CALGARY — Canadian Pacific Railway Ltd. president and chief executive officer Rob Ritchie says that despite being badly scarred by the Sept. 11 terrorist attacks and their fallout, the company had a successful first year as a separate publicly traded entity, the Canadian Press reported.
CPR, along with the four other “baby CP” companies spawned from the breakup of 120-year-old business icon Canadian Pacific Ltd., was just three weeks away from going public when airliners slammed into the World Trade Center towers and the Pentagon.
The world was in shock, the North American economy gravely wounded, yet plans to become a stand-alone company and take on much bigger railways such as Montreal-based Canadian National Railway Co. couldn’t be stopped.
“For a railway, a bad grain crop would have been bad enough in the olden times,” the CEO said from his office in downtown Calgary. “But now we had all of those uncertainties of what it meant because of the terrorist attacks — and a poor grain crop.”
After a rocky start, the company has managed to grow and produce solid results, although troubles in the Canadian farm economy and reduced lumber shipments to the United States are squeezing its operations.
CPR shares — like those of almost every company on the stock market — plunged throughout September as it traded on a “when-issued” basis. But by October, as trading officially began on the Toronto and New York stock markets, shares were rebounding.
By the new year, CPR stock had recovered from its Sept. 11 losses. By July, shares hit highs of nearly $38 — almost 20 per cent above where they started.
Profits in the latest quarter rose by 35 per cent, despite a nervous economy, a drought in Western Canada that is severely hampering grain crops, and a trade dispute with the United States that threatens Canadian lumber exports.
“The way the company rallied around and pulled itself together through the huge uncertainty, I think, was the single defining moment,” Mr. Ritchie said. “And our teamwork has been improving ever since.”
Mr. Ritchie and his management team went looking to cut costs. They announced plans to eliminate 500 jobs, but when all was said and done, nearly 1,200 positions were gone.
CPR now has about 16,000 employees, down from 23,000 seven years ago. Its operating ratio — a key measure of revenue needed to run and maintain the railway — has been decreasing and fell a further 1.6 per cent in the latest quarter.
Just last week, influential transportation analyst James Valentine of Morgan Stanley in Chicago upgraded the railway, calling CPR the cheapest stock of the 17 companies he covers.
Still, dark clouds surrounding the grain crop have caused recent tremors in the stock price.
Grain accounts for about 21 per cent of CPR’s business. Of that, 14 per cent are Canadian crops. Mr. Ritchie said at least half of that is in serious trouble, but he won’t know the size and quality of the harvest for sure until later this fall.
Tim Caulfield, a transportation analyst with Salman Partners in Vancouver, wrote in a recent report that the “poor outlook for the upcoming crop year in Canada” and weaker coal shipments were the largest looming issues for CPR.
Lumber shipments are also a concern for the railway as the full effects of U.S. tariffs on Canadian softwood are felt, now that American stockpiles have been depleted.
Mr. Ritchie said that with less grain and lumber, CPR has to make sure it keeps its trains full with other products that have not suffered serious declines, such as autos, pulp, fertilizers, metals and container traffic.
And as the railway heads into its second year of independence, Mr. Ritchie said growing the top line — rather than trimming fat — will be the key.
“Cost reductions brought us to the stage we’re at right now, and they will forever be there, but all the low-hanging fruit’s been picked in that area,” he said.
Much attention in the past year has been paid to strategic alliances with the U.S. railways. This allows Canadian products to be transported throughout the United States with seamless service, challenging the trucking industry for a bigger piece of so-called truck-load freight. Mr. Ritchie’s goal is to grow by 4 per cent a year.
“To do that, I need good service, I need a safely run railway, I need people hustling freight. I’d rather do that than shrink the staff further.”
On the Toronto Stock Exchange Friday, CPR shares closed up 15 cents at $32.40.