CP Rail to buy back shares, boosts dividend

(Reuters) - Canadian Pacific Railway Ltd's plans to repurchase up to 5 percent of its shares may have fallen short of expectations, a week after Canada's second-largest railroad abandoned its bid to buy Norfolk Southern Corp.

CP said on Wednesday it would buy back up to 6.91 million of its common shares. As of Tuesday's close of C$189.95, the repurchase would be worth about C$1.31 billion ($1.03 billion).

"We sense that expectations were perhaps for a larger buyback," wrote BMO analyst Fadi Chamoun in a note to clients.

Still, CP raised its quarterly dividend to 50 Canadian cents per share from 35 Canadian cents, an increase that Chamoun described as a "welcome positive surprise."

CP Chief Executive Hunter Harrison, who came back from retirement to head the railroad in 2012, expressed his intent on Wednesday to retire in the near future. CP confirmed Harrison would fulfill his term at the helm, which ends in 2017.

"I failed retirement once, and I can't fail again," he said at the end of an investors' call.

Harrison also said he believed a merger could one day take place in the rail industry, even after CP abandoned its efforts to buy Norfolk Southern, the No. 4 U.S. railroad, almost six months after it launched a $28 billion unsolicited bid.

"I would predict, post-Harrison, it is going to happen," he said of an industry merger.

CP's net income rose about 69 percent to C$540 million, or C$3.51 per share, in the first quarter ended March 31.

But excluding the impact of a strong U.S. dollar on the company's U.S. dollar-denominated debt, earnings of C$2.50 per share beat the analysts' average estimate of C$2.40, according to Thomson Reuters I/B/E/S.

Rail freight volumes have been hit by a fall in the prices of commodities such as oil and coal, weighing on revenue across the industry.

CP's revenue fell 4.4 percent to C$1.59 billion.

The operating ratio, a key efficiency measure, improved to 58.9 percent, lowest ever on an adjusted basis, as the company has been reducing costs to offset the impact of the commodity rout.

The Calgary-based company said in January that it aimed to push operating costs as a percentage of revenue below 59 percent in 2016 from 60 percent in 2015.

CP shares were down 2 percent at C$186.10 on Wednesday afternoon in Toronto.

(This story corrects 3rd bullet to say CP beat Wall Street estimate, not missed Corrects paragraph 10 to show adjusted earnings per share of C$2.50, not C$2.22. Removes reference to impact of gain from sale of Arbutus rail corridor)

(Reporting by Allison Lampert in Montreal; Additional reporting by Amrutha Gayathri in Bengaluru; Editing by Maju Samuel and Matthew Lewis)