Canadian Pacific said discussion of grain should be based on facts, not rhetoric

MONTREAL – Faced with new pressures to move what is expected to be a bumper grain crop, Canadian Pacific Railway says any discussion of the challenges of moving the key Western Canadian commodity should be based on facts.

Railway president Keith Creel said Wednesday the company is working with its grain partners to “optimize the supply chain.”

“I think all players will work together to improve on these efficiencies and if things do go south on us, at least the farmers and at least the government clearly understand what can and can’t be controlled,” he said, a day before farmers are to meet with federal Transport Minister Marc Garneau.

“And if it is things that we can’t control, our opinion is that they will do the prudent thing and act on fact, not on rhetoric and speculation.”

CP Rail is entangled in a dispute with some farmers who are worried that not enough of their harvest this year will be shipped because of a rail bottleneck.

Last week, the company said it was ready to move what’s expected to be close to a record crop, but the grain wasn’t ready because wet weather is contributing to a late harvest.

The railway said it had moved less Canadian grain than at this time last year or on average over the past three years but noted that it’s only part of the supply chain and suggested a “score card” to track how the whole system is performing.

Creel said CP Rail has increased its grain train lengths about 11 per cent in the past quarter and aims to add another 10 cars to reach 134 cars to boost efficiency and move more grain. However, he said moisture is forcing more blending of grain which slows down the process of loading railcars.

The railway (TSX:CP) reported Wednesday a third-quarter profit of $347 million or $2.34 per diluted share for the quarter ended Sept. 30, topping its result a year ago, but falling short of investors’ expectations.

On an adjusted basis, CP Rail said it earned $2.73 per diluted share as revenues fell nine per cent to $1.55 billion.

Chief executive Hunter Harrison blamed most of the shortfall affecting grain on weather, but told analysts that some was caused by market softness.

“Most of the conventional wisdom is that if the grain doesn’t move fourth quarter it will carry over into first quarter of 2017 and give us even a stronger start there,” he said during a conference call.

The railway trimmed its earnings forecast for 2016 “mid single digit” growth because of the delayed grain harvest, smaller volumes of crude oil and the impact of a stronger Canadian dollar.

Still, the country’s second-largest railway said controlling costs, including a large reduction in the number of employees, will allow it to end the year with a mid-50s operating ratio, excluding land sales.

In the third quarter, the ratio which measures the percentage of revenue required to operate the company was 57.7 per cent. That was above last year’s third-quarter ratio of 55.9 per cent or 59.9 per cent without the impact of the D&H South sale.

The railway’s workforce has dipped below 12,000 as the number of employees, consultants and contract workers fell 13 per cent from a year earlier.

Creel, who is set to take over from Harrison in July, said more cuts are likely but they won’t be “the same quantum leaps” as have been made over the last four years.