Ackman's Target Canadian Pacific Gets Moving

By Sham Gad | January 26, 2012 AAA

Canadian Pacific Railway (NYSE:CP) reported fourth quarter net income of $221 million and diluted earnings per share of $1.30, and full year 2011 net income of $570 million and diluted earnings per share of $3.34. During the quarter, revenues were $1.4 billion, an increase of $114 million over the year ago period.

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A Multi-Year Plan
Canadian Pacific is in the midst of a multi-year plan, in which the company is hoping to revive its business. The company's plan focuses on driving growth, expanding network capacity to safely and efficiently support higher volumes, and controlling costs. During the fourth quarter, management was confident in the success of this strategy. They cited a 20% improvement in car miles per day during the fourth quarter, over the prior year period. Fuel efficiency improved to 1.17 gallons per 1,000 gross ton miles (GTM), matching the company's best ever fourth quarter performance. Yet those improvements merely served to mitigate the increase in operating expenses, thanks to higher fuel costs and pension plan payments. As a result, net income declined by $81 million during 2011. (For related reading, see A Primer On The Railroad Sector.)

Other Ideas from Ackman
Canadian Pacific is the latest activist target of Pershing Square's Bill Ackman. Earlier in the month, Ackman announced his intent to nominate five directors to the company's board at the next annual meeting in May of 2012. Ackman apparently feels more needs to be done than the company's multi-year plan. According to Ackman, who is included on the slate of nominees, "We've assembled a superlative slate of nominees who share our goal of ensuring that the Canadian Pacific remains independent and strong. With a revitalized board and new management, we will help CP transform from the worst to one of the best performing Class I railroads in North America."

Ackman is currently undergoing great success with retailer JCPenny (NYSE:JCP) in his efforts to revitalize the once iconic retailer. Ackman's sensational payoff with real estate company General Growth Properties (NYSE:GGP) cemented his reputation as one of the best activist investors in the game. Yet Ackman is not perfect; a couple of years ago, an attempt at improving retailer Target (NYSE:TGT) did not prove fruitful by Ackman's standards, although he was able to affect change.

The Bottom Line
This is Ackman's first foray into railroads, not to mention one of Canada's oldest lines. How his style of activism is perceived up north will surely be a saga to watch.

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At the time of writing, Sham Gad did not own shares in any of the companies mentioned in this article.

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