UPDATE 2-CP Rail profit beats estimates on higher freight rates; stock jumps

Tue Oct 20, 2015 2:29pm EDT
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(Adds quotes from CEO, market reaction, analyst comments)

By Allison Lampert

MONTREAL Oct 20 (Reuters) - Canadian Pacific Railway Ltd reported a better-than-expected quarterly profit amid higher freight rates and lower operating costs, boosting its share price by more than 3 percent on Tuesday.

The country's No. 2 railway said freight revenue per carload rose 5 percent in the third quarter ended Sept. 30 even as carloads fell 2.6 percent.

Chief Executive Hunter Harrison said on a conference call the railway had a new labor agreement with 450 U.S. engineers which was "a big, big breakthrough" that would lead to similar deals with other unions.

The new hourly-rate agreement has the potential to further improve the railway's operating ratio by enhancing productivity, Citigroup analyst Christian Wetherbee wrote in a note to clients.

The multi-year agreement marks an end to a mileage-based system, providing the railway with increased labor flexibility.

Harrison said the deal made the company more efficient by controlling costs at a time of weaker volumes.

Revenue grew 2.3 percent to C$1.71 billion ($1.32 billion).   Continued...