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Canadian Pacific Railway Ltd. on Thursday said it would cut up to 1,000 jobs this year as sluggish economic conditions weigh on some of its key freight volumes.
CP Chief Executive Hunter Harrison announced the job cuts following the release of fourth-quarter results that missed analyst expectations on a slump in revenue related partly to lower metals and crude-oil shipments.
Calgary, Alberta-based CP, Canada’s second-biggest railway operator, earned 319 million Canadian dollars ($220 million), or C$2.08 a share, down from C$451 million, or C$2.63 a year earlier.
Adjusted to exclude items, CP earned C$2.72 a share, below the C$2.78 a share analysts polled by Thomson Reuters were expecting.
Revenue fell just over 4% to C$1.69 billion, missing the C$1.72 billion analysts were expecting.
“I’m very pleased with the performance given some of the challenges that we’ve been through,” said Mr. Harrison during the earnings call.
Mr. Harrison said the railroad plans to lay off up to 1,000 employees this year, the bulk of which should happen by the second quarter. CP cut about 12% of its workforce over the past year while parking about 600 locomotives due to weaker industrywide demand for rail transport. It now has about 12,800 employees in its Canadian and U.S. operations.
The planned job cut will take place across all the company’s operations, Mr. Harrison said.
CP, which has made a hostile bid to merge with Norfolk Southern Corp., said its operating expenses fell 4% to C$1.01 billion in the latest quarter, while its operating ratio was unchanged at 59.8%. Operating ratio is the percentage of operating revenue consumed by operating costs, so a decline would indicate an improvement.
Revenue in CP’s forest-products sector grew the most in the period, increasing 20%, while revenue from Canadian grain and automotive shipments rose 11% and 9%, respectively. Revenue from the transport of metals, mineral and consumer products fell 21%, while crude revenue dropped 19%.
CP’s international container freight revenues were down 1%, while its domestic container business dropped 13% as a result of economic headwinds and increased trucking capacity, CP President Keith Creel said on the call.
Railroad volumes have been on a declining trend over the past year amid sluggish economic growth and slumping commodity prices that have put a damper on rail shipments. Heavy, long-haul types of shipments such as grain, crude oil and fracking sand products are examples of soft rail volumes affecting all railroads, analysts say.
Freight shipments are likely to continue facing lower-than-normal volumes through the first quarter of the year as commodity markets stabilize.
CP guided for a 2016 operating ratio below 59%, double-digit adjusted earnings-per-share growth and capital spending of about C$1.1 billion. The railroad’s 2015 adjusted earnings came in at C$10.10 a share and analysts are projecting C$11.29 a share for 2016.
CP is in the midst of a hostile bid to merge with Norfolk Southern Corp. to create an industry giant that would stretch from the Canadian West Coast to the Gulf of Mexico and U.S. Atlantic seaboard. Norfolk Southern has repeatedly rebuffed CP, making it“reasonably likely” a proxy fight will occur, activist investor and Canadian Pacific shareholder William Ackman said last month.
CP’s larger peer and main rival, Canadian National Railway Co., is scheduled to report fourth-quarter results next week.
Write to David George-Cosh at email@example.com
This article first appeared on www.wsj.com
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