Canadian Pacific Railway reported a strong start to the year as net income grew to $111 million, a 38-per-cent improvement over first-quarter 2005.

Excluding foreign exchange losses on long-term debt, diluted earnings per share increased 40 per cent to $0.74 from $0.53
Operating ratio improved 3 percentage points to 79.4 per cent
Revenue increased 10 per cent to $1,111 million
Operating expenses up 1 per cent, excluding the impact of higher fuel prices

"Our Execution Excellence strategy has delivered an outstanding first quarter," said Rob Ritchie, CPR's Chief Executive Officer. "Revenue growth is strong, despite the decrease in coal and potash volumes. We have managed our cost structure effectively, responding quickly to changes in traffic. Our Operations team has done an excellent job delivering improved fluidity, with average train speed increasing 17 per cent, yard processing time decreasing a full 32 per cent, and car velocity up 15 per cent over the same period last year. With increased fluidity, we are driving more value from our assets, delivering a better product to our customers which, in turn, is producing better results for our shareholders."

Freight revenue in the quarter grew by double-digits in four of CPR's seven business lines, with grain leading the way at 28 per cent, industrial and consumer products up 13 per cent, and intermodal and automotive each growing 12 per cent. This more than offset the declines in coal and sulphur and fertilizer volumes. Other revenue was up $22 million over the same period last year due mainly to earlier than planned land sales that closed at the end of the quarter.

Operating expenses were $881 million in first-quarter, up six per cent. The increase was due primarily to fuel costs which were 17 per cent higher and compensation and benefits costs which increased by 6 per cent. CPR recovered almost all of the increase in fuel price through its fuel surcharge program and fuel efficiency measures. Higher compensation and benefits costs were a result of the impact of rising share prices on stock-based compensation programs as well as inflation. Increased expenses were largely offset by lower operating costs resulting from the benefits of initiatives focused on reducing costs and favourable operating conditions due to milder weather.

"This is my last full fiscal quarter before I retire in May as CEO of CPR," said Mr. Ritchie. "It is with some satisfaction that I am able to do so with the company producing solid results. What is even more satisfying is to see a new team in place that is strong, capable and motivated to take the company forward to even greater success."

CPR's outlook for diluted earnings per share in 2006 remains unchanged at a range of $3.60 to $3.85, excluding foreign exchange gains and losses on long-term debt and other specified items. The outlook assumes oil prices averaging US$66 per barrel and an average exchange rate of $1.14 per U.S. dollar (US$0.88). This is a revision to our previous assumptions which were oil prices averaging US$58 per barrel and an average exchange rate of $1.18 per U.S. dollar (US$0.85). CPR expects to grow revenue in the range of 5 per cent to 8 per cent and expenses are expected to increase by 3 per cent to 6 per cent in 2006. Capital investment is anticipated to be between $810 million and $825 million in 2006 and free cash is expected to exceed $200 million for the year.

CPR had a foreign exchange loss on long-term debt of $6 million ($7 million after tax) in the first quarter of 2006, compared with a loss of $3 million ($4 million after tax) in the same period of 2005.