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Canadian Pacific Railway locomotives move cars at a railyard in Calgary.

Jeff McIntosh/The Canadian Press

Canadian Pacific Railway Ltd. chief executive officer Hunter Harrison will hand over the controls of the country's second-largest rail carrier to long-time protégé Keith Creel next year in a much-anticipated succession.

Mr. Creel, currently CP Rail's president and chief operating officer, will take over from Mr. Harrison when he retires on July 1, 2017. The move is expected to bring little change in operating philosophy, as the two have worked together closely at three different railway companies over two decades.

He had long been seen as Mr. Harrison's successor.

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CP Rail made the change at the top official as it announced lower revenue and earnings for the second quarter, blaming weaker-than-expected bulk freight volumes, the impact of the northern Alberta wildfires and a strengthening Canadian dollar. Executives predicted a much more profitable second half of the year.

Mr. Harrison, 71, will step down as CEO five years after coming out of retirement to lead CP Rail following a bitter proxy battle led by Pershing Square Capital Management LP's Bill Ackman. Since then, the carrier's operating performance has improved and the shares have more than tripled, despite a shaky Canadian economy.

The colourful Memphis-born rail veteran will not disappear from the Calgary head office completely, though, agreeing to a three-year consulting contract. His duties in that role have yet to be decided, he said.

"I'm going to do what Keith says," Mr. Harrison said in a conference call.

"That'll be a big change," Mr. Creel, 48, countered.

Before joining CP Rail, the executives worked together at Canadian National Railway Co. and Illinois Central, which CN acquired in 1998. Their trademark has been improving efficiency to boost operating margins, something investors complained had been sorely lacking at CP. However, their critics have said it has come at the expense of employees, whose numbers have been cut sharply, raising questions about safety.

"I wasn't necessarily privy to all the dialogue with this [handover]," Mr. Harrison said. "But I think the board said, 'Look, we've got an opportunity to have two pretty good railroaders during a transition period, and that's not the worst thing in the world.'"

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His half-century of experience in the industry will be a valuable resource to draw on over the contract period, said Mr. Creel, who joined CP Rail in 2013, about six months after Mr. Ackman emerged victorious in the battle for control.

"He's part of this family. I'm thrilled that we have him to call on if we need him," he said.

In the second quarter, CP Rail earned profit of $328-million, or $2.15 a share, down 16 per cent from a year-earlier $390-million, or $2.36 a share. Revenue sank 12 per cent to $1.45-billion from $1.65-billion. That offset lower expenses, which were partly the result of 2,000 job cuts over the past year.

Shipments of most products were lower in the quarter, led by crude oil, down 72 per cent as depressed prices and margins made for unfavourable oil-by-rail economics. Fertilizers and forest products were the only freight categories that gained.

Meanwhile, the Fort McMurray, Alta., wildfires cut shipment revenue by about $20-million and increased fuel expenses by $9-million owing to short supplies in the Edmonton area.

Executives said they expect a much stronger showing in the rest of the year, notably in grain shipments, which will benefit from an expected record harvest.

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"Even with a little bit of offset headwind with the currency, the back half of the year earnings potential is substantial," Mr. Creel said.

National Bank analyst Cameron Doerksen maintained an "outperform" rating on the shares, but boosted his 12-month target to $206 from $194, noting the executive change was no surprise.

"We believe that a better volume backdrop driven by grain will materialize in the next two quarters and into 2017, which will boost investor sentiment around the rails," he said in a note to clients.

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