CP Railway misses profit estimates as stock-based pay increases

Canadian Pacific Railway Ltd., foiled in a bid to merge with CSX Corp., reported third-quarter profit that missed analysts' estimates as the carrier spent more on stock-based compensation.

Net income rose 23 percent to C$400 million ($355 million), or C$2.31 a share, the Calgary-based company said today in a statement. That trailed the C$2.38 average of estimates in a Bloomberg survey of 26 analysts. Revenue increased 8.9 percent to C$1.67 billion, short of the C$1.69 billion average estimate.

Stock-based compensation and benefits jumped more than fourfold to C$42 million in the period, Canadian Pacific said. The shares have gained 38 percent this year, the best performance among members of the Canadian industrials sub-index, and closed yesterday at C$221.65.

Canada's second-largest railroad is working to deliver on a plan unveiled three weeks ago by Chief Executive Officer Hunter Harrison, to more than double profit over four years in part by running longer and faster trains. Canadian Pacific said yesterday exploratory talks on a possible merger with CSX to form a transcontinental railroad have ended, while signaling it will keep pushing for consolidation.

CSX rejected an offer by Canadian Pacific to combine into a transcontinental railroad, people familiar with the matter said earlier this month. Harrison scheduled a conference call for 1 p.m. New York time today to discuss mergers and acquisitions.

Canadian National

Canadian Pacific is the first of the biggest publicly traded North American railroads to fall short of estimates in publishing third-quarter results. Canadian National Railway Co., Canadian Pacific's bigger rival, will report today after the close of trading.

Canadian Pacific's operating ratio, an industry benchmark that compares expenses to revenue, improved 3.1 percentage points to 62.8 percent. The ratio will probably drop to "the low 60s" by the end of 2018, Harrison said Oct. 1.

Carloads rose 1.8 percent to 687,000, damped by declines in shipments of coal, autos and fertilizers, the company said.

"Carload growth at CP continues to be impacted by congestion issues in certain areas of the network and the loss of an international intermodal contract at the end of 2013," Kam Mangat, a Salman Partners Inc. analyst in Toronto, said Sept. 23 in a note to clients.