* Q1 EPS C$0.82 vs $0.20 year earlier
* Operating ratio improves to 80.1 pct from 90.6 pct
* CP, Pershing Square in the late stages of proxy fight
* Results may not change shareholders' minds
* Stock slightly higher on TSX in afternoon
By Allison Martell and Susan Taylor
TORONTO, April 20 In the final rounds of a tough
proxy fight, Canadian Pacific Railway Ltd said soaring
profit and efficiency gains prove that its growth plan is back
on track, but some analysts questioned whether the results were
enough to sway shareholders.
The results on Friday mark the last set of financials before
CP's May 17 annual meeting, where shareholders will pick between
the company's slate of directors and that of activist investor
William Ackman's Pershing Square Capital Management.
Pershing also wants to replace CP Chief Executive Fred Green
with Hunter Harrison, who is credited with pumping up profits at
rival Canadian National Railway Co when he was CEO
there. Pershing argues that new leadership is the only way to
boost CP's lackluster operating performance.
CP shares were slightly higher after the results, which were
in line with an earnings forecast released last week, rising 61
Canadian cents to C$76.64 on Friday afternoon.
Some analysts said the improved numbers will not be enough
to change many shareholders' minds about whom they will back in
the proxy fight. They said many investors have become impatient
waiting for better results under Green, who became CEO in 2006.
"As a CEO, you basically went backwards for six years, and
then you put up one good quarter, and everyone's supposed to
jump on the bandwagon?" said Edward Jones analyst Brian
CP's closely watched operating ratio, which measures
operating costs as a percentage of revenue, improved to 80.1
percent in the first quarter from 90.6 percent in the
year-earlier period. The lower the number, the more efficient
the railroad's operations.
"While we did experience a generally milder winter than last
year, the improvements we are delivering are a result of the
fundamental changes in our operation," said CP's chief
operations officer, Mike Franczak.
'GOOD DOWN PAYMENT'
The quarterly results were helped by efficiency gains as
well as growth in volume. In a release, Green said freight
revenue rose by 18 percent in the quarter.
CP said it is confident it will continue to improve
operating results, financial performance and increase
"It's a good down payment on where they're trying to go and
we'll have to see if they can keep doing it," said Canaccord
Genuity analyst David Tyerman. "Regardless of who's at the helm,
the company needs to ... generate a better operating ratio."
Ackman said the operating ratio, despite the improvement, is
still worse than when Green took over as CEO in 2006. He also
said the results should not be compared with the previous year.
"Last year, when they put out their results they said,
'horrible winter, that's why we had a 90-plus percent operating
ratio,'" Ackman said. "This time, what they don't remind you is
that this is one of the best winters in the last 100 years."
In a survey conducted by Reuters April 11 to 17, five
shareholders, including three large holders, said they backed
Pershing's slate of directors.
One shareholder said his firm would support CP and three
were undecided. The pro-Pershing group accounts for about 5
percent of CP's shares.
Pershing, which owns 14.1 percent of CP, argues that
Harrison will produce efficiency gains faster than Green, and
that under his leadership CP will reach an operating ratio of 65
percent by 2015.
CP repeated on Friday that it will reach an operating ratio
of 70 to 72 percent in 2014, and 68.5 to 70.5 percent in 2016.
CP's operating ratio last year was 81.3 percent, the weakest
number posted by any of North America's big railroads. Canadian
National Railway, where Harrison was CEO from 2003 to 2009,
reported a ratio of 63.5 percent.
SEES GROWTH IN ENERGY MARKETS
Green said that recent announcements on CP's energy business
will take the company more than half way to its goal of
boosting annual revenue in that segment by C$400 million.
The Calgary-based company said it still expects to increase
its crude-by-rail business to 70,000 carloads in 2014, up from
13,000 carloads in 2011. It said it is on pace to ship 30,000 to
35,000 carloads of crude this year.
A weak thermal coal market in North America continued to
drive exports to offshore markets, CP said. The railroad, which
carries coal from the Power River Basin in the United States for
export to Asia, said it expects its second-quarter thermal coal
business to match or exceed the previous year.
For its first quarter, CP said net income rose to C$142
million, or 82 Canadian cents a share, from C$34 million or 20
Canadian cents in the same period of 2011.
Revenue rose by C$213 million to C$1.4 billion.
Analysts, on average, expected earnings of 80 Canadian cents
a share on revenue of C$1.3 billion, according to Thomson