CP Railway sees big profit boost in 2013 after tough fourth quarter

Tue Jan 29, 2013 3:17pm EST
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By Susan Taylor

TORONTO (Reuters) - Canadian Pacific Railway Ltd (CP.TO: Quote) 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 2016.   Continued...

A Canadian Pacific Railway locomotive sits at the Obico Intermodal Terminal in Toronto, May 23, 2012. REUTERS/Mike Cassese