The results, released on Friday, were in line with an earnings forecast released last week by CP, Canada's second-biggest railway, which is waging a proxy battle with its largest shareholder, activist investor William Ackman's Pershing Square Capital Management.
Pershing wants to replace CP Chief Executive Fred Green with Hunter Harrison, who is credited with pumping up profits at rival Canadian National Railway Co when he was CEO there. Pershing argues that new leadership is the only way to boost CP's poor operating performance.
Its minority slate of board nominees will go up against the company's candidates at CP's annual meeting on May 17.
CP's closely watched operating ratio, which measures operating costs as a percentage of revenue, improved to 80.1 percent in the first quarter from 90.6 percent in the year-earlier period. The lower the number, the more efficient the railroad's operations.
Some analysts said the improvement was not sufficient to change many shareholders' minds about who they will back in the proxy fight. They said many investors have become impatient waiting for better results under Green, who became CEO in 2006.
"As a CEO, you basically went backwards for six years, and then you put up one good quarter, and everyone's supposed to jump on the bandwagon?," noted Edward Jones analyst Brian Yarbrough.
Ackamn Responds
Reached for comment, Ackman warned against using last year as a benchmark.
"Last year, when they put out their results they said, 'horrible winter, that's why we had a 90-plus percent operating ratio'," Ackman said. "This time, what they don't remind you is that this is one of the best winters in the last 100 years."
The quarterly results were helped by efficiency gains as well as growth in volume. In a release, Green said freight revenue rose by 18 percent in the quarter.
CP said it is confident it will continue to improve operating results, financial performance and increase shareholder value.
"It's a good down payment on where they're trying to go and we'll have to see if they can keep doing it," said Canaccord Genuity analyst David Tyerman. "Regardless of who's at the helm, the company needs to ... generate a better operating ratio."
Vote Looms
Pershing, which owns 14.1 percent of CP, argues that Harrison will produce efficiency gains faster than Green, and that under his leadership CP will reach an operating ratio of 65 percent by 2015.
CP repeated on Friday that it sees its operating ratio reaching 70 percent to 72 percent in 2014, and 68.5 percent to 70.5 percent in 2016.
In a survey conducted by Reuters April 11 to 17, five shareholders, including three large holders, said they backed Pershing's slate of directors.
One shareholder said his firm would support CP and three were undecided. The pro-Pershing group accounts for about 5 percent of CP's shares.
CP's operating ratio last year was 81.3 percent, the weakest number posted by any of North America's big railroads. Canadian National Railway, where Harrison was CEO from 2003 to 2009, reported a ratio of 63.5 percent.
CP said net income for the quarter was C$142 million ($143 million), or 82 Canadian cents a share, up from a profit of C$34 million, or 20 Canadian cents, in the same period of 2011. Total revenue rose by C$213 million to C$1.4 billion.
Analysts, on average, expected earnings of 80 Canadian cents a share on revenue of C$1.3 billion, according to Thomson Reuters I/B/E/S. (Reuters)
