CP forecasts 300% leap in profit |
Source: Brent Jang -
Globe and Mail
April 10th 2012
Canadian Pacific Railway Ltd. has issued its first-quarter guidance,
saying its diluted share profit will be four times higher than in
the same period last year, when snowstorms wreaked havoc on freight
CP forecasts that its diluted earnings per share will range from 80
cents to 83 cents for the three months ended March 31, surpassing
analysts’ expectations and exceeding EPS by at least 300 per cent
over last year’s first quarter.
CP saw its results marred by train delays amid brutal winter weather
in the Rockies in the first quarter of 2011, when the railway posted
a $33.7-million profit, or 20 cents in EPS.
“The CP team is delivering both revenue growth and operational
performance. The record operating metrics are now driving improved
financial results,” CP chief executive officer Fred Green said in a
statement Tuesday. “This is evidence that our multiyear plan is the
right strategy to produce value for our shareholders.”
Canada’s second-largest railway, which will release its
first-quarter results on April 20, said it’s thriving on higher
volumes of grain and coal, as well as gains in industrial and
consumer products. CP emphasized that its trains speeds are getting
faster while “dwell time” is being reduced for freight temporarily
left at rail terminals.
The announcement comes as CP is engaged in a proxy fight against its
largest shareholder, New York-based Pershing Square Capital
Management LP. Pershing Square acquired a 14.2-per-cent stake in CP
for $1.4-billion (U.S.) last fall in a bid to revitalize an industry
laggard that ranks as the least efficient among six major railways
in North America.
Pershing Square CEO Bill Ackman wants to install former Canadian
National Railway Co. (CNR-T77.841.792.35%) chief Hunter Harrison as
CP’s chief executive. CP is backing an incumbent team of 15
directors, plus it’s recommending Mr. Ackman to be the 16th board
member. But Pershing Square has an alternative slate of seven
director nominees that the hedge fund wants CP shareholders to
support in a showdown at the railway’s annual meeting on May 17.
On Tuesday, CP issued a seven-point critique of Pershing Square’s
recent attempts to cast doubt on the railway’s ongoing strategy to
run longer and faster trains, while deploying new locomotives on
Among its points, CP said it “now reliably moves large volumes of
crude by rail into the Gulf, the Midwest, the U.S. Northeast,
eastern Canada and the west coast of Canada,” with market
development in energy slated to add up to $400-million (Canadian) in
new annual revenue over the next three to four years.
“CP’s multiyear plan has three key elements – driving volume growth,
expanding network capacity to safely and efficiently support higher
volumes and controlling costs,” the railway said, noting it’s
improving its operating costs-to-revenue ratio. “The CP board has
attempted to foster a constructive dialogue with Pershing Square.”
Last week, Pershing Square urged CP shareholders to vote against the
railway’s “say on pay” advisory resolution on executive
compensation. Pershing Square’s proxy circular also compares the
performance of Mr. Harrison and Mr. Green, based on the operating
ratio, or costs as a percentage of revenue.
Mr. Harrison lowered CN’s operating ratio to 68.5 per cent in his
fourth year as the Montreal-based railway’s boss, compared with 78.4
per cent when he became CEO in 2003, while Mr. Green saw CP’s ratio
rise from 77.7 per cent to 81.7 per cent in his first four years,
Pershing Square said. A lower number is better.
In addition to Mr. Ackman and his hedge fund partner Paul Hilal, the
alternative slate comprises retired Norfolk Southern Corp.
vice-chairman Stephen Tobias, Alberta Enterprise Corp. chairman Paul
Haggis, corporate restructuring specialist Gary Colter, former Onex
Corp. executive Anthony Melman and Rebecca MacDonald, executive
chairwoman of Just Energy Group Inc.