Ackman had pushed for replacing Green with Hunter Harrison, former CEO of Canadian National Railway Co. (NYSE: CNI), but following the coup Ackman now said not to expect a coronation, “We’re going to do a proper job, we’re going to meet all the candidates and do it the right way.”

Canadian Pacific’s problems, at least according to Ackman, are due to high operating costs and he wants to reduce those costs. Ackman’s stated goal is to lower CP’s operating ratio — that is cost as a percentage of revenue — from around 80% to 66%. That would match the operating ratio at Canadian National, Harrison’s former company. Most of the credit for CN’s success, however, is attributed to Harrison’s predecessor.

CP’s main problem is that it operates mainly in western Canada in a nasty climate with difficult topography. The company hauls mainly commodity minerals and is captive to swings in the market for those minerals. Lowering costs won’t be easy once the workforce is trimmed.

CP’s ability to compete with the likes of Union Pacific Corp. (NYSE: UNP), CSX Corp. (NYSE: CSX), Burlington Northern Santa Fe (BNSF), owned by Warren Buffett’s Berkshire Hathaway Inc. (NYSE: BRK-A), and Norfolk Southern Corp. (NYSE: NSC) is dubious, given that CP is much smaller than any of these and that the only likely merger possibility is Kansas City Southern (NYSE: KSU). A potential merger between Canadian National and BNSF was squashed by regulators in 1999, so a tie-up with one of the larger railroads is unlikely.

What is likely is that Ackman has shaken up sleepy Canadian companies and shareholders. This was Canada’s first big, public battle over corporate direction and many observers believe that it’s just the beginning.

Who could be next? A good bet might by phone maker Research in Motion Ltd. (NASDAQ: RIMM) whose recent struggles are well documented.

CP did not get much of a share price boost yesterday, closing at $75.07 in a 52-week range of $44.74-$79.91. The stock is inactive in pre-market trading this morning.

Paul Ausick

Later this morning at CP’s shareholder meeting more changes are sure to take place. In the same press release, the company said that five other directors, in addition to Green, would not stand for re-election. That means that there are now just 16 candidates for 16 available board seats. William Ackman’s slate of candidates will take seven of the available seats, and Pershing Square Capital Management will, for all intents and purposes, be running the railroad.

Last Sunday Ackman said that of the 36% of votes cast at that time, his slate had 97%. CP’s shareholders were behind Ackman’s criticisms of the company, as were three major proxy advisory firms. Ackman had also enlisted the help of the former head of the Canadian National Railway Co. (NYSE: CNI), Hunter Harrison, who is now the likeliest candidate to head CP.

The railroad’s shares are inactive in the pre-market. Shares closed at $74.87 last night, in a 52-week range of $44.74-$79.91.

Paul Ausick

CSX reported revenues of $2.97 billion, better than the consensus estimate of $2.91 billion and up 5.7% compared with the same period a year ago. EPS came in at $0.43 compared with a consensus estimate of $0.38. Other US carriers Burlington Northern Santa Fe, owned by Berkshire Hathaway Corp., Canadian National Railway Ltd. (NYSE: CNI), Canadian Pacific Railway Ltd. (NYSE: CP), Kansas City Southern (NYSE: KSU), Norfolk Southern Corp. (NYSE: NSC), and Union Pacific Corp. (NYSE: UNP) are still to come. Here’s a look at what analysts expect.

Burlington Northern’s revenues and earnings are reported with Berkshire Hathaway’s later this quarter. Year-to-date, petroleum carloads are up 45% while coal loads are down -6%. Other gains are autos, up 13.6%, while intermodal traffic is up just 1.15%.

Canadian National Railway Ltd. (NYSE: CNI) is expected to post revenue of $2.27 billion and EPS of $1.02, an increase of 13% over the same period a year ago. The company reports earnings on April 23rd.

Canadian Pacific Railway Ltd. (NYSE: CP) is expected to post revenue of $1.32 billion and EPS of $0.78, a whopping 310% increase over a year ago. The company put out a preliminary estimate of EPS at CDN$0.83 earlier this month. Canadian Pacific reports earnings on Friday.

Kansas City Southern (NYSE: KSU) is expected to post revenue of $543.24 million and EPS of $0.72, a 24% increase over the same period a year ago. The company reports earnings on April 24th.

