Chicago Illinois USA - Morningstar Incorporated, a leading provider of independent investment research, today announced its 2013 CEO of the Year, E. Hunter Harrison of Canadian Pacific.
 
Morningstar annually recognizes a chief executive who exhibits exemplary corporate stewardship, demonstrates independent thinking, creates lasting value for shareholders, and has put his or her stamp on an industry.
 
The two other nominees for Morningstar's 2013 CEO of the Year award were Darren Gee of Peyto Exploration & Development Corporation, and John Martin of Gilead Science Incorporated.
 
"This year's nominees have demonstrated sound stewardship practices on behalf of their firms' shareholders," Heather Brilliant, head of global equity and corporate credit research for Morningstar, said.
 
"We selected Mr. Harrison as this year's winner because Canadian Pacific has produced outstanding results since his appointment as CEO in June 2012. Harrison has now transformed three railroads in his career, and along the way forged a new standard of profitability in a two-centuries-old industry. It would be difficult to identify another company leader who has revolutionized operations within a mature, asset-intensive industry several times over. Earlier in his career, Harrison steered both the Canadian National and Illinois Central railways to industry-leading margins. His actions in 2013 improved operations for the benefit of Canadian Pacific employees, customers, and shareholders, and positioned the firm for future success."
 
Harrison has been a powerful catalyst for change at Canadian Pacific.
 
Following his appointment, Harrison streamlined leadership, operating practices, and assets, both human and steel.
 
He replaced nearly all senior leadership, decreased the work force by 27 percent, and reduced company-controlled rail cars and locomotives by 35 percent and 43 percent, respectively.
 
He relocated the firm's headquarters from downtown Calgary, Alberta, to the firm's Ogden Yard, a move that cut costs but also keeps Canadian Pacific's focus on freight operations front and center for corporate employees.
 
The firm is on track to produce a nearly 30 percent operating margin in 2013 and targets a 35 percent margin in 2014, a figure nearly double 2011's level.
 
Shares have soared to $160.65 as of 31 Dec 2013, far above the $70 price in January 2012 when public correspondence between the firm's board and activist investor Pershing Square mentioned Harrison's name as a potential new CEO.
 
In 2013, Canadian Pacific's 61 percent total return dwarfed the returns of the S&P 500 (32 percent) and the Dow Jones Transportation Index (41 percent).
 
"Remarkably, Harrison has made these changes to Canadian Pacific's business without harming customer service," Brilliant added.
 
"The firm's higher margins and greater return on invested capital will generate additional free cash flow, which can be invested in a virtuous cycle to enhance safety, operations, and customer service, thereby driving down costs even further. We believe this trend will enhance Canadian Pacific's cost advantage, a key source of its "Wide Economic Moat" rating. The firm's wide economic moat is also based on efficient scale, Canadian Pacific has a difficult-to-replicate network of track and assets and operates in an industry effectively served by existing participants."
 
Morningstar's Economic Moat^TM rating is a proprietary measure of a company's sustainable competitive advantages, and Morningstar assigns each company a rating of Wide, Narrow, or None.
 
A company can obtain an economic moat through five primary sources:  Efficient Scale (a limited market where there is little incentive for new entrants), Network Effect (a situation where incremental customers add value for existing customers), Cost Advantage (allowing a company a greater profit margin and/or the ability to steal market share), Intangible Assets (e.g. patents or strong brands), and Switching Costs (making it costly in time and/or money for customers to switch providers).
 
Morningstar introduced its CEO of the Year award in January 2000.
 
Winners are chosen by senior members of Morningstar's equity analyst team based on their in-depth independent research.
 
The references to Canadian Pacific in this press release should not be considered a solicitation by Morningstar to buy shares of that company.

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