July 20, 2016 / 1:22 PM / in a year

UPDATE 3-CP Rail profit beats despite weak volumes; CEO to retire

(Recasts with details from conference call)

July 20 (Reuters) - Canadian Pacific Railway Ltd reported second-quarter earnings that topped expectations on Wednesday even as volumes dropped, and said it expects results to improve in the second half of the year, sending shares higher.

As expected, the railway said President and Chief Operating Officer Keith Creel will succeed Hunter Harrison, who said in 2014 that he would retire in 2017. He has signed a three-year consulting agreement.

Canada's No. 2 railway said weak commodity volumes, the wildfire in northern Alberta and a stronger Canadian dollar reduced revenue in the quarter.

"A tough first half of the year is behind us," Harrison said on a conference call. He added that volumes should improve in the second half in every market, especially in the grains business, with the exception being crude by rail. Also, he said efficiency gains would boost margins.

Carloads fell 8 percent to 614,000 in the quarter, as shipments of grain, coal, potash and other commodities dropped.

Creel has worked with Harrison for more than 20 years, at CP and at Canadian National Railway Co, where Harrison also served as CEO. Harrison came out of retirement to lead CP after a proxy fight in 2012.

"I've demonstrated my trouble with retiring in the past, so being available to the Board and the organization after my official retirement is exciting," Harrison said in a release.

Edward Jones analyst Logan Purk said investors are comfortable with Creel's leadership. "I think the company is going to be left in some pretty good hands," he said.

The Calgary-based company warned in June that revenue would decline about 12 percent in the quarter, and forecast earnings of C$2.00 per share.

Excluding the impact of currency movements on U.S. dollar-denominated debt, earnings fell to C$312 million, or C$2.05 a share, from C$404 million, or C$2.45 a share.

That topped analysts' earnings expectations of C$2.01 a share, according to Thomson Reuters I/B/E/S. Revenue dropped 12.2 percent to C$1.45 billion, just shy of the consensus estimate of C$1.46 billion.

Net income declined to C$328 million ($251 million), or C$2.15 per share, from C$390 million, or C$2.36 per share, a year earlier.

The operating ratio, a key efficiency measure, weakened to 62.0 percent from 60.9 percent.

Shares rose 4 percent to C$193.36 on the Toronto Stock exchange and added nearly 4 percent to $148.69 on the New York Stock Exchange. ($1 = 1.3058 Canadian dollars) (Reporting by Allison Martell in Toronto and Amrutha Gayathri in Bengaluru; Editing by Ted Kerr and Jeffrey Benkoe)

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