Canadian Pacific Railway Ltd. management has come out swinging against concerns the company is sacrificing safety in its breakneck effort to improve efficiency and financial performance by slashing jobs even as it transports increasing amounts of industrial goods such as oil by rail.
The rail giant's latest strong results underscore how quickly its cost-cutting efforts under chief executive Hunter Harrison are translating into bottom-line gains. CP said it's on track for record financial and operating results in 2013 after its profit more than doubled in the second quarter.
Profit was $252-million or $1.43 per share, compared with $103-million or 60 cents per share in the year-earlier period. Revenue rose 10 per cent in the quarter, to $1.5-billion. CP's operating ratio, a key measure of efficiency (operating costs as a percentage of revenue), was 71.9 per cent, more than 10 percentage points better than the year-earlier period.
CP's freight revenue was up nine per cent in the quarter, helped by growth in oil-by-rail, the company noted.
The company doesn't break out specific numbers for oil-by-rail, but revenues for industrial products (such as chemicals, plastics, steel, oil and other energy-related products) were up 24 per cent in the quarter, at $379-million. CP has stated it is on pace to move 70,000 carloads of crude oil this year across its North American network, up from 53,500 carloads last year.
The catastrophic crash of a Montreal Maine & Atlantic train that killed at least 47 people in Lac-Mégantic, Que. last month has heightened concerns over railway safety and the growing transportation of crude oil by train.
CP has had its own series of accidents, including the derailment of five cars carrying oil sands diluent on a damaged bridge in Calgary after the unprecedented flooding in the city and other parts of Alberta last month.
CP's cost cutting has raised some concern. Calgary mayor Naheed Nenshi, for example, questioned CP's safety record at the time of the Alberta incident, noting a series of layoffs at the company and asking how many bridge inspectors it fired. Mr. Harrison says that none have been let go.
Calgary-based CP is implementing tighter safety procedures and "working diligently and cooperatively" with other railway companies and regulators regarding additional measures if any are needed, Mr. Harrison told analysts.
"With all the issues pre-flood, then to get hit with a 150-year flood. I've never seen anything like it in my 50 years of railroading," said Mr. Harrison. The CEO – who took over CP last year as part of a shareholder battle for leadership and board changes – is spearheading a huge overhaul of the railway's cost structure and performance.
Chief operating officer Keith Creel said CP is actually bolstering its safety and inspection policies.
"Contrary to what some have suggested, or like to assume, the root causes of our track derailments were not the result of, or even remotely connected to, cutting back assets, be they manpower or the capital we have invested to keep our infrastructure safe at CP. The facts are we have not reduced the workforces that maintain and inspect our track. We have not reduced our inspection standards. We made them more rigid and we actually increased our capital investment."
The federal government on Monday issued new safety guidelines for trains carrying hazardous goods after being urged to do so by the Transportation Safety Board.
Despite soaring from last year, CP's earnings fell short of analysts' expectations and shares pulled back about 2 per cent Wednesday.
Asked about job cuts, Mr. Hunter said the company isn't "obsessed with head counts" and isn't reducing the workforce simply to bring down costs.
"If you take 500 locomotives out and 10,000 cars out, obviously you don't need as many mechanics," he said.
CP has so far cut about 3,500 of the 4,500 jobs it said it wants to cut this year.
But Mr. Harrison said: "We can go higher than that."