* EPS climbs to C$1.24 vs 82 Canadian cts year earlier
* Railway beats market estimates for profit, sales
* Key operating ratio improves to 75.8 pct
* Sees best year-end financial performance in history
By Susan Taylor and Solarina Ho
TORONTO, April 24 Canadian Pacific Railway Ltd
said a hard-driving efficiency push coupled with revenue
gains helped fuel its best first-quarter results since Canada's
No. 2 rail carrier was founded in 1881.
But that is just the beginning, management promised on
Wednesday, outlining plans for an intense review of operations
starting next month that will scrutinize every part of the
railway, down to the schedule of each train.
Led by Chief Executive Hunter Harrison, an industry veteran
with a history of turning around struggling companies, and Chief
Operating Officer Keith Creel, the review is expected to
eliminate even more jobs and may uncover surplus land for sale.
Creel, who Harrison lured from Canadian National Railway to
be his successor, plans up to five review sessions in 2013 and
said results will start to show in the second half of the year.
CP is on pace for the best year-end financial and operating
performance in its 132-year history, said Harrison, who launched
an efficiency push last June that will eliminate at least 4,500
jobs through layoffs and attrition from a workforce of 19,500.
That number could swell to 6,000, he said.
Harrison took control of CP last year after a bruising proxy
battle led by the company's biggest shareholder, Bill Ackman's
Pershing Square. He has engineered big turnarounds at CN Railway
and Illinois Central Railroad.
While CP's quarterly results mark a major improvement, the
stock declined on Wednesday after initial gains. Investors had
high expectations going into the quarter, based on railway
performance data that tracks shipments and operations.
Michael Smedley, chief investment officer at investment
management firm Morgan Meighen & Associates, said he expects
further improvements from the Calgary-based company.
"I would hope to see the stock move higher. I don't think we
have any inclination in our accounts to sell the stock at this
time," said Smedley, whose firm holds 130,000 CP shares.
But some analysts say the stock, up nearly 70 percent since
Harrison took charge last June, is now too expensive.
Trading at 20 times current earnings and 16 times next
year's estimated earnings, the stock is running ahead of itself,
said National Bank Financial analyst Cameron Doerksen in a note
"We also believe that earnings growth expectations for CP
are very high and already above management guidance," he wrote.
"As a result, it will be challenging for the company to
materially beat forecasts in future quarters."
CP shares were down nearly 1 percent at C$125.02 on the TSX
late Wednesday afternoon.
FORECASTS STAY PUT
Despite expectations by some analysts that CP would bolster
its 2013 outlook, executives said it was too early to make any
changes. Strong gains in such markets as crude-by-rail were
partly offset by weakness in others.
For 2013, earnings per share are forecast to grow more than
40 percent and revenue is seen growing in the high-single digit
CP, which hit an annualized run rate of 70,000 carloads of
crude-by-rail in January, said it could double that volume by
2015, one year earlier than it had previously forecast.
Management has a "clear line of sight" for volumes to double
and triple, Chief Marketing Officer Jane O'Hagan said on a
conference call with analysts and the media.
Crude shipments make up the fastest-growing product segment
for several major Canadian and U.S. Class 1 railroads as oil
output outpaces pipeline capacity. Railroads let producers take
advantage of a temporary oil price differential by moving crude
from inland fields to coastal refineries that pay higher prices.
Despite challenging winter weather, CP said net income rose
to C$217 million ($212 million), or C$1.24 per share, from C$142
million, or 82 Canadian cents per share, a year earlier.
Revenue was up 9 percent to C$1.5 billion.
That beat analysts' expectations for a net profit of C$1.21
per share on revenue of C$1.49 billion, according to Thomson
Total freight revenue rose 9 percent, led by a 25 percent
jump in industrial unit revenue, which was fueled by
crude-by-rail gains. Fertilizer freight revenue climbed 21
percent, driven by a rebounding potash market.
Auto revenue fell 8 percent and intermodal dropped 4
The railway's operating ratio, measuring productivity by
tallying how much revenue is needed to maintain operations,
improved to 75.8 percent from 80.1 percent a year earlier. The
lower the number, the better.
CP, once an industry laggard with operating ratios in the 80
percent range, is targeting a mid-60 percent ratio by 2016.
CN on Tuesday forecast a sustainable mid- to low-60s
operating ratio, after reporting a lower profit due to a big hit
from winter weather.