October 24, 2012 / 11:54 AM / 6 years ago

CP Rail profit jumps 20 percent after new CEO takes helm

TORONTO (Reuters) - Canadian Pacific Railway Ltd (CP.TO) 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 (CNR.TO) 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 December 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.


For the period that ended September 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.

Additional reporting by Maneesha Tiwari in Bangalore; Editing by Sofina Mirza-Reid, Leslie Adler and Maureen Bavdek

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