* Adjusted Q2 EPS of C$0.92, rev of C$1.23 bln
* Analysts expected C$0.83 adjusted EPS, C$1.23 bln rev
* Shares rise 1.1 percent (Adds details from conference call, updates share price)
By John McCrank
TORONTO, July 28 (Reuters) - Canadian Pacific Railway Ltd (CP.TO) posted a 23 percent jump in quarterly profit on Wednesday, beating analysts' expectations on the back of higher volumes and cost controls.
CP, Canada's second-biggest railroad, earned C$166.6 million ($162 million), or 98 Canadian cents a share, in its second quarter ended June 30. That compared with C$135.5 million, or 80 Canadian cents a share, in the year-earlier period.
Adjusted to exclude foreign exchange gains and losses on long-term debt and other items, CP said it earned 92 Canadian cents a share.
Revenue at the railway, which has operations in Canada and the northern United States, rose 20 percent to C$1.23 billion.
Industry analysts, on average, had expected earnings of 83 Canadian cents an adjusted share, according to Thomson Reuters I/B/E/S. The average revenue forecast was C$1.23 billion.
An 11-day closure of CP's main transcontinental line in June due to flooding in Alberta and Saskatchewan cut about 12 Canadian cents a share from its earnings, the company said.
That was in line with an earlier CP estimate that put the flood-related financial impact at 10 to 13 cents a share, though some had been braced for a bigger hit.
"Frankly, I'm just shocked," said Steven Hansen, an analyst at Raymond James in Vancouver. "They came out with that prerelease saying that the flood would cost them 10 to 13 cents and I think a lot of guys just went out and slashed their numbers on that release alone, but the issue was that the volumes were already well above most people's expectations."
The floods, which prevented the delivery of some loads, reduced revenue by about C$23 million. Roughly half of the delayed loads will be delivered in the third quarter, Kathryn McQuade, CP's chief financial officer, said in a conference call with analysts.
She said there were additional expenses of about C$9 million as a result of the flooding, and that the company had to spend around C$15 million to rebuild tracks. McQuade added that CP's forecast of 2010 capital spending of C$750 million to C$800 million would not likely change.
Hansen said another key reason for the higher-than-expected earnings was cost containment, most notably on materials.
Fred Green, chief executive of the Calgary-based railroad, told the conference call that the company was well-positioned for the second half of the year, but that markets are likely to remain volatile.
"Market visibility remains limited. We've proven we can adjust quickly up or down to fluctuating markets and we are monitoring traffic trends closely," he said.
CP's management has been one of the more cautious railroad management teams through the recovery, Hansen said. "Of late they have probably been a bit too cautious."
"Railroads are one of the true barometers of the broader economic activity in North America and by most accounts, railroad volumes continue to be strong," he said.
Growth numbers are not going to be as high from now on because of difficult comparisons with year-earlier quarters, Hansen said.
"You've got to remember that Q2 last year was pretty much the trough of carload volumes and so it's no surprise that growth numbers are big. ... We continue to expect some modest uptick, but not a great uptick, so you should see growth just on that virtue alone, but you won't be seeing the eye-popping numbers."
Carloads were up by 20 percent in the quarter, with improvements across all segments except grain, which was affected by the flooding.
Walter Spracklin, an analyst at RBC Capital markets, said in a note to clients that the rise in CP's sulfur and fertilizer shipments was particularly strong, up 94 percent, and well ahead of RBC's forecast. Coal shipments were up 43 percent.
Canadian National Railway (CNR.TO), the country's biggest railroad, reported a 38 percent jump in quarterly profit last week and raised its full-year forecast to a 25 percent earnings increase on expectations the economy will continue its rebound. [nN22122933]
Shares of CP were up 63 Canadian cents at C$60.45 on the Toronto Stock Exchange on Wednesday afternoon. The stock is up over 6 percent so far this year.
$1=$1.03 Canadian Reporting by John McCrank; editing by Peter Galloway