CP books jump in Q1 profits under pressure

Canadian Pacific Railway, under continued pressure from an activist shareholder to boost its performance, has obliged by quadrupling its first-quarter profit.

Ahead of a shareholder vote of confidence at its annual meeting next month, Calgary-based CP on Friday booked net income of $142 million on $1.376 billion in revenues for its first quarter ending March 31, up from $34 million on $1.163 billion in its year-earlier Q1.

The higher profit was registered despite a $48 million increase in operating expenses to $1.1 billion, including fuel price increases, on average, of 12 per cent to US$3.50 per gallon, the company said.

The company boosted its revenues across all its business segments except for sulphur and fertilizers, for which gross revenue was down two per cent at $126 million.

Grain revenue, meanwhile, was pegged at $288 million for Q1, up 24 per cent from the year-earlier period.

The company moved 110,000 carloads of grain in the quarter, up from 100,000 a year earlier, putting grain revenue per carload at $2,618, up 13 per cent.

The improved grain handle was "primarily" due to higher Canadian grain shipments as a result of strong market demand for grains, as well as improved operating performance, added fuel surcharge revenues due to the change in fuel prices, and highe freight rates, CP said.

The increase was "partially offset" by lower U.S.-originating shipments due to weaker U.S. crop production and reduced export market demand for U.S. grains, the company added.

Sulphur and fertilizer carloads, meanwhile, were down 14 per cent at 42,000, for increased revenue per carload of $3,000, up 14 per cent.

The decrease in fertilizer handling, CP said, was "due to weaker export potash market demand and some domestic potash customers delaying purchases due to market uncertainty."

"Unwarranted risk"

"We have improved operating momentum, we are delivering excellent service and we have a stronger, more resilient rail network," CP’s embattled CEO Fred Green said in Friday’s release, noting the railway’s 18 per cent year-over-year increase in freight revenues.

CP’s board and management are "confident in the company’s plan and its goal of delivering a 70 to 72 per cent operating ratio for 2014, and an operating ratio of between 68.5 to 70.5 per cent for 2016," he said.

Friday’s results come in the wake of pressure from CP shareholder and New York investment firm Pershing Square Capital Management, urging CP to make substantial improvements to its operating ratios.

Pershing Square has put forward its own slate of directors for possible election to CP’s board at the company’s annual meeting on May 17 in Calgary, and also wants to replace Green with retired Canadian National Railway (CN) CEO Hunter Harrison.

CP reiterated in a separate release Monday that Pershing’s proposal to replace Green with Harrison would "delay and damage CP’s value-generating plan, and represents unwarranted risk to shareholder value at a critical time."

CP noted it’s "open to listening to ideas from all shareholders" and still proposes to name Pershing’s CEO Bill Ackman to join the CP board.

Related story:
Stakeholder names slate to run for CP’s board, Jan. 24, 2012

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