* Q4 profit hurt by one-time charges of C$318 mln
* 2013 profit forecast beats expectations
* Stock climbs 4.2 pct on TSX
* Sees "high single digit" revenue growth in 2013
By Susan Taylor
TORONTO, Jan 29 (Reuters) - Canadian Pacific Railway Ltd said on Tuesday its aggressive efficiency push would pay off in a 40 percent increase in earnings this year, sending its shares to an all-time high even after it reported a sharp drop in profit on charges related to the restructuring.
Management at CP Railway, Chief Executive Hunter Harrison said, "made a number of hard decisions this quarter ... With these decisions now behind us, we anticipate record-setting financial and operational results starting in 2013."
Shares of CP, the country's second-largest railroad, have risen more than 50 percent since Harrison took the helm in May. They gained more than 4 percent on the Toronto Stock Exchange on Tuesday, topping the list of net gainers.
Harrison, who was picked last year by CP's biggest shareholder to improve the company's poor around the poorly performing company, has made sweeping job cuts, secured a string of new labor deals, shut down inefficient operations and shelved a costly expansion.
"He's delivering what he said he would, but I think he's delivering faster than many would have expected," said Raymond James analyst Steve Hansen in an interview. "You have to give him credit thus far."
The Calgary-based company expects 2013 earnings to rise to C$6.08 a share. That is well above an average estimate of C$5.78, said National Bank Financial analyst Cameron Doerksen, who had previously expected a profit of C$5.91 a share.
A big reduction in pension expenses, fueled by strong fund returns, staff reductions and new labor deals with pension caps, helped prop up the earnings forecast.
Management now expects defined benefit pension expenses of C$50 million to C$60 million in 2013 and 2014, and C$90 million to C$110 million in 2015 and 2016. Previously, it forecast expenses of C$140 million to C$150 million each year through 2016.
CP also expects to improve its operating ratio, a key productivity measure, to the low-70 percent range in 2013. The lower the number, the more efficient a railway.
"CP Rail's march toward a mid-60 percent operating ratio by 2016 is well under way and 2013 should provide a meaningful down payment toward this target," BMO Capital Markets analyst Fadi Chamoun said in a note.
The ratio, a calculation of operating costs as a percentage of revenue, improved to 74.8 percent in the fourth quarter, excluding items, from 78.5 percent a year earlier.
The company said revenue would grow in the high-single digits over 2012, with a notable bump from crude-by-rail. CP, which reached a 70,000-carload annualized run rate this month, said in the "longer term" that could swell two to three times.
"AHEAD OF SCHEDULE"
While more work remains, Harrison said, change is happening quickly.
"The plan's working - it's clearly ahead of schedule," he told analysts on a conference call. "Change is not over."
It may be possible for CP to improve its operating ratio, he said, beyond the targeted mid-60 percent range by 2016.
Staff reductions play a key role. CP is eliminating 4,500 of its 19,500 positions by 2016 through layoffs and attrition. It expects to chop 2,300 of those jobs by the end of the first quarter.
As part of its streamlining, CP has trimmed a string of management jobs. Harrison, who has filled the role of chief operating officer since a resignation in October left the position empty, said a replacement could be announced in two to three weeks.
The job cuts resulted in a C$53 million charge in the fourth quarter, while the disposal of locomotives produced an C$80 million asset impairment.
The quarterly results also included a C$185 million hit from CP's decision to shelve plans to expand the Dakota Minnesota and Eastern Railroad line into the Powder River Basin coal-mining region. CP, which cited weakness in the thermal coal market for its decision, is seeking a partner, buyer or lessee for a portion of that line.
KITCHEN SINK QUARTER
The "kitchen sink Q4" largely matched profit expectations, excluding one-time items, said RBC Capital Markets analyst Walter Spracklin.
Net profit fell to C$15 million, or 8 Canadian cents a share, in the quarter, ended Dec. 31, from C$221 million, or C$1.30, a year earlier.
Revenue rose 7 percent to C$1.5 billion.
CP's shares were up C$4.69 at C$117.46 early afternoon on the TSX. The stock has surged since former CEO Fred Green's exit last May under a proxy battle with Pershing Square Capital Management Ltd.