* Q2 net income up slightly on one-time gain
* Q2 EPS excluding items C$0.59 vs C$0.97 yr ago
* Shares climb 9 percent in early trade (Adds details, changes to Ottawa dateline from Toronto)
OTTAWA, July 30 (Reuters) - Canadian Pacific Railway Ltd CP.TO said on Thursday its second-quarter net income rose slightly, but excluding a one-time gain from an asset sale and other items, profit sank along with freight volumes.
Even so, shares of Canada’s second-biggest railroad jumped after the news as revenue and profit excluding exceptional items topped expectations.
The railroad, which operates both in Canada and the northern United States, said freight volumes fell 18 percent, reflecting weak economic conditions, and it sees no solid evidence of any improvement yet.
“The recession continues to have a significant impact on our business and although freight volumes appear to have stabilized, we have not yet seen a sustained recovery in traffic,” Chief Executive Fred Green said in a statement.
Net profit rose to C$157.3 million ($145 million), or 93 Canadian cents a share, for the three months ended June 30, versus C$154.7 million, or C$1, in the same period a year earlier, when it had fewer shares outstanding.
Excluding items, earnings dropped to 59 Canadian cents a share from 97 Canadian cents a share a year earlier.
UBS analysts Fadi Chamoun and Rick Paterson said stronger-than-expected revenue pushed profit above their estimate of 34 Canadian cents a share.
“Freight revenue was C$973 million versus the UBS estimate of C$900 million and explains the bulk of the variance in their earnings per share versus our forecast,” they wrote. “Cost performance was good and in line with our expectations.”
Total revenue, which includes freight revenue, fell 21 percent to C$1.02 billion.
According to Reuters Estimates, analysts expected earnings per share of 38 Canadian cents, before exceptions, and revenue of C$1.01 billion, on average.
The results include a C$69 million gain from the sale of part of CP Rail’s stake in the Detroit River Tunnel Partnership. The transaction reduced its stake in the partnership to 16.5 percent from 50 percent.
CP now sees 2009 capital program spending to range from C$800 million to C$820 million, up from the previous outlook of C$720 million to C$740 million.
The cash impact of that increase, which reflects the buyout of operating leases, will be offset by the sale of other equipment in the second half of 2009, CP Rail said.
The Calgary-based company said it will make “sustainable reductions” in its overall costs to bolster its balance sheet and improve processes for efficiency gains.
Operating costs in the second quarter fell 10 percent from the same period last year to C$225.8 million.
Canadian Pacific shares rose 9 percent to C$43 on the Toronto Stock Exchange. ($1= $1.08 Canadian) (Reporting by Susan Taylor, with additional reporting by Euan Rocha in Toronto; editing by Frank McGurty)