Canadian Pacific Railway (CP) Q2 2016 Earnings

Canadian Pacific Railway (CP) CEO Hunter Harrison said railroad market is improving

“The market has turned much more positive.  Grain looks much better than we expected earlier in the year.  In fact, if you listen to the experts in Canada, this will probably be a record year of all time of production of grain in Canada. The bulk that has pretty well squared itself away. I think we see improvements second half, everywhere but probably crude and we know the question marks are there.”

Canadian Pacific Railway (CP) COO Keith Creel said they aren’t focused on being best in class in safety but are rather focused on “just being the best we can be” 

“So on the safety front, which is all very topical in this industry, topical with our responsibility to communities we operate in and through, although that scenario that you never get there, it’s a journey, it’s not a destination. We continue to drive dramatic improvement in that area as well, which is good for business from a societal cost to people cost, it’s the right thing to do. And it’s not about being the best in class or the best in the industry, it’s all about day-in and day-out being the best that we can be ourselves. We hold our own self to a high standard, and that’s something we’ll never forget about. And because of that, we’re driving culture, process change into the people. We’re producing some significant progress there that makes all of this possible.”

Canadian Pacific Railway (CP) CFO Mark Erceg called the demand environment weak

“We did face a very challenging demand environment during the second quarter, which was further exacerbated by the Northern Alberta wildfires, which we believe negatively impacted shipments by about CAD 20 million during the quarter.”

Canadian Pacific Railway (CP) COO Keith Creel said they’re using longer trains to improve efficiency

“nother margin issue that I think is critically important for people to understand, the day of the 112-car grain train of CP is done. We’re moving to 134 cars. Why are we doing that? Takes the same amount of locomotive. There’s a 17% or 18% pick-up in cars per train which means at the end of the day, same amount of grain is lower cost, lower locomotives, lower train starts. It’s an immediate margin opportunity for us, as well as an additional opportunity for the farmer and for us to work in concert with the grain companies to move more grain. That’s a powerful, powerful thing especially when you’re facing what might be a huge opportunity for us both in 2016 to make up some of what we’ve lost the first half, but the true power is going to be in 2017 in those lull months which we’ve experienced this year. But this is all a very positive story for us.”

Canadian Pacific Railway (CP) COO Keith Creel said coal prices have stabilized which is encouraging

“Actually, that’s something that is pretty encouraging. To your point, the prices have stabilized, the price for the third quarter is higher than the price for the second quarter, so I would suggest that that’s inflected as well.  The service is great, we’re controlling our cost, and I see line of sight to a little upside there.”

Canadian Pacific Railway (CP) COO Keith Creel stressed the important of grain

“Grain is king. Grain is king right now.  Everything is turning for grain. If you look, first of all, we get the rate action, which the increase was I think 4.6%.  That’s number one. Number two, I think I read that it’s the more acres planted in the pack.  The yield is better with new technology and so forth. So, if you believe what you read, the only thing that’s holding grain back is the supply chain coordination. And we want to be a player and a leader to help Canada, and we have the same issues in the U.S., just on a smaller scale, become a world leader in the movement of grain.”

 

Canadian Pacific (CP) Chief Operating Officer Keith Creel And CSX Chief Financial Officer Frank Lonegro

Canadian Pacific (CP) Chief Operating Officer Keith Creel said that due to technological advancements, railroads don’t need as many employees as they used to which should help keep expenses in check

“We use to pay too much for too little.  People would effectively come in 6 hours for 12 hours of pay.  We don’t need as many people.”

CSX Chief Financial Officer Frank Lonegro said driverless locomotive trains will also help to improve efficiency 

“Labor is our largest cost.  In 5 to 10 years, we’ll move to less labor intensity, from two to one person in a cab, and maybe in my lifetime to zero.”

 

 

 

Source: 

http://www.institutionalinvestor.com/article/3548979/banking-and-capital-markets-corporations/railroads-seek-new-routes-to-profit-in-wake-of-commodities-slump.html?ArticleId=3548979&single=true#/.VygoeauCzHg

Canadian Pacific Railway (CP) Q1 2016 Earnings Call Transcript

Canadian Pacific (CP) Chief Operating Officer Keith Creel said the company performed phenomenally well in a tough economic environment

“In this current very demanding environment that we are living in today it is all about focusing on and controlling what we can. It is leveraging this operating model to succeed. The metrics you see certainly speak for themselves. Double-digit improvements, [speed], locomotive productivity, car miles per day, train length and fuel efficiency both improving by 5%. So all fruits of the hard labor and the execution day in and day out while we improved service and delivered for our shareholders.”

Feels to them as if the Canadian economy is bottoming 

“So that said the Canadian economy though on a positive note appears to be stabilizing and recessionary fears seem to be subsiding. So we do feel that the second-quarter is going to be the bottom. Q3, Q4 obviously are going to be stronger on a demand standpoint.”

Canadian Pacific marketing team is cold calling customers in order to land sales

“Becoming part of our customers’ supply chains, part of our customers’ business offering, help them grow, so that we can grow with them to a point this past quarter, we did over 3000 cold call sales.  I bet CP never did 3000 cold call sales in the last decade. So that is how hungry this marketing team is and as a result of that we have got customers that never experienced CP, we have got customers that are under their own pressures to control cost that are taking advantage of this low-cost transportation service we can provide.”

Domestic economy is good, international is less so 

“From domestic, it’s both Tom, I think the economy is good, the economy is going to help us a little bit but share gain certainly from truck most specifically.  International, it’s sort of a wild card. We had a pretty strong start to the year before the Chinese New Year but things have fallen off a bit since.  I feel much more confident about the domestic piece but we are going to do well in the marketplace.”

Canadian Pacific (CP) Chief Operating Officer Keith Creel said they decided to in-source their information technology systems

“f we don’t have good data if we don’t have good systems to make decisions with around the railway with day in and day out. If our systems crash, we can’t get our report — give us gauges on how we’re doing across the network on a day-to-day basis. It’s challenging. So, since we’ve in-sourced it, we have our own people, we’ve been able to develop our own skill-sets, our own win strength and our own level of accountability; the results have improved dramatically. And it lowered cost. So, again, it’s win-win situation for us.”