(Bloomberg News circulated the following article by Rip Watson on February 24.)
MIAMI — Canadian Pacific Railway, Canada’s No. 2 railroad, will continue raising its prices because speedier delivery and other service improvements justify the increase, incoming Chief Executive Officer Fred Green said this week.
The railway raised rates 14 percent last year and has run trains 18 percent faster in the first five weeks of 2006.
Green, 49, who was named Tuesday to succeed Robert Ritchie after he retires May 5, said freight volume will increase as much as 3 percent this year.
Canadian Pacific, its larger rival Canadian National Railway and railroads in the U.S. raised prices in 2005 amid increased demand to ship consumer goods made in Asia.
Green said demand will continue to grow in 2006, “providing an opportunity to command prices that we have not been able to in the past.”
John Chu, an analyst for Research Capital Corp. in Toronto, said Green’s experience managing the railroad’s operations puts him in a good position to reduce costs.
”If you can streamline your procedures, manage assets better and make sure you are utilizing assets the best way that you can, that will generate cost savings, and higher profits,” he said.
Chu, who rates the shares ”accumulate,” also said the announcement of a 25 percent dividend increase and plan to repurchase 4.4 million shares was good news for the company.
Green, currently chief operating officer and president of the Calgary-based railroad, said customers are also noticing an improvement in the time it takes to switch freight between trains.
He said his expectation that shipments will grow 3 percent this year is dependent on the volume of Canadian potash and coal exports.
Ritchie said Feb. 15 that 2006 profit, excluding currency fluctuations and certain other items, will rise as much as 18 percent to C$3.85 a share, helped by imports of consumer goods, as well as higher prices.
He said the company was targeting a 2006 profit margin, before taxes and interest, of 25 cents per dollar of sales, from 22.8 cents in 2005.
”We must continue to improve returns for our shareholders, we must continue to improve our operating ratio,” Green said, without giving specific targets.
Canadian Pacific’s profit margin is little changed from 2001 levels of 22.7 cents per sales dollar.
Since 2001, Canadian National’s margin has improved by 4.7 cents per sales dollar to 36.2 cents. Its stock has risen 140 percent and profit has more than doubled.
Investors shouldn’t expect wholesale changes in the railway’s strategy when Green, a native of Newfoundland who grew up in Montreal, takes over.
”I don’t think it is fair to assume that there will be radical change to a game plan that I have been actively involved with,” Green said. “I like the path we are on. We have to determine how much more we can do, rather than determine what we will do radically differently.”