January 26, 2011 / 12:57 PM / 7 years ago

UPDATE 3-CP Railway tops profit forecast, shares up

* Lower tax main driver of stronger earnings

* Q4 adj EPS C$1.12 vs est C$1.08

* Revenue up 13 pct at C$1.3 bln

* CP shares up 1.8 pct on Toronto Stock Exchange (Recasts with analyst comment, stock move)

By Nicole Mordant

VANCOUVER, Jan 26 (Reuters) - Canadian Pacific Railway Ltd (CP.TO) (CP.N) posted a better than expected 27 percent rise in quarterly profit on Wednesday and said it continued to see strong demand for all its rail services. Its shares rose.

Net income at CP, Canada’s second biggest railroad, rose to C$185.8 million ($186.5 million), or C$1.09 a share, in the three months ended Dec. 31 as its tax rate dropped and revenues increased across all the types of freight it carrier.

Adjusted earnings came in at C$1.12 a share, ahead of market expectations of C$1.08, but several analysts said the main driver behind the earnings beat was a lower than expected tax rate of 20 percent.

Without the lower rate — CP expects its tax rate to be in the 24 percent to 26 percent range in 2011 — fourth-quarter earnings would likely have slightly missed expectations, analysts said.

Even so, CP’s shares were C$1.17 firmer, or up 1.8 percent, at C$67.50 on the Toronto Stock Exchange on Wednesday afternoon. The shares have gained about 25 percent in the past year as the economy recovered from the recession.

“They were negatively impacted by weather and avalanches yet they were able to come in pretty closely to what people were expecting. That is arguably a good performance in a difficult time,” Canaccord Genuity analyst David Tyerman said.

Freight revenue at CP, which has tracks across Canada and into the northern United States, rose 13 percent to C$1.29 billion.

That was driven by an 8.7 percent increase in carloads as volumes hauled increased for all products except grain.

Revenues from hauling sulfur and fertilizers were the quarter’s star performer, increasing 55 percent, while revenue from forest products and industrial and consumer products each rose by 17 percent.

“We continue to see strong demand for rail service across all lines of business,” said CP Chief Executive Fred Green.

“We are ramping up our resources and making long-term investments in our company to meet growing demand, further improve customer service and achieve our three- to five-year target of a low 70s operating ratio,” he said.

CP’s adjusted operating ratio, an important barometer of the railway’s operating efficiency, improved by 360 basis points to 77 percent.

The results come a day after bigger rival Canadian National Railway Co (CNR.TO) reported a 19 percent rise in adjusted fourth-quarter earnings on the back of higher carloads.

CP’s chief operating officer, Ed Harris, said he was “optimistic” a settlement can be reached with 2,100 unionized mechanical services workers but said the railway has plans in place to continue operations if there is a strike.

CP is in talks with union representatives on a new labor contract. Earlier this month the workers gave the Canadian Auto Workers union a strike mandate if an agreement is not reached by Feb. 8.

$1=$0.995 Canadian Additional reporting by Gowri Jayakumar in Bangalore; editing by Rob Wilson

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