CP Rail profit hurt by strike, new CEO costs

Wed Jul 25, 2012 9:54am EDT
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(Reuters) - Canadian Pacific Railway Ltd, fresh from a proxy battle that ousted its chairman and chief executive, reported a 20 percent drop in quarterly earnings on Wednesday due to the impact of a strike and management transition costs.

CP, Canada's second-biggest railroad operator, said second-quarter net income fell to C$103 million ($101 million), or 60 Canadian cents a share, from C$128 million, or 75 Canadian cents, a year earlier.

Freight revenue rose 8 percent to C$1.33 billion.

Without the "noise" from the strike and the management costs, CP "appeared to have performed well on a core operating basis" in the quarter, BMO Capital Markets analyst Fadi Chamoun said in a note to clients.

CP's shares jumped C$1.81, or 2.3 percent, to C$76.87 on the Toronto Stock Exchange on Wednesday morning.

CP's operating ratio, an important barometer of performance in the railroad industry, weakened to 82.5 percent from 81.7 percent in the year-earlier period.

The lower the number -- which measures operating costs as a percentage of revenue -- the more efficient the operation. By this measure, CP is the weakest performer of North America's big railroads.

CP's biggest shareholder, U.S. hedge fund Pershing Square Capital Management, made this underperformance central in its proxy battle with the railroad, which ended in CP's CEO and chairman both quitting hours ahead of a shareholder vote in May.

Hunter Harrison, who was CEO of CP rival Canadian National Railway Co until 2009 and also Pershing's candidate to turn around CP, was named CEO in June.   Continued...