CP posts 12 percent decline in Q2 revenue, announces Creel as next CEO

Canadian Pacific's second-quarter 2016 revenue fell 12 percent to $1.45 billion, operating income dropped 15 percent to $551 million and net income decreased 16 percent to $328 million (all in Canadian dollars) compared with the same period last year, the Class I announced this morning.

Reported diluted earnings per share declined 9 percent to $2.15 from $2.36 and adjusted diluted earnings per share decreased 16 percent to $2.05 from $2.45 due in large part to the 12 percent drop in revenue, CP officials said in a press release.

CP's earnings topped analysts' estimates compiled by Bloomberg. The company's Q2 results were consistent with an outlook the railroad reported in June.

"Revenue challenges in the second quarter, as noted in our quarterly outlook release last month, included lower-than-anticipated bulk volumes, devastating wildfires in northern Alberta and a strengthening Canadian dollar," said CP Chief Executive Officer E. Hunter Harrison. "Despite these challenges, our team of dedicated railroaders continues to perform and their hard work and focus on service, safety and controlling costs, positions CP well for the rest of the year."

CP's operating ratio rose 110 basis points to 62 percent from 60.9 percent.

"Our business model provides the flexibility and capacity to take advantage of changing market conditions — as volumes increase, we are well-equipped and ready to respond accordingly," Harrison said.

Meanwhile, CP announced that President and Chief Operating Officer Keith Creel will succeed Harrison as CEO on July 1, 2017. The Class I also announced a three-year, post-retirement consulting agreement with Harrison.

"Keith is a tremendous railroader who is more than ready to take the helm as our next CEO," said CP Chairman Andrew Reardon. "Since joining the company in 2013, Keith has continued to demonstrate to the CP board and all of our stakeholders his considerable leadership abilities and capacity to lead this organization into the future."

Creel was appointed president and COO in February 2013 and joined CP's board in May 2015. He previously served as the executive vice president and COO of CP's Canadian competitor, CN.

Harrison praised Creel as "one of the strongest operating executives" he's met in the railroad industry.

"I look forward to supporting him as we continue to transition over the next year," Harrison said.

Harrison joined CP as CEO in June 2012 and has more than 50 years of railroad experience. Reardon said the board is "thrilled that Hunter has agreed to continue in a supporting advisory capacity after he retires" next year.

"Having the greatest railroader in history available to the organization and the board brings countless benefits," Reardon said. "Hunter led the historic turnaround of the company, and we are more than fortunate that he has agreed to continue his relationship with us for three-years post his retirement."

In other CP news, the railroad announced yesterday that board member Anthony Melman has resigned. Melman, who also served as chairman of the board's finance committee, said he stepped down so he can assess his legal options following a recent Tax Court of Canada decision. Melman stated that he didn't want the issue to become a distraction for the company, according to a CP press release.

The Tax Court ruled that Melman had been "willfully blind" to his accountants' omission of income in his 2007 tax return, The Globe and Mail reported today.