial footing. If it means that we have to experience short-term pain to avoid that long-term damage, then that’s my fiduciary responsibility to all stakeholders and we’re going to uphold that.”

‘Financial Noise’

Canadian Pacific fell 2.2 percent to C$221.22 at 10:50 a.m. in Toronto. Earlier the stock dropped as much as 2.5 percent, the most intraday since March 22.

“A strike would be highly disruptive to Canadian economic activity when the railroads are already facing some operational challenges,” Cam Doerksen, a National Bank Financial analyst in Montreal, said Thursday in a note to clients. While the government would potentially intervene to halt a work stoppage, “the stock could be under some pressure until there is resolution on the labor front.”

Creel didn’t specify what a labor dispute would cost the company, alluding only to a “near-term headwind” and “financial noise.”

Labor Minister Patty Hajdu on Wednesday urged the company and the unions to negotiate in good faith and reach an agreement.

Contingency Plans

As the strike deadline nears, Canadian Pacific is working with customers to put in place contingency measures, Creel said, without being more specific. Any dispute, no matter how long, would hurt the Canadian economy, he said.

“I’m very concerned about the impact to our customers, to the Canadian economy,” he said. “That impact would be felt, I don’t care if it’s a one-day strike, a 10-day strike or a 20-day strike. Those are serious impacts to those stakeholders.”

Creel made the comments after Canadian Pacific reported first-quarter results.

Adjusted profit climbed to C$2.70 a share, Canadian Pacific said in a statement, compared with the C$2.71 average of analyst estimates compiled by Bloomberg. Sales rose 3.7 percent to C$1.66 billion ($1.3 billion). Analysts had expected C$1.68 billion.

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