* 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 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
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
"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
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
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
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