ALBERTA

Canadian Pacific sets out plans to double earnings, grow revenue to $10B in 2018

10/01/2014 04:56 EDT | Updated 12/01/2014 05:59 EST
CALGARY - Canadian Pacific Railway Ltd. says it can double its profits and drive its revenues to $10 billion over the next four years.

CEO Hunter Harrison kicked off a two-day investor event in White Plains, N.Y., on Wednesday by unveiling the Calgary-based railway's goals to 2018, when it's likely the veteran railroader will have retired from the top job.

CP is aiming at a two-fold increase in earnings per share between this year and 2018. In releasing its 2013 results in January, the company said it aimed to bring in profits of at least $8.35 per share in 2014, 30 per cent higher than last year's bottom line, excluding "significant items."

Canadian Pacific says it also plans to grow its annual revenue to $10 billion in that time frame. It posted $6.1 billion of revenue in 2013.

Cash flow before dividends is targeted to be $6 billion through 2018.

"This is not a stretch. This is not something that cannot be achieved and accomplished," said Harrison.

During his presentation, Harrison took aim at naysayers who said he didn't have a plan to boost Canadian Pacific's performance when he became CEO in 2012, displaying a slide of quotes from dubious analysts.

The former boss of rival railroad Canadian National Railway (TSX:CNR) was appointed to turn around Canadian Pacific following a bruising proxy fight led by Bill Ackman's Pershing Square Capital Management hedge fund.

At the time, there were doubts that Harrison could lower Canadian Pacific's operating ratio — the proportion of revenues used to operate the railway — from 80 per cent to mid-60s by 2016. Skeptics pointed to structural issues, like the rougher terrain CP's network traverses versus CN.

Under Harrison's leadership, the company hit its operating ratio target two years ahead of schedule.

"A group of railroaders understood it and the market didn't," said Harrison.

CP's operating ratio was 65.1 per cent during the second quarter, and Harrison said it could drop to the low 60s or even below that by 2018.

On Tuesday, CP announced it had received approval to more than double the amount of stock it can purchase under its 2014-15 share buyback program, having reached the maximum available under the initial plan.

It will now be able to repurchase and cancel up to 12.65 million common shares by mid-March 2015 — an increase of 140 per cent from the previous limit.

CP shares closed at $222.81 Wednesday on the Toronto Stock Exchange, dropping by more than four per cent.

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