Winnipeg Free Press - PRINT EDITION

CP's bottom line better amid turmoil

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Canadian Pacific Railway Ltd. (TSX:CP) reported sharply improved operating results Friday and a quarterly profit of $142 million as it fought back against its biggest shareholder, who is seeking to replace chief executive Fred Green.

CP's besieged chief executive said the foundations have been set for improved results at the Calgary-based railway as it delivers on a multi-year plan.

"The records we are setting are not just for the first quarter. We're setting all-time operating records for any quarter, evidence that these are sustained improvements, not just easy comparisons," Green told a conference call with financial analysts.

"The programs that we have underway are resulting in new, unparalleled levels of performance."

CP management will face shareholders at a crucial annual meeting in Calgary next month.

New York-based investment firm Pershing Square Capital Management is seeking to replace Green with former Canadian National Railway Co. chief executive Hunter Harrison.

The firm has put forth seven nominees to sit on CP's 15-member board, which will be elected at the annual meeting.

Green, who has been supported by CP's current board, including chairman John Cleghorn, announced Friday Canadian Pacific had achieved a record operating performance in the first three months of 2012.

The operating ratio was 80.1 per cent, an improvement of 10.5 percentage points, but nowhere near the level sought by Pershing Square chief Bill Ackman, who said it is still too high.

"If you look at the operating ratio this quarter and compare it with what it was when Fred Green started, it's worse, even though this was one of the best winters on record," Ackman said.

"They talk about all this progress. They talk about lots of different improvements in metrics. But the bottom line, which is what shareholders participate in, has gotten worse during his tenure.

"It reinforces the need for a change in management," Ackman said.

Ackman and Harrison have said Canadian Pacific can improve its operating ratio to 65 per cent by 2015 -- a target CP says can't be achieved in that time frame.

CP has set a target of a 70 to 72 per cent operating ratio for 2014 and between 68.5 per cent and 70.5 per cent by 2016.

The ratio represents the percentage of revenue required to pay for operations, so investors want railways to push the number lower in order to boost profitability.

For the three months ended March 31, Canadian Pacific reported $1.37 billion in revenue, up from $1.16 billion in the first quarter of 2011, when CP's performance was bogged down by weather-related issues.

The first-quarter profit amounted to 82 cents per share, up from a meagre $34 million or 20 cents per share in the first three months of 2011.

Last week, the company gave guidance for the first quarter that it expected a profit between 80 and 83 cents per share for the quarter. Before it issued that guidance, the average analyst estimate was for a profit of 63 cents per share.

-- The Canadian Press

Republished from the Winnipeg Free Press print edition April 21, 2012 B11

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