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CP head Keith Creel aims to make peace with unionized work force

A crew works at CP’s Calgary yard. Congestion at a grain terminal in Vancouver has cut into profit, one analyst says.

Todd Korol/REUTERS

Three months into his job as head of Canadian Pacific Railway Ltd., Keith Creel says he wants to make peace with the company's unionized work force.

"Over the last four years, we've had some feathers that have been ruffled, so part of my focus has been to reconnect with employees and also reconnect with our labour unions to ensure that the things we didn't get right in the past we can get right as we go forward," Mr. Creel said on Wednesday.

A Globe and Mail investigation published in March revealed what CP's employees called a culture of fear and intimidation marked by firings often labelled unjust by arbitrators. Grievances filed by fired or suspended union members soared after the mid-2012 arrival of Hunter Harrison, Mr. Creel's predecessor and mentor.

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CP recently revamped its disciplinary system for unionized workers, focusing more on progressive measures for minor rule infractions and less on suspensions and dismissals.

As part of the attempt to improve employee relations, Mr. Creel said he has been meeting with groups of employees in Canada and the United States to ensure his team is engaged and prepared to work toward the same goal: boosting revenue.

"We've just got to get out, remain humble, engage with our employees, engage with our customers ... and we're going to see some top-line growth come from this company," Mr. Creel said on a conference call with analysts to discuss the company's first-quarter financial results.

CP's revenue rose by just 1 per cent for the first three months of 2017, but the Calgary-based carrier expects freight volumes to gain traction in the coming months.

CP's per-share net profit fell by 17 per cent to $2.93 on revenue of $1.6-billion. Net profit in the year-earlier quarter was boosted by a gain from the foreign-exchange translation on U.S. dollar-denominated debt. Adjusted profit was flat, at $2.50 per share, but beat analyst expectations by 2 cents.

"I'm very encouraged as we head into the second quarter," Mr. Creel said on the conference call.

CP's revenue ton miles, a closely watched gauge, were flat for the quarter, compared with the year-earlier period. Meanwhile, Canadian National Railway Co. posted a 15-per-cent rise.

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Benoît Poirier, a stock analyst at Desjardins Capital Markets, said some of CP's underperformance was due to congestion at a grain terminal at Vancouver's port and the "rebalancing" of grain market share between the two carriers. "In addition, CP's loss of the GM automotive contract and Yang Ming intermodal [container ship] contract to CN also significantly widened the divergence in carloads," Mr. Poirier said in a research note.

Mr. Poirier recently raised his estimates for share prices and profits for CP and CN. "Since late 2016, the various economic indicators we monitor have pointed to a substantial recovery in market conditions," Mr. Poirier said.

The rise in economic activity is driving up the amount of freight moving on North American rails. Commodity carloads for the industry rose by almost 8 per cent in the most recent week, compared with the same week a year ago. CP's commodity carloads rose by 12 per cent, the third highest among the seven large North American railways, the Association of American Railroads said on Wednesday.

In the first quarter, CP's loss of some major shipping contracts was partly offset by a 7-per-cent rise in grain revenue, and a 20-per-cent gain in potash shipping revenue. Automotive revenue dropped by 16 per cent.

CP's shares traded around $202 on Wednesday, up 6 per cent this year, outperforming the broad S&P/TSX composite index's 2.2-per-cent gain and a 1-per-cent drop in Dow Jones transportation average of U.S. stocks.

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