CP’s Harrison sets 2018 financial goals

Written by William C. Vantuono, Editor-in-Chief
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At Canadian Pacific’s 2014 Investor Conference, CEO E. Hunter Harrison unveiled new growth targets out to 2018, and “a multi-year strategy to drive superior service and financial profitability, including more than doubling the company’s earnings per share.”

Financial expectations on CP’s “journey to 2018” include more than doubling diluted EPS over the next four years; growing annual revenue to $10 billion; and generating cumulative cash flow before dividends of $6 billion through 2018. Harrison said CP’s new targets and growth strategy “are built on the foundation of performance and discipline that will see the company achieve its objectives for 2016 a full two years early, including an operating ratio in the mid-60s and cash flow before dividends of $1 billion.”

Harrison also outlined how CP will accelerate growth over the next four years “even as we maintain a tight focus on cost containment.” Highlights include “investments in key corridors to leverage franchise strengths, including siding extensions and terminal enhancements, and premium service driven by velocity. We will continue to drive our operating ratio [down] to industry-leading levels.”

Such growth is predicated on annual capital spending in the range of $1.4 billion to $1.6 billion over the next four years; a defined benefit pension expense of $10 million in 2015, assuming a discount rate of 4.55% on Dec. 31, 2014; defined benefit pension contributions between $50 million to $100 million through 2018; a Canadian tax rate of 27.5%; a Canadian/U.S. exchange rate of C$1.10 per U.S.$1.00; and a fuel price of U.S.$3.50.

“Our transformation over the past two years has been nothing short of remarkable, but the journey is far from over,” Harrison said. “We’ve dramatically improved the operating performance of the company, our operating ratio is approaching industry best, and we’ve generated significant value for shareholders. Our achievements of the past two years have set the platform for future growth. It continues to be an exciting time to be a part of this great franchise. It’s our talented and dedicated people who are challenging the status quo each day and ultimately enabling us to grow with our customers at a low incremental cost.”

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