ALBERTA

Canadian Pacific posts double-digit increase in Q3 profit on higher revenue

10/24/2012 07:43 EDT | Updated 12/24/2012 05:12 EST
CALGARY - Shares in Canadian Pacific Railway Ltd. jumped more than six per cent Wednesday as investors took in the first full quarter of results under the watch of CEO Hunter Harrison, who took the helm following a bitter proxy fight earlier this year.

The Calgary-based railway (TSX:CP), which posted a double-digit rise in third-quarter profits, said its performance improvement plans are on the right track and expressed optimism its labour woes are behind it, sending its stock up $5.29 to $93.18 on the Toronto Stock Exchange.

It was a new high for the stock, according to records going back a decade.

"Progress and momentum are both building," Harrison said on a conference call to discuss the results.

"Overall I'm very, very pleased with where we are."

Net income for the three months ended Sept. 30 was $224 million, an increase of $37 million or 20 per cent from the year earlier.

Its diluted earnings per share were $1.30, up 18 per cent and revenue was up $110 million, or eight per cent, to $1.5 billion.

The profit beat analyst estimates by a penny a share and revenue was slightly above the consensus estimate compiled by Thomson Reuters.

On the call, Harrison said his four-year-plan to improve operations is ahead of schedule. The company's operating ratio — a closely watched measure of how much revenue is required to run the business — improved 1.7 percentage points, falling to 74.1 per cent.

Harrison believes he can get that figure down to the mid 60-per-cent range over the next few years, though there may be ups and downs along the way.

"If the economy hits and comes back and is strong, will this speed the game up? Yeah. If the economy gets softer and we have some dip, is it going to make it a little tougher? Yeah," said Harrison.

"We'll still get there. I've written the book. Y'all just gotta get to the right chapter here."

In order to drive down costs, Harrison said a reduction in the company's workforce is inevitable, though the majority of the cuts are expected to come about through attrition, which is already happening at a high rate.

"There will be a significant number of employees that will come out of the network at all levels from bottom to top — on a relative basis, more at the top than the bottom," Harrison said.

"But we, at the same time, are going to be very cognizant that we have to have enough people to haul the business. This is not just all about headcount and cutting costs."

On the labour front, Harrison said "there's been some very nice progress taking place."

He said he's met with the Teamsters union representing track maintenance workers and he doesn't see a work stoppage coming.

"But having said that, we're prepared, in case I'm wrong, better than we've probably ever been."

Harrison said he's also encouraged that the railway reached a tentative agreement with the United Steelworkers, which represents 800 clerical and intermodal employees.

The only outstanding issue is with running trades workers, some 4,800 locomotive engineers, conductors, yardmen and others who walked off the job in May before Ottawa forced them back to work.

Harrison expects that to be resolved by an arbitrator in the new year.

It's the first full quarter at CP for Harrison who was brought in by a major CP shareholder to reform the company that traces its history back more than 120 years to the early years of Confederation.

Harrison was installed at the end of the second quarter after a hard-fought battle between Canadian Pacific's former board, led by former chairman John Cleghorn, and shareholders led by U.S. hedge fund manager Bill Ackman who was dissatisfied with CP's performance under former CEO Fred Green.

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