* Q3 Adjusted EPS C$1.21 vs C$0.95 in Q3 2009
* Q3 revenue C$1.29 bln vs C$1.12 bln a year ago
* Freight revenue climbs 15 pct
* Stock falls 1.5 pct to C$66.00 on TSX (Changes dateline to Ottawa, adds byline, background, analyst comments, stock price)
By Susan Taylor
OTTAWA, Oct 27 (Reuters) - Canadian Pacific Railway (CP.TO) reported a 28 percent jump in quarterly operating profit on Wednesday on the back of a big gain in freight revenue, but its shares fell as investors worried that growth would slow.
A 15 percent increase in freight revenue to C$1.25 billion ($1.21 billion) reflects volume gains across the railway's business, excluding coal, and a 14 percent gain in carloads. Sulphur and fertilizers volume rose 41 percent over last year, while industrial and consumer products climbed 23 percent.
"It's benefiting from very healthy volume growth, as well as continued operating gains that they've been trying to implement throughout the organization," Raymond James analyst Steve Hansen said.
"The big question becomes ... what are volumes going to do in 2011, when the hurdles become a little bit higher."
CP, Canada's second-biggest railway, has been cautioning analysts not to expect similar growth in the foreseeable future, Hansen said. The analyst said "the outlook for the rails is very bright," but growth will slow from 2010.
The stock declines likely reflect worries over slowing growth for railways, Canaccord Genuity analyst David Tyerman said, though it should come as no surprise
"They're not going to keep growing at the pace that they've been growing because all of this is being driven by the recovery from the recession, and the easy comparison periods are getting behind us," he said.
Adjusted to exclude a one-time gain of C$79.1 million from real estate asset sales a year earlier, operating profit rose to C$337.7 million from C$263.8 million, CP said.
Adjusted diluted earnings per share rose to C$1.21 from 95 Canadian cents a year earlier.
Quarterly revenue rose 15 percent to C$1.29 billion.
Industry analysts, on average, had expected earnings of C$1.15 an adjusted share, according to Thomson Reuters I/B/E/S. The average revenue forecast was C$1.23 billion.
The company said net income fell to C$197.3 million, or C$1.17 a share, from C$209.3 million, or C$1.24 a share.
Revenue ton miles, an important profit measure in the transportation industry, increased by 17.7 percent.
The railway, which has lines across Canada and into the northern United States, said its operating ratio improved by 270 basis points to 73.7 percent.
The Calgary, Alberta-based railway has an operating ratio target in the "low 70s."
CP's results come a day after its bigger competitor, Canadian National Railway Co (CNR.TO), reported a stronger-than-expected, 21 percent jump in profit and forecast a strong end to the year if the economy holds up.
CN, Canada's biggest railway, did not raise its earnings guidance for the full year saying it was "comfortable" with a raised forecast it made in July.
CP and Teck Resources Ltd TCKb.TO unveiled a 10-year agreement this month for moving coal from five Teck mines to the Pacific Coast for export. Financial terms of the deal, which will begin in April 2011, were not announced.
Shares of Canadian Pacific were down C$1.03, or 1.5 percent, to C$66.00 in early trade on the Toronto Stock Exchange on Wednesday. CN shares declined C$2.08 to C$21.75, or 3 percent, to C$66.40 ($1=$1.03 Canadian) (With additional reporting by Euan Rocha in Toronto; Editing by Frank McGurty)