CP logs best-ever quarterly financial results, challenges arbitrator's decision to reinstate engineer

Today, Canadian Pacific announced its second-quarter financial results were the strongest-ever quarterly results in the railroad's history.

Total revenue climbed 12 percent to $1.7 billion, operating income jumped 40 percent to $587 million and reported net income soared 48 percent to $371 million, or $2.11 per diluted share, compared with second-quarter 2013 results (all figures are in Canadian dollars). In addition, the operating ratio dropped 6.8 points to 65.1, volume rose 3 percent to 689,000 units and operating expenses increased only 2 percent to $1.09 billion.

"CP delivered another record quarter. The team has made great strides in my two years at CP and they continue to demonstrate resiliency by delivering these results despite continued operational challenges in the U.S. Midwest after a devastating winter," said CP Chief Executive Officer E. Hunter Harrison in a press release. "The future is very promising for the railroad as we transition towards leveraging our lower cost structure and improved service."

Revenue gains by commodity group include Canadian grain, 32 percent to $252 million; U.S. grain, 26 percent to $115 million; crude oil, 18 percent to $114 million; metals, minerals and consumer products, 18 percent to $170 million; domestic intermodal, 17 percent to $200 million; coal, 15 percent to $165 million; chemicals and plastics, 12 percent to $155 million; and potash, 6 percent to $101 million.

International intermodal revenue tumbled 6 percent to $150 million, fertilizers and sulphur revenue fell 6 percent to $64 million, forest products revenue dipped 2 percent to $52 million and automotive revenue declined 2 percent to $104 million.

Although the consensus earnings projection dropped in the last month due to grain yield, operating and stock-based compensation concerns, CP's operating results appear to have eclipsed the $2.15 level the consensus moved from, said Citi Research analysts in a report on CP's Q2 results.

"We view the results as another solid beat on an operating basis, as CP topped our targets on both revenues and operating ratio," they said.

Meanwhile, CP also announced it will ask the Superior Court of Quebec to stay a July 14 decision by the Canadian Railway Office of Arbitration (CROA) to reinstate a locomotive engineer whose cocaine use could impact his duties, CP officials said in a press release. The railroad also plans to appeal the agency's order to the Superior Court of Quebec to get the decision overturned.

The CROA decision stems from a December 2012 incident involving a train crew that committed a serious rules violation, CP officials said. Crew members underwent drug tests following the incident and the CROA determined the results indicated the engineer had used cocaine, but the arbitrator still ordered that the employee be reinstated, they said.

"The arbitrator's decision is an outrage and, as a railroader, I am appalled we would be forced to place this employee back in the cab of a locomotive. On my watch, this individual will not operate a locomotive," said Harrison. "The decision sets a dangerous precedent and is grossly unacceptable for the safe operation of a railway … [and] highlights the need for further public debate regarding the rights of an individual when employed in positions involving the safety of the public."

CP has a vigorous zero-tolerance drug and alcohol program, but Canadian companies are limited under federal law that prohibits random drug and alcohol testing, he said.