Bloomberg News

Canadian Pacific Efficiency Worsens as Rail Fights Ackman

January 26, 2012

(Updates with revenue in last paragraph.)

Jan. 26 (Bloomberg) -- Canadian Pacific Railway Ltd., the carrier under pressure from shareholder William Ackman to boost efficiency by changing management, said its expense margin worsened in the fourth quarter.

Operating expenses climbed to 78.5 percent of revenue in the fourth quarter from 77 percent a year earlier, the Calgary- based company said today in a statement.

Canadian Pacific is seeking to keep Chief Executive Officer Fred Green while Ackman says Hunter Harrison, the former chief of rival Canadian National Railway Co., should take his place. Ackman has pushed to cut Canadian Pacific’s ratio of expenses to revenue, an efficiency gauge, to 65 percent by 2015.

When Harrison retired from Canadian National, the measure had been cut to 67.3 from 76 at the end of 2002, filings show.

Canadian Pacific said today its strategic plan has already yielded benefits that enabled the railroad to narrow its operating ratio target range to 70 to 72 percent by 2015, compared with a goal of a “low-70s” ratio given previously.

“We have no intention of stopping there,” Green said in the statement.

The rate of improvement advocated by Ackman has never been achieved by any railroad from that starting point, Canadian Pacific chairman John Cleghorn has said, maintaining that current CEO Fred Green is the best person to lead the Calgary- based railroad to its target operating ratio by 2015.

Earnings Estimates

Earnings excluding some items were C$1.08 a share, trailing the C$1.10 average of 23 analysts’ estimates compiled by Bloomberg. Net income rose to C$221 million ($220.8 million U.S.), or C$1.30 a share, from C$186 million, or C$1.09, a year earlier, the company said.

The fourth quarter was the only one in 2011 when net income rose. Canadian Pacific has suffered profit declines this year and saw its operating ratio reach its highest since at least 2005 in the first quarter as avalanches forced the rail carrier to halt trains and reroute shipments.

Revenue in the fourth quarter rose to C$1.41 billion, topping the average estimate of C$1.39 billion in a Bloomberg survey of 18 analysts.

--Editor: James Langford

To contact the reporter on this story: Natalie Doss in New York at

To contact the editor responsible for this story: Ed Dufner at

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