Canadian Pacific Railway Limited (CP)
Q2 2010 Earnings Call
July 28, 2010 11:00 a.m. ET
Janet Weiss - IR
Fred Green - President & CEO
Kathryn McQuade - EVP & CFO
Jane O'Hagan - SVP, Strategy and Yield
Walter Spracklin - RBC Capital Markets
Chris Ceraso - Credit Suisse
Scott Malat - Goldman Sachs
Bill Greene - Morgan Stanley
Ed Wolfe - Wolfe Trahan
Ken Hoexter - Bank of America-Merrill Lynch
Tom Wadewitz - JPMorgan
Fadi Chamoun - BMO Capital Markets
Cherilyn Radbourne - TD Newcrest
Benoit Poirier - Desjardins Securities
Jeff Kauffman - Sterne, Agee
Jason Seidl - Dahlman Rose
David Tyerman - Canaccord Genuity
Previous Statements by CP
» Canadian Pacific Railway Ltd. Q1 2010 Earnings Call Transcript
» Canadian Pacific Railway Ltd. Q4 2009 Earnings Call Transcript
» Canadian Pacific Railway Limited. Q3 2009 Earnings Call Transcript
Good morning, my name is Andrea and I will be your conference operator today. At this time I would like to welcome everyone to the Canadian Pacific's Second Quarter 2010 Conference Call. (Operator Instructions).
Thank you. Ms Weiss, you may begin your conference.
Thank you, Andrea. Good morning and thanks for joining us. The presenters today will be Fred Green, our President and Chief Executive Officer; Kathryn McQuade, our Executive Vice President and Chief Financial Officer; Jane O'Hagan, our Senior VP, Marketing & Sales and Chief Marketing Officer.
Also joining us on the call today are Ray Foot, our Group VP of Sales, Brock Winter, our Senior VP of Engineering and Mechanical and Brian Grassby, our VP and Controller.
The slides accompanying today's conference call 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 one and two 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 three. Finally, when we do go to Q&A, in the interest of time and in fairness to your peers we will be asking you to limit your questions to two. If you have additional questions, you may re-queue and time permitting we'll circle back. Here then is our President and CEO, Fred Green.
Good morning and thank you for joining us. This morning we reported adjusted EPS of $0.92 and 96% increase over Q2 of 2009. Volume growth coupled with our cost management efforts resulted in strong operating leverage. Our operating ratio improved 430 basis points and on a flat adjusted basis is improved roughly 600 basis points.
As you can see on the chart we continue to see significant volatility and weekly demand. This makes for a challenging operating environment. We are adjusting our resources inline with volume and sustaining our productivity improvements.
Looking more specifically at the quarter, and at the end of June Southern Alberta and Saskatchewan experienced some extreme weather with the heaviest rainfall in more than a 100 years. The rain and subsequent flooding resulted in nine communities declaring a state of emergency. The closure of the TransCanada Highway and nine washouts over 60 miles that took our main line out of service for 11 days.
This was the single worse line outage of my career and likely of the past 50 years. The team did a tremendous job working with customers, rerouting some traffic over our North mainline and safely and efficiently restoring the operation.
During the outage our associates that's DN, UP and CN assisted us greatly by providing numerous detours. Additionally we had fantastic cooperation from union leaders and our employees to adjust their locations and keep our customers freight moving. Our thanks to everyone who helped us during this difficult phase.
As we have highlighted at our Investor Day there are some core metric that we are watching, safety, train productivity, asset utilization and reliability and even with the flooding disruption we are seeing some good early progress. Due to a commitment that Ed had prior to his joining CP he is unable to be here this morning. So, his absence let me take you through our operating results starting with safety.
Personal safety in Q2 improved 15% over last year and train incident safety improved 24% continuing our Q1 trend. I am very pleased with our progress but of course this is an area where we are never finished. Turning to slide eight, our long train strategy and fuel conservation actions are delivering improved train productivity. As you can see on the chart, train weights and lengths are both up 4%. This is allowing us to handle traffic growth with fewer incremental train and crew starts saving fuel, labor and creating low cost capacity.
Our GTMs per active horsepower decrease slightly due to the flooding and the impact on the network velocity detours and reroutes created higher online queuing and we added locomotives to assist with the recovery.
Fuel efficiency showed modest improvement even with the larger road fleet which now includes some of old or less productive units out of storage. Good disciplined execution of the operating plan drew these results.
Turning to efficiency through on time trains and continuously tighter schedules, we're targeting improvements in asset velocity and service reliability. Well our network speed decreased with increase in volumes other critical metric are showing improvement.
Our Terminal Dwell time improved 3% versus Q2, 2009, a good result given the significant increase in work levels and the flood impact. Our locomotive velocity improved 2% meaning we are working these expensive assets harder. Our labor productivity as measured by GTMs per employee is up 18% and our car miles per day improved 11%.
In fact we were tracking at 15% year-over-year improvement prior to the flooding disruption. Car miles per day is a critical metric because it reflects the productivity of key assets, yards network and rolling stock and I am pleased with our early results.
On the service front, our Winnipeg yard pilot project is progressing well and we have received favorable feedback from our customers. It's a joined effort with our clients to improve the first mile last mile service. Given our early success, we are rolling it out system wide starting with Montreal and Toronto this fall.