UPDATE 3-CP Rail cautiously optimistic as profit surges

* Q1 EPS C$0.59 vs consensus estimate C$0.51

* Revenue up 5.2 pct to C$1.17 billion
(Adds details, quotes from conference call, analyst’s
comments)

By John McCrank

TORONTO, April 28 (BestGrowthStock) – Canadian Pacific Railway Ltd
(CP.TO: ) reported a 74 percent jump in quarterly profit on
Wednesday as cost cuts and higher freight volumes pushed its
results above analysts’ expectations and sent its shares up 5
percent.

An improving economy meant a big increase in shipments of
bulk commodities such as potash and grain, as well as
automobiles, in the first quarter, CP, Canada’s second biggest
railway, said.

Chief Executive Fred Green said higher volumes have
continued into the current quarter, but he was cautious about
predicting how the economic recovery would unfold.

“Am I delighted with the speed of the bulk recovery? You
bet. We had no way to predict that,” Green said on a conference
call with analysts. “The issue that we all face is simply the
sustainability of the demand. Will it be volatile? I would
guess it probably will be a bit more volatile than history
says.”

CP earned C$99.8 million ($98.4 million), or 59 Canadian
cents a share, in the period ended March 31. That compared with
a profit of C$57.3 million, or 36 Canadian cents a share, in
the year-earlier quarter.

Revenue at the railway, which has operations in Canada and
the northern United States, rose 5.2 percent to C$1.17
billion.

Industry analysts, on average, had expected earnings of 51
Canadian cents a share, according to Thomson Reuters I/B/E/S.
The average revenue forecast was C$1.13 billion.

“They had the lowest revenue growth of all the Class 1
railroads, but the biggest improvement in operating ratio, so
hence they had the largest increase in earnings per share
growth year over year and quite substantial growth,” said David
Newman, an analyst at National Bank Financial.

Canada’s biggest railroad, Canadian National Railway
(CNR.TO: ), reported its results on Monday and its earnings
handily beat analysts’ expectations. [ID:nN21222356]

Both Canadian railways benefited from a mild Canadian
winter that cut maintenance and operating costs.

Newman said CP was able to reduce costs for services,
materials and equipment, while keeping head count at reasonable
levels

“So when volumes continue to surge, certainly towards the
back half of the year and especially when the strong Canadian
dollar eases to a certain degree and you start to have flat
year over year comparables on (foreign exchange), I think we’re
going to have a very very strong year for railroading.”

Shares of CP were up C$2.88, or 5 percent, at C$61.00 on
the Toronto Stock Exchange on Wednesday afternoon.

Newman has an “outperform” rating on a stock with a price
target of C$69.00.

RBC Dominion Securities analyst Walter Spracklin, who also
rates the stock outperform, said in a note to clients that he
expects “substantial upwards earnings revisions on the back of
these results.”

CP holds an investors’ day on June 1.

Stock Market Advice

($1=$1.01 Canadian)
(Additional reporting by Scott Anderson; editing by Peter
Galloway)

UPDATE 3-CP Rail cautiously optimistic as profit surges