Canadian Pacific Railway Ltd. says it will cut 1,000 jobs and $400-million in spending this year as it grapples with declining freight volumes in a sluggish economy.
The job losses expected by the middle of this year come on top of the roughly 7,000 positions the railway has shed since chief executive officer Hunter Harrison took the helm after a proxy fight in 2012.
In the past year, the company has cut 12 per cent of its workforce, and now employs 12,800 people in its Canadian and U.S. operations.
In addition, the company has sidelined 600 locomotives and thousands of rail cars, as it sold real estate and rail subsidiaries in a transformation from an industry laggard into one of the most efficient in North America.
“I think this model of ours outperforms the competition, maybe even more in hard times than it does in good times,” Mr. Harrison said on a conference call to talk about the company’s financial results on Thursday.
Mr. Harrison said the jobs cuts will be made in all parts of the company, and noted most of the past reductions have been made through attrition in an older workforce.
He said capital expenditures would be reduced to $1.1-billion in 2016, and would likely stay at that level for the next two years.
“If demand reduces, then, obviously, I don’t need the same amount of assets," said Keith Creel, CP’s president and operating chief.
CP’s fourth-quarter profit fell short of expectations as freight revenue fell by 4 per cent amid a North American-wide slump in rail traffic. Profit for the three months ending Dec. 31 fell by 29 per cent to $319-million. For 2015, profit was down by 8 per cent to $1.3-billion. For the coming year, CP forecast double-digit growth.
Keeping expenses in check continues to be the main driver of CP’s performance, said Citigroup analyst Christian Wetherbee, who said he views the results favourably in a challenging economy.
Doug Finnson, president of the Teamsters Canada Rail Conference union, which represents 3,400 CP train conductors and engineers, was surprised by Mr. Harrison’s warning of more job cuts, and wondered if it was an attempt to assuage shareholders disappointed in the company’s financial results.
“We’re short of workers. We’ve got people laid off, but they should be working,” he said by phone.
CP has told the Teamsters it expects to replace about 100 train engineers with the use of remote-controlled trains operated by less experienced and lower-paid employees on the mainlines, said Mr. Finnson, who sees many safety concerns with the greater adoption of the so-called belt packs, including operator skills, the technology, weight of trains, and the ability to see signals and switches when not in the cab. A CP spokesman said the company's commitment to providing safe rail service has not changed.
The remote controls are widely used in train yards, but are largely untested on three-kilometre-long trains laden with dangerous goods running through and between cities. “We don’t want to have belt-pack operations going through neighbourhoods with oil,” he said.
A CP spokesman said the “vast majority” of the job cuts will be through “natural attrition,” noting more than 2,000 people a year leave the company that way.
For 2015, CP posted sales gains in eight product lines, led by forest products, plastics and chemicals. Along with the drop in crude, CP saw lower revenues from metals, minerals, consumer products and automotive. CP posted a 4-per-cent drop in its domestic intermodal container business.
Revenue from hauling Canadian grain, CP’s biggest business line, rose by 11 per cent in the quarter and 8 per cent for 2015. Crude oil revenue fell by 19 per cent in both the quarter and the year, as the price of oil continued to plunge.
Amid the slowdown in freight shipments, CP has been pursuing an unsolicited takeover of Virginia-based railway Norfolk Southern Corp. The move would give CP access to the valuable markets on the U.S. East Coast, but faces opposition from the target, as well as a long list of U.S. lawmakers, rival railways and shippers.
Mr. Harrison said CP believes rail mergers are needed to improve service and reduce congestion, but offered little guidance on how the company would secure the merger.
“Those of you who have figured out what we’re going to do, you ought to tell me, because I haven’t figured it out yet,” Mr. Harrison said.
Union Pacific stock falls
Union Pacific Corp. shares tumbled to the lowest in almost three years as a worsening freight slump caused the railroad to fall short of profit estimates for the third time in a year.
The cargo decline will continue this year, with volumes in the first quarter expected to drop in the “mid single digits,” Union Pacific said on a conference call Thursday. Freight numbers for all of 2016 will be “slightly down,” chief financial officer Rob Knight said.
Coal will continue to drag on Union Pacific, with the railroad saying carloads of the fossil fuel would decrease 20 per cent in the first quarter. Retail weakness and low labour force participation are also raising questions about U.S. consumer strength, which has helped drive merchandise shipments in recent years, said chief executive officer Lance Fritz.
Union Pacific shares fell $2.61 to close at $71.
Fourth-quarter profit fell to $1.31 (U.S.) a share, 11 cents less than the average of 26 analysts’ estimates compiled by Bloomberg.
Revenue decreased 15 per cent to $5.21-billion compared with a forecast of $5.44-billion. It was the biggest profit miss in at least 10 years.
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