April 20, 2016 / 11:58 AM / 3 years ago

CP Rail touts buybacks, dividends with M&A in rear view mirror

MONTREAL/TORONTO (Reuters) - Canadian Pacific Railway Ltd plans to pay out dividends and put its funds toward share buybacks rather than building a cash hoard after failing in a recent M&A quest, its chief executive said on Wednesday.

The Canadian Pacific railyard is pictured in Port Coquitlam, British Columbia February 15, 2015. REUTERS/Ben Nelms

“We’re not going to sit on cash unless we have an idea of what we’re going to do with it,” CEO Hunter Harrison told media after the company’s annual meeting in Toronto. “If we see an opportunity that’s realistic, that is maybe a year away and we think we can make it happen, then we might start being not so aggressive with dividends or buybacks and keep some of our powder dry.”

The comments from the veteran railroader, who plans to hand over the reins at CP to his protégé Chief Operating Officer Keith Creel next June, come barely a week after CP abandoned its bid for U.S. rival Norfolk Southern Corp in the face of political and customer concerns.

Earlier on Wednesday, Canada’s No. 2 railroad reported first-quarter results that topped expectations. It also outlined plans to buy back up to 5 percent of its shares and boost its dividend payout by 42 percent. Its shares fell slightly, however, as analysts noted that the size of the buyback was smaller than some investors may have anticipated.

Harrison, who returned from retirement to head the railroad in 2012, said he plans to transition responsibilities to Creel gradually over the next few months. He intends to stay on the board after stepping down as CEO next year.


CP’s quarterly net income rose 69 percent to C$540 million, or C$3.51 per share, in the first quarter ended March 31.

Excluding foreign exchange-related gains, CP’s earnings of C$2.50 per share beat analysts’ average estimate of C$2.40, according to Thomson Reuters I/B/E/S.

This came despite a 4.4 percent revenue decline, as freight volumes have been hit by a fall in prices of commodities including oil and coal, weighing on revenue across the industry.

The operating ratio, a key efficiency measure, improved to 58.9 percent, lowest ever on an adjusted basis, as CP has been reducing costs to offset the impact of the commodity rout.

The Calgary-based company said in January it aimed to push operating costs as a percentage of revenue below 59 percent in 2016 from 60 percent in 2015.

CP shares closed down C$1.38 at C$188.57 in Toronto.

Additional reporting by Amrutha Gayathri in Bengaluru; Editing by Maju Samuel and Matthew Lewis

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