(The Canadian Press circulated the following story by Brenda Bouw on May 23, 2009.)
VANCOUVER, B.C. — Canadian Pacific Railway Ltd. (TSX:CP) said it has lived through 10 economic downturns in its 128-year history and that the current recession will likely mean a reshaping of the company to position it for future growth.
“CP will not only survive this downturn, but will use these unsettling times to reinvent ourselves yet again to deliver competitive advantage in the long term,” president and CEO Fred Green told shareholders at the company’s annual meeting in Vancouver Friday.
“Perhaps oddly, I find it a very invigorating time,” Green added.
He said the company’s challenge is to “adapt” to the new economic reality.
“Historical relationships, patterns and approaches will not necessarily return,” Green said.
“Our goals must include efforts to influence the outcome, of course, wherever possible, but of equal importance I believe that we must ingrain in our company’s culture a capability to be agile, nimble and opportunistic … .”
In an interview later, Green wasn’t specific on what might change, but discussed logistical changes, such as sourcing of materials. He also commented on advantages of outsourcing certain parts of the business such as car repairs.
“I think it could mean anything,” Green told reporters. “I don’t want to predict the specificity of it.”
Canadian Pacific is Canada’s second biggest rail company and a major hauler of grain, chemicals, coal and other products to western ports.
The impact the sluggish economy has had an “unprecedented” impact on volumes, Green said.
He said volumes are down more than 30 per cent year-over-year so far in the second quarter, which is normally its busiest time of the year. That’s after falling 20 per cent in the first quarter compared with a year ago.
The company has made deep cuts as a result of the business slowdown and worked to improve its balance sheet.
Starting last fall, it parked more than 400 locomotives and stored about 17,000 rail cars. That led to layoffs of about 2,700 unionized workers. Green also said about 300 managers and supervisors have been let go from its 16,000-employee workforce.
He said only about 100 of those positions are permanent layoffs, and that they hope to bring back staff when the economy picks up.
To improve its balance sheet, Green cited an equity offering that raised $500 million in January. He also pointed to a recent cash tender offer for $450 million of debt and issuing $350 million of new debt.
“The impact will be a reduction and a smoother demand on our cash,” Green said.
“A tough economic climate calls for tough decisions, we’ve made some and we have to make more.”
Green said he isn’t seeing signs of recovery that executives in some industries have cited in recent weeks.
“Until the consumer starts to buy again, and I’m not seeing any evidence of that, then you will see our import-export activities stay fairly low and our domestic and intermodal business fairly low,” Green said.
He said some industries such as coal and potash may be showing signs of improved activity, “but what I’d like to see is sustained demand.”
“It’s one thing to say we are going to have a good week, but it’s another to see that sustained demand over four weeks, six weeks, eight weeks.”
Canadian Pacific chairman John Cleghorn said the company is “standing firm” in the current economic slump.
“This is a company with a long history and we’ve weathered economic downturns in the past,” said Cleghorn, the former chairman and CEO of Royal Bank
“We are keeping an eye out for future opportunities as well.”
Canadian Pacific was incorporated in 1881 and five years later the so-called “Last Spike” was put into the ground in B.C. in 1885.
Canadian Pacific recently reported a 31 per cent drop in first-quarter profits to $62.5 million from $90.7 million a year earlier. Earnings per share amounted to 39 cents, down from 59 cents in the year ago quarter.
The first-quarter results consolidate the newly acquired Dakota, Minnesota & Eastern Railroad, and offer a pro forma presentation of year-ago results when DM&E earnings were reported as equity income. On that basis, total revenue slumped 13 per cent from $1.23 billion.
The company has also cut its capital program this year to between $720 million and $740 million, down from its original projection of $800 million to $820 million, and from 2008 spending of $1 billion.