Railway on track to achieve mid-60s OR for
2016
NEW YORK, Dec. 4, 2012 /PRNewswire/ - Canadian Pacific
(TSX:CP)(NYSE:CP) President and CEO E.
Hunter Harrison today outlined CP's go-forward plan for
change that will greatly improve service, increase the railway's
efficiency, lower cost and grow the business.
"Momentum is building at Canadian Pacific and the organization
is driving to a culture of intense focus on operations.
Service will be what drives this organization, by providing a
premium, reliable product offering through a lower cost operation,"
Harrison said. "We have initiated a rapid change agenda and
have made tremendous progress in my first 160 days, and we are only
getting started."
Progress Already Underway
Harrison provided various examples of steps taken over the past
five months highlighting CP's evolution to a more competitive
railway, including the following:
- New executive leadership team now in place including a new
Senior Operations lead team with a mandate for centralized planning
and decentralized execution, to eliminate bureaucracy and have
service decisions made faster and closer to the customer;
- Revamped intermodal and merchandise train service resulting in
faster transit times for customers - example of new
intermodal services connecting Vancouver to Chicago or Toronto;
- Closure of hump-switching yards in Toronto, Winnipeg, Calgary and Chicago - producing significant cost savings
and more efficient operating practices;
- Closure of intermodal terminals in Milwaukee, Obico (Toronto), and Schiller Park (Chicago) - reducing footprint and operating
expenses while also facilitating efficient operating practices and
reduced end-to-end transit times;
- Improved train service and network velocity resulting in the
need for 195 fewer locomotives and 3,200 fewer leased rail cars -
current stored, year-to-date lease returned and declared surplus
locomotive units total 460.
Harrison continued, "We are hearing feedback from customers that
they are seeing and liking the results. The reduced number of
assets and the decentralized decision making within the
organization will allow us to appropriately size to any changes in
market conditions. I have always maintained that by focusing on the
best possible service, along with appropriate cost containment, the
operating ratio will take care of itself. CP is no different; we
already see the service and related bottom line benefits of our
early actions. It's an exciting time to be a part of this great
franchise."
The Plan for Change Going Forward
"We now have a leadership team that understands the urgency of
making change and improving the culture of this organization"
Harrison said. "CP has many talented railroaders who want to
win. Together we are squarely focused on improved service and
becoming the low cost carrier. This will allow us to continue
to grow with our customers."
Moving forward, Harrison outlined various plans CP will execute
to continue to improve service reliability, increase the railway's
efficiency, and grow the business. Key highlights
include:
- Reduce roughly 4,500 employee and/or contractor positions by
2016 - through job reductions, natural attrition and fewer
contractors. We have already made progress on this front and
expect 1,700 positions to be eliminated by year end;
- New longer sidings program will improve asset utilization and
increase train length and velocity - The plan will allow CP to move
the same or increased volumes with fewer trains, and is expected to
save over 14,500, or 4%, crew starts;
- Explore options to maximize full value of existing and
anticipated surplus real estate holdings;
- Relocate CP's current corporate headquarters in downtown
Calgary to new office space at CP-owned Ogden Yard by 2014;
- Review options for the Delaware & Hudson (D&H) in the U.S.
Northeast, while maintaining options for continued growth in the
energy business;
- Announced earlier, CP is seeking expressions of interest on the
660-mile portion of the former Dakota,
Minnesota & Eastern (DM&E), west of Tracy, Minnesota.
"I am excited about what we've achieved to date, but we have
only just started this journey to being a more competitive railway.
We will continue to drive our service offering while focusing on
taking unproductive costs out of the business. We see a
strong earnings profile and solid free cash flow picture emerging."
Harrison added. "Canadian Pacific is a great franchise with strong
growth upside and we are more confident than ever that we will
drive shareholder value long into the future."
Financial expectations on CP's journey to 2016
include:
- Compound annual revenue growth of 4% - 7% off the 2012
base
- A full-year operating ratio in the mid-sixties for 2016
- Cash flow before dividends (*see Non-GAAP Measures below) of
$900 million - $1,400 million in
2016
- Annual capital spending in the range of $1.0 - $1.1
billion over the period
Key Assumptions
- Average fuel cost per gallon of $3.45 U.S. per U.S. gallon
- Defined benefit pension expense of $140 - $150
million through 2016
- Defined benefit pension contributions between $100 - $125 million through 2015 increasing to
$200 - $300 million in 2016
- A tax rate of 25 - 27%
- CP becomes fully cash taxable during the four-year period
- Canadian to U.S. exchange rate at par
Fourth Quarter 2012
As previously noted on December 3,
2012, CP anticipates taking a fourth quarter estimated
pre-tax non-cash charge of approximately $180 million ($107
million after tax) on its option to build into the Powder
River Basin. CP also anticipates taking a charge related to
labour and other restructuring activities, the amount of which is
under review.
