Canadian Pacific Railway Limited (CP)

Q4 2011 Earnings Call

January 26, 2012 11:00 am ET

Executives

Janet Weiss - Assistant Vice-President of Investor Relations

Kathryn B. McQuade - Chief Financial Officer and Executive Vice President

Jane A. O’Hagan - Chief Marketing Officer and Executive Vice President

J. Michael Franczak - Executive Vice President of Operations

Frederic J. Green - Chief Executive officer, President, Director and Member of Health, Safety, Security & Environment Committee

Analysts

Walter Spracklin - RBC Capital Markets, LLC, Research Division

Turan Quettawala - Scotia Capital Inc., Research Division

Matthew Troy - Susquehanna Financial Group, LLLP, Research Division

Fadi Chamoun - BMO Capital Markets Canada

Benoit Poirier - Desjardins Securities Inc., Research Division

Thomas R. Wadewitz - JP Morgan Chase & Co, Research Division

David F. Newman - Cormark Securities Inc., Research Division

Jason H. Seidl - Dahlman Rose & Company, LLC, Research Division

Salvatore Vitale - Sterne Agee & Leach Inc., Research Division

Christopher J. Ceraso - Crédit Suisse AG, Research Division

Cherilyn Radbourne - TD Securities Equity Research

Presentation

Operator

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Good morning. My name is Matthew, and I will be your conference operator today. At this time, I would like to welcome everyone to the Canadian Pacific's Fourth Quarter 2011 Conference Call. [Operator Instructions] Ms. Weiss, you may begin your conference.

Janet Weiss

Thank you, Matthew. Good morning, and thanks for joining us. Presenters today will be Fred Green, our President and CEO; Kathryn McQuade, our EVP and Chief Financial Officer; Mike Franczak, EVP Operations; and Jane O'Hagan, EVP and Chief Marketing Officer. Also joining us on the call today is Brian Grassby, our Senior VP Finance and Controller. The slides accompanying today's teleconference are available on our website.

Before we get started, let me remind you that this presentation contains forward-looking information. Actual results may differ materially. The risks, uncertainties and other factors that could influence actual results are described on Slide 2 and 3 in the press release and in the MD&A filed with Canadian and U.S. securities regulators. Please read carefully as these assumptions could change throughout the year. All dollars quoted in the presentation are Canadian, unless otherwise stated. This presentation also contains non-GAAP measures. Please read Slide 4.

Finally, when we do go to Q&A, I'd like to remind you that the purpose of today's call is to discuss our financial results and trends. We will therefore not be addressing Pershing Square's investments in CP or answering any questions on that topic. In fairness to all participants, I'd ask you to limit your questions to one each. Here then is our President and CEO, Fred Green.

Frederic J. Green

Thanks, Janet, and good morning, everyone. CP's multi-year plan is built on 3 pillars: Driving volume growth, expanding network capacity to safely and efficiently support higher volumes and controlling costs. We exited 2011 having made meaningful progress on all 3 goals, and we are beginning 2012 with operating momentum, good service and a stronger, more resilient rail network.

After a difficult first half in 2011, our first priority has been to reestablish our reputation for service, which underpins our price and growth plans. We entered Q4 with more contingent labor resources and an upgraded locomotive fleet with the acquisition of 61 new, more reliable fuel-efficient units, cascading older units out of service. As I highlighted last quarter, our primary obligation was to prove to our customers that we would return to consistent and reliable service, and we have done just that. Great examples are grain, where we filled 100% of planned orders during the quarter and achieved 92% overall on time daily spotting; and Intermodal, where we delivered transcontinental train performance of over 90%. Our operational metrics, a leading indicator of both customer satisfaction and financial results, are showing some compelling improvements.

We finished the year with record Q4 results in car miles per day, up 20%; active cars online, down 14%; and terminal dwell, where we delivered a 20% year-on-year improvement and set new performance benchmarks.

We know asset velocity is a key to our success. Customers place great value on enhanced service and it comes with the added benefit of lowering our costs. From a network perspective, we completed our $1.1 billion capital plan and delivered on stated network improvements, enhancing productivity, service and velocity.

We broke records for train lease this year, and our investments are driving further improvements, including reduced run times on our North Line and increased train lengths on export coal. As we complete years 2 and 3 of our network enhancement plans, the benefits will continue to grow.

So turning to Slide 7, from a market perspective our strategic plan is paying off. In June of 2010, we highlighted a $1 billion pipeline of market opportunities. We're making significant strides towards our stated goal of driving volume growth by cementing our position with existing key customers and turning opportunities into outcomes in emerging domestic markets.

We just announced a new 5-year agreement with Canadian Tire, a major retailer, positioned to growth. A new 10-year agreement with Canpotex that delivers higher rates, provides more timely and complete fuel coverage, shortens route miles, simplifies the operation with a hook-and-haul model and positions CP to participate in planned growth. The deep relationship that exists from the top to the bottom of the company made this possible.

And from a market development side, the biggest opportunity for us, energy, is bearing fruit. We increased inbound shipments of products like aggregates and pipe by more than 40% in Q4, and we more than doubled outbound shipments of crude oil. On an annual basis, we grew our energy portfolio by approximately $60 million, and there's more to come. We achieved these milestones because our team's commitment to executing on our multi-year plan.

In June at our Investor Day, we laid out a number of productivity targets, and we are making headway in meeting those targets. As examples, Q4 fuel efficiency at 1.17 gallons per thousand GTMs matched our best ever Q4 performance. Labor at 4.53 million GTMs per expense employee set a Q4 productivity record. And in grain, our hub program and emphasis on velocity delivered record carloads crop year-to-date, beating our previous record by 10%.

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