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 that 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 that CP says can’t be achieved in that time frame.
CP has set a target of 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 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 stronger results in its latest quarter compared with a year earlier were partly due to a brutal winter a year ago that slowed shipments and drove up costs. By comparison, CP experienced a milder winter this year, but the railway also improved its operations.
BMO Capital Markets analyst Fadi Chamoun said the results were consistent with what the company had suggested last week.
“While a mild winter might have helped and comparables are easy versus Q1/11, the company is also clearly demonstrating a positive trend following significant investments in network infrastructure and lean initiatives over the past 18 months,” Chamoun wrote in a note to clients.
However RBC Capital Markets analyst Walter Spracklin noted that a single quarter’s results may not carry enough sway with investors when they decide whether or not to support CP’s management at the annual meeting.
“While some investors will be comforted with these results, others will focus on the limited time frame in which they were achieved,” Spracklin said.
Canadian Pacific transports coal, fertilizer, grain, automobiles, consumer goods and other materials across its North American rail network.
Shares in the company closed up 42 cents at $76.45 Friday on the Toronto Stock Exchange.
Note to readers: This is a corrected story. Previous versions identified CP’s annual meeting as set for today and stated CP’s operating ratio improved by 1.05 percentage points.