Editor's Notes:
*To access a HD video webcast of the presentations on
December 4 and 5 go to: www.cpr.ca
under "Invest In CP" tab.
**To access the conference by the phone on December 4 and 5, please call 888-821-9349 or
201-604-5056 password 637402.
***Investor Day full-disclosure PowerPoint presentations by Mr.
Harrison and his Executive Team can be viewed at www.cpr.ca after
0830 December 5, 2012.
Note on Forward-Looking Information
This news release contains certain forward-looking information
within the meaning of applicable securities laws relating, but not
limited, to our operations, priorities and plans, anticipated
financial performance, business prospects, planned capital
expenditures, programs and strategies. This forward-looking
information also includes, but is not limited to, statements
concerning expectations, beliefs, plans, goals, objectives,
assumptions and statements about possible future events,
conditions, and results of operations or performance.
Forward-looking information may contain statements with words or
headings such as "financial expectations", "key assumptions",
"anticipate", "believe", "expect", "plan", "will", "outlook",
"should" or similar words suggesting future outcomes. To the extent
that CP has provided guidance that is a non-GAAP financial measure,
the Company may not be able to provide a reconciliation to a GAAP
measure, due to unknown variables and uncertainty related to future
results.
Undue reliance should not be placed on forward-looking
information as actual results may differ materially from the
forward-looking information. Forward-looking information is
not a guarantee of future performance. By its nature, CP's
forward-looking information involves numerous assumptions, inherent
risks and uncertainties that could cause actual results to differ
materially from the forward-looking information, including but not
limited to the following factors: changes in business strategies;
general North American and global economic, credit and business
conditions; risks in agricultural production such as weather
conditions and insect populations; the availability and price of
energy commodities; the effects of competition and pricing
pressures; industry capacity; shifts in market demand; changes in
commodity prices; uncertainty surrounding timing and volumes of
commodities being shipped via CP; inflation; changes in laws and
regulations, including regulation of rates; changes in taxes and
tax rates; potential increases in maintenance and operating costs;
uncertainties of investigations, proceedings or other types of
claims and litigation; labour disputes; risks and liabilities
arising from derailments; transportation of dangerous goods; timing
of completion of capital and maintenance projects; currency and
interest rate fluctuations; effects of changes in market conditions
and discount rates on the financial position of pension plans and
investments; and various events that could disrupt operations,
including severe weather, droughts, floods, avalanches and
earthquakes as well as security threats and governmental response
to them, and technological changes. The foregoing list of
factors is not exhaustive.
These and other factors are detailed from time to time in
reports filed by CP with securities regulators in Canada and the
United States. Reference should be made to
"Management's Discussion and Analysis" in CP's annual and interim
reports, Annual Information Form and Form 40-F. Readers are
cautioned not to place undue reliance on forward-looking
information. Forward-looking information is based on current
expectations, estimates and projections and it is possible that
predictions, forecasts, projections, and other forms of
forward-looking information will not be achieved by CP.
Except as required by law, CP undertakes no obligation to update
publicly or otherwise revise any forward-looking information,
whether as a result of new information, future events or
otherwise.
Non-GAAP Measures
We present non-GAAP measures and cash flow information to
provide a basis for evaluating underlying earnings and liquidity
trends in our business that can be compared with the results of our
operations in prior periods. These non-GAAP measures have no
standardized meaning and are not defined by GAAP and, therefore,
are unlikely to be comparable to similar measures presented by
other companies.
Free cash and cash flow before dividends are non-GAAP measures
that management considers to be indicators of liquidity.
These measures are used by management to provide information with
respect to the relationship between cash provided by operating
activities and investment decisions and provides a comparable
measure for period to period changes. Free cash is calculated
as cash provided by operating activities, less cash used in
investing activities and dividends paid, adjusted for changes in
cash and cash equivalent balances resulting from FX
fluctuations. For the purposes of this press release cash
flow before dividends has been calculated as cash provided by
operating activities less cash used in investing activities.
Dividends have been excluded as, at this time, the board of
directors of the Company has not approved dividends for 2016 and
therefore it is not appropriate to provide forward looking
estimates of what amount such dividends could be. In
addition, it is assumed that the Canadian dollar will be at parity
with the US dollar, thereby eliminating any foreign exchange FX
fluctuations on cash balances. For further information
regarding non-GAAP measures see our Management's Discussion and
Analysis for the third quarter of 2012 or the document Non-GAAP
Measures on our web site at www.cpr.ca.
About Canadian Pacific
Canadian Pacific (TSX:CP)(NYSE:CP) is a transcontinental railway in
Canada and the United States with direct links to eight
major ports, including Vancouver
and Montreal, providing North
American customers a competitive rail service with access to key
markets in every corner of the globe. CP is a low-cost provider
that is growing with its customers, offering a suite of freight
transportation services, logistics solutions and supply chain
expertise. Visit cpr.ca to see the rail advantages of Canadian
Pacific.
SOURCE Canadian Pacific