(The Toronto Star posted the following Canadian Press article by Amy Carmichael on its website on April 29.)
VANCOUVER — The size of the grain crop and the success of cost cutting will determine whether Canadian Pacific Railway Co. can recover from a 25 per cent profit drop in the first quarter, the company’s president says.
“Obviously, the first-quarter results have put us in a pretty deep hole,” Rob Ritchie, CP Rail’s president and chief executive, told shareholders yesterday at the company’s annual meeting in Vancouver.
“The end result is that I expect it to be a challenge to meet our operating income levels of 2002 in 2003. However, we see the next three quarters being as good as, or better than, the same period last year.”
Last week, CP Rail reported that high fuel prices and a severe winter dragged down profits to $102 million in the first quarter from $136 million in the same year-earlier period. Despite the profit drop, the company still managed a marginal gain in revenues to $879 million as strong intermodal traffic helped offset a weak grain-shipping business.
The cost of fuel will continue to be the company’s biggest challenge, Ritchie told shareholders.
The company has reduced fuel costs by 20 per cent over the last four years by investing in more efficient locomotives. CP Rail boosted capital spending from $560 million last year to an expected $700 million in 2003, investing in January in 41 such trains.
Ritchie said management has moved quickly to attack expenses as the dismal January-March quarter unfolded. A minimum of 300 jobs will be eliminated this year from the railway’s North American workforce of 15,500. Ritchie said there will be some layoffs but most of the job cuts will be achieved through attrition and a hiring freeze.
These measures alone won’t make back the earnings dive, Ritchie said. “The magnitude of the gap (between 2002 results and this year’s) will depend on reducing costs, and on the size of the Canadian grain crop,” he said.
He said there are positive early signs that the new crop will be considerably more abundant that last year’s drought-stricken one. Ritchie said CP Rail is ready to take whatever the farmers can harvest.