UPDATE 4-CP Rail profit jumps 20 pct after new CEO takes helm

Wed Oct 24, 2012 2:38pm EDT
 
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* Third-quarter net profit up to C$1.30/shr from C$1.10
    * CEO says sees more progress on cost controls
    * "Significant" job cuts coming, details in early December
    * Stock climbs more than 5.5 pct to C$92.80 on TSX


    By Susan Taylor
    TORONTO, Oct 24 (Reuters) - Canadian Pacific Railway Ltd
 said on Wednesday its quarterly profit rose 20 percent
on cost cuts and efficiency improvements mostly introduced by a
new chief executive who has vowed to shake up Canada's
second-largest rail operator.
    Shares of the Calgary, Alberta-based company jumped more
than 5.5 percent after it released the stronger-than-expected
results, which provided early evidence that Chief Executive
Hunter Harrison's initiatives were bearing fruit.
    Harrison, the handpicked choice of CP's biggest shareholder
-  William Ackman's Pershing Square Capital Management - said
the improved performance in part reflected the introduction of
new services, the closing of inefficient terminals and yard
operations, and new leadership.
    "He's definitely doing all the right things," said Edward
Jones analyst Brian Yarbrough. "There's a lot of low-hanging
fruit here."
    The railway, an industry laggard in terms of efficiency, was
already showing some improvement under the previous management's
growth plan. But its progress has become more pronounced under
Harrison, who took over in late June, the result of a tough
proxy battle that also unseated the chairman and several board
members.
    The railroad veteran and former CEO of Canadian National
Railway said he is ahead of schedule on an ambitious
four-year plan to bolster efficiency.
    To that end, CP Railway will cut a "significant number" from
the company's work force of nearly 14,500, notably among its
headquarters staff, Harrison said. Attrition will account for
most of that reduction.
    The company will provide details on its strategy and
restructuring to investors on Dec. 4-5 in New York.
    CP, which recently named three new operation heads and has
named a new chief financial officer, does not expect to
imminently fill the recently vacated post of chief operating
officer. Harrison is currently carrying out the role of COO.
    "This is not a long journey for me. This is a three- to
five-year story. Obviously the selection of a COO would be some
indication that here's the next successor, if they don't blow
it," Harrison told analysts on a conference call.
       
    OPERATING RATIO IMPROVES
    For the period that ended Sept. 30, net income rose to C$224
million ($225.68 million), or C$1.30 a share, from C$187
million, or C$1.10, a year earlier.
    That outpaces consensus estimates from analysts, who on
average expected earnings of C$1.23 per share, according to
Thomson Reuters I/B/E/S.
    Revenue rose 8 percent to C$1.45 billion.
    CP's operating ratio, which measures operating costs as a
percentage of revenue and is a key barometer of efficiency in
the railroad industry, fell to 74.1 percent, from 75.8 percent.
    During its proxy fight, Pershing Square had pledged to
reduce CP's operating ratio to 65 percent within four years of
Harrison's appointment as CEO.
    "I feel good about the (operating ratio) number, in spite of
the fact that a lot of people don't believe me," Harrison said
of the 65 percent target.
    CP Shares rose C$4.91 to C$92.80 on the Toronto Stock
Exchange. So far this year, the stock has gained about 33
percent.