TORONTO (Reuters) - Shareholder activism is “long overdue” at some major U.S. railways, Canadian Pacific Railway Ltd Chief Executive Hunter Harrison said in an interview on Tuesday, after several U.S. competitors reported disappointing financial results.
Asked whether activist shareholders might put pressure on some major U.S. railways to consider putting themselves on the auction block, Harrison said he could see that happening.
“I think you could. I think they’re long overdue,” he said. “Where have they been? Who’s the advocate for the shareholder? If I was the shareholder, I wouldn’t tolerate some of it.”
Harrison, who was installed at CP Rail after a proxy campaign by Bill Ackman’s Pershing Square Capital management, declined to name specific railways, saying “that would be mean.”
CP Rail, Canada’s second-biggest railway, which also has a substantial presence in the United States, discussed a merger with CSX Corp last year, but could not reach a deal.
Harrison has long argued that consolidation is inevitable over the long term, but his is a minority view. Any deal would face tough regulatory barriers, and even Harrison has said hostile takeovers are very unlikely.
In October, Harrison said he was open to a deal with one of the two major eastern U.S. carriers, clearly referring to CSX and Norfolk Southern Corp, though he did not name Norfolk Southern. But in March, he said he did not expect CP Rail to be involved in any consolidation in the short term, because “nobody wants to do a deal.”
On Tuesday, Kansas City Southern reported a drop in revenue and earnings that were slightly below expectations. Last week, CSX and Norfolk Southern said results were hurt by lower freight volumes and the impact of a stronger U.S. dollar on some commodity imports.
CP Rail, by contrast, reported higher first-quarter earnings on Tuesday as revenue rose and operating efficiency improved.
CP shipped 642,000 carloads of freight in the quarter, up 4 percent from a year earlier. Shipments rose in most major categories, but crude oil carloads slipped 8 percent to 22,000 amid relatively weak oil prices.
The railway’s operating ratio, a key efficiency measure, improved to 63.2 percent from 72 percent, beating rival Canadian National Railway Co’s performance for the second consecutive quarter.
The operating ratio expresses operating costs as a percentage of revenue, so lower numbers indicate better performance.
Net income rose to C$320 million ($260 million), or C$1.92 a share, from C$254 million, or C$1.44, a year earlier. Analysts, on average, had been expecting earnings of C$2.17 a share on revenue of C$1.65 billion, according to Thomson Reuters I/B/E/S.
Revenue rose 10 percent to C$1.67 billion.
Excluding a restructuring charge and the impact of foreign exchange rates on U.S. dollar-denominated debt, earnings rose to C$375 million, or C$2.26 a share, from C$251 million, or C$1.42 a share.
CP shares traded down just over 2 percent on Tuesday, closing at C$232.12.
Reporting by Allison Martelll; Editing by W Simon, Peter Galloway and Alan Crosby