Railroad operator CP Rail's profit tops estimates

MONTREAL (Reuters) - Canadian Pacific Railway Ltd reported a higher-than-expected quarterly profit as it earned more from shipments of commodities such as grain and coal, and the company expressed optimism that demand was improving.

A railyard worker walks along the tracks at the Canadian Pacific railyard in Port Coquitlam, British Columbia February 15, 2015. REUTERS/Ben Nelms

The results are the first under Chief Executive Keith Creel, who officially took the reins in the middle of the quarter from veteran railroad executive Hunter Harrison.

CP is expecting mid-single-digit RTM (revenue ton mile) growth in the second quarter, supported by shipments of potash and grain, as Canada’s No. 2 railroad pushes more broadly to attract new customers and boost profitable growth.

“You’re going to see top-line growth in this company,” Creel told analysts on Wednesday.

Creel said he would hold open meetings with employees to improve labor relations, but any efforts would not come at the expense of efficiency gains won by Harrison, who boosted CP’s profitability and share price by cutting costs, including workers.

“Some feathers have been ruffled,” Creel said of relations with employees during the last four years under Harrison. “So part of my focus has been to reconnect with employees and also to reconnect ... with our labor unions to ensure that the things we maybe didn’t get right in the past, that we can get right as we go forward.”

North American railroad operators have cut costs amid pressure from volatile commodity prices that have crimped freight volumes.

Creel also suggested that there could be opportunities for some type of collaboration “from an operational standpoint” with U.S. railroad CSX Corp , which is now headed by Harrison, to improve service and hand off cargo around the congested Chicago hub.

CP’s net income fell to C$431 million ($320 million), or C$2.93 per share, in the first quarter ended March 31, from C$540 million, or C$3.51 per share, a year earlier.

The year-ago quarter included a gain of C$181 million from the conversion of the company’s U.S. dollar-denominated debt.

Excluding items, CP earned C$2.50 per share, just beating analysts’ average estimate of C$2.49 per share, according to Thomson Reuters I/B/E/S.

The Calgary-based company’s total revenue inched up 0.8 percent to C$1.60 billion. Freight revenue, which comprises the lion’s shares of total revenue, rose nearly 1 percent to C$1.56 billion.

The company’s operating ratio, which measures operating costs as a percentage of revenue, improved to 58.1 percent from 58.9 percent a year earlier. The lower the ratio, the more efficient the railroad becomes.

Additional reporting by Muvija M and Divya Grover in Bengaluru; Editing by Sriraj Kalluvila, Lisa Shumaker and Bill Rigby