(The Globe and Mail posted the following article by Peter Kennedy on its website on April 29.)
VANCOUVER — Canadian Pacific Railway Ltd. is moving to offset the impact of lower first-quarter profit by trimming costs, but would still be interested in buying BC Rail Ltd. if the provincial government puts it up for sale.
“We are definitely interested in acquiring it or being part of a partnership to acquire it,” CPR chief executive officer Rob Ritchie told reporters after the company’s annual meeting in Vancouver yesterday.
He said the railway is eyeing additional traffic from B.C. Rail’s forest products business even though CPR will struggle to match operating income levels that reached a record $857-million in 2002. “Our success will depend on reducing costs and on the size of the Canadian grain crop,” he said.
Because of the impact of record high fuel costs and avalanches and derailments caused by the severe winter, Calgary-based CPR’s net income in the first quarter ended March 31 fell to $102-million or 64 cents a share from $136-million or 86 cents a year earlier.
“Obviously, the first-quarter results have put us in a pretty deep hole,” Mr. Ritchie said. “Our job is to recover as much of the first-quarter deterioration as possible, but to recover all of it is going to be difficult.”
In keeping with that plan, a minimum of 300 positions will be eliminated this year from the company’s North American work force of 15,500. The company has also launched what Mr. Ritchie called a “no-exceptions” policy on discretionary expenses in every area of the business.
CPR has also moved to protect itself against fluctuating commodity prices by hedging about 30 per cent of its fuel requirements for the balance of this year at prices between $20 (U.S.) and $22.50 per barrel.
However, Mr. Ritchie said the company is seeing early signs that this year’s grain crop will be more abundant than last year’s, which was affected by a severe drought.
He also said operating income in the next three quarters should be as good as, or better than, the same period last year.
Despite the weak first quarter, the company has set itself a number of aggressive medium-term targets.
They include a 73-per-cent operating ratio — a measure of efficiency that shows expenses as a percentage of revenues — a 10 per cent return on capital, and a $200-million (Canadian) cash flow before dividends.
Mr. Ritchie also promised to continually grow the dividend. “It is a business and as such must make money for its investors, a point that I have to make continuously to our provincial and federal governments.”
Meanwhile, Mr. Ritchie said he believed the sale of BC Rail, the country’s third largest railway, would have moved more quickly if it had not been for delays caused by the provincial government.
“Obviously the government is trying to find the balance between economic efficiency on the railway, providing competitive services for the shippers, and serving the community,” he said.
However, if CPR succeeds in striking a deal it would have to resolve the fact that unlike Canadian National Railway Co., it doesn’t physically connect to the BC Rail network.
Hunter Harrison, the chief executive officer of Montreal-based CN, indicated recently that his company would also be interested in buying BC Rail if it becomes available.
On the Toronto Stock Exchange yesterday, CPR shares fell 33 cents to $32.52.