CP Rail boosts payout, sets buyback as profit tops estimates

Canadian Pacific experienced a 4 percent year-over-year drop in revenues for the first quarter of 2016 to C$1.59 billion.    Canadian Pacific Railway Ltd. will boost its dividend and buy back as much as C$1.31 billion (U.S. $1.04 billion) in stock as Chief Executive Officer Hunter Harrison looks to reward shareholders following a failed bid to acquire Norfolk Southern Corp.
   Canada’s second-biggest railroad unveiled plans to increase the quarterly dividend 43 percent to 50 Canadian cents a share as it reported profit that topped analysts’ estimates. The board authorized repurchasing as many as 6.91 million common shares, the Calgary-based company said Wednesday in a statement. Based on Tuesday’s closing price in Toronto, a maximum buyback would cost the company about C$1.31 billion.
   Harrison said repeatedly during the five-month public campaign for Norfolk Southern that he probably would start repurchasing stock if the acquisition attempt failed. Canadian Pacific abandoned the takeover attempt last week amid mounting opposition from shippers, U.S. politicians and rival railroads.
   While expectations “were perhaps for a larger buyback, we believe that CP Rail has historically upsized its buybacks opportunistically and the dividend increase will be a welcome positive surprise,” Fadi Chamoun, a BMO Capital Markets analyst in Toronto, said in a note to clients.
   Canadian Pacific fell 2 percent to C$186.22 at 9:31 a.m. in Toronto. The stock had gained 7.5 percent this year through Tuesday, beating the 6.6 percent advance of Canada’s benchmark Standard & Poor’s/TSX Composite Index.
   First-quarter adjusted earnings rose to C$2.50 a share, beating the C$2.42 average of 24 estimates compiled by Bloomberg. Revenue fell 4 percent to C$1.59 billion, trailing the C$1.61 billion average estimate.
   “We have established a solid foundation to build on, and we believe that the long-term outlook for CP remains strong,” Harrison said in Wednesday’s statement.
   Canadian Pacific’s operating ratio, a closely watched measure of railroad efficiency that compares expenses to revenue, dropped to a record 58.9 percent for the quarter — an improvement of 4.3 percentage points from a year earlier.
   Operating expenses fell 11 percent to C$938 million, paced by a 36 percent plunge in fuel costs to C$125 million and a 13 percent decline in compensation and benefits to C$329 million.
   Average train speeds climbed 21 percent in the quarter to 23.5 miles per hour, while terminal dwell — the length of time that railcars sit idle in yards — fell 22 percent to 6.9 hours, according to a slide presentation posted on the company’s website.