Norfolk Southern Corp. (NYSE: NSC) is expected to post revenue of $2.75 billion and EPS of $1.12, an increase of 12% over last year. The company reports earnings on April 24th.

Union Pacific Corp. (NYSE: UNP) is expected to post revenue of $4.98 billion and EPS of $1.63, an increase of 26% over the same period a year ago. The company reports earnings tomorrow.

Expectations are for rail stocks are high and, based on the gain reported yesterday at CSX, it looks like those hopes are about to be realized.

Paul Ausick

Along with Union Pacific, we also looked at Guangshen Railway Co. Ltd. (NYSE: GSH), Norfolk Southern Co. (NYSE: NSC), CSX Corp. (NYSE: CSX), Canadian National Railway Co. (NYSE: CNI), and Canadian Pacific Railway Ltd. (NYSE: CP). Here’s how they stack up on the basis of dividend yield:

• Guangshen Railway  pays $0.51 for a 2.5% yield;
• Norfolk Southern pays $1.44 for a 2.3% yield;
• CSX Corp. pays $1.04 for a 1.7% yield;
• Canadian National pays $1.07 for a 1.7% yield;
• Union Pacific pays $1.52 for a 1.7% yield;
• Canadian Pacific pays $1.05 for a 1.6% yield.

There is an obvious here… more dividend raises could be on the way, if the railroads want to maintain current investor yields going forward.

Buffett’s own Burlington Northern Railway has boosted shares in Berkshire Hathaway Inc. (NYSE: BRK-A; BRK-B), but the company does not pay dividends.

Not everyone sees a silver lining in railroad stocks. Goldman Sachs today downgraded Norfolk Southern from ‘Hold’ to ‘Sell’ and lowered the company’s target share price from $62 to $59. The stock is trading at over $61/share so far today. Goldman cited higher costs, smaller price increases, a negative view on coal shipments from Appalachia, and declining intermodal traffic as reasons for the downgrade.  Goldman could be right, but strength in railroad stocks has been building and all the stocks we’ve looked at are priced well below their mean targets.

Paul Ausick

American Electric Power Co., Inc. (NYSE: AEP) Cut to Hold at Jefferies.
Apple Inc.  (NASDAQ: AAPL) Reiterated Buy but target raised to $385 from $340 at Barclays.
Apollo Group Inc. (NASDAQ: APOL) Started as Neutral at UBS.
Canadian National Railway Co. (NYSE: CNI) Cut to Hold at Stifel Nicolaus.
CNOOC Ltd. (NYSE: CEO) Cut to Neutral at HSBC.
EI DuPont de Nemours & Co. (NYSE: DD) Raised to Buy at BofA/Merrill Lynch.
Family Dollar Stores, Inc.(NYSE: FDO) Raised to Strong Buy at S&P Equity Research (late Monday call).
FLIR Systems, Inc. (NASDAQ: FLIR) Reiterated Buy at Needham.
Kulicke & Soffa Industries Inc. (NASDAQ: KLIC) Cut to Hold at Jefferies.
Liz Claiborne Inc. (NYSE: LIZ) Started as Neutral at SunTrust.
Turkcell Iletisim Hizmetleri AS (NYSE: TKC) Cut to Underweight at Morgan Stanley.
Verizon Communications Inc. (NYSE: VZ) Cut to Underperform at Bernstein.
Wynn Resorts Ltd. (NASDAQ: WYNN) Cut to Market Perform at BMO; Raised to Buy at S&P Equity Research (late Monday call).
YRC Worldwide, Inc. (YRCWD) Started as Underperform at Morgan Keegan.

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JON C. OGG

Canadian National Railway Company (NYSE: CNI) Cut to Sector Peform at CIBC.
Celgene Corporation (NASDAQ: CELG) Cut to Hold at Jefferies.
First Solar Inc. (NASDAQ: FSLR) maintained sell but raised estimates on orders at Soleil.
J.C. Penney Company (NYSE: JCP) Raised to Conviction Buy List and target raised to $37 at Goldman Sachs.
MGM Mirage (NYSE: MGM) Cut to Sell at Soleil.
Potash Corp. of Saskatchewan (NYSE: POT) Target to $150 (Canadian) at Scotia.
QUALCOMM Inc. (NASDAQ: QCOM) Started as Underperform at BNP Paribas.
Synaptics Inc. (NASDAQ: SYNA) Cut to Sell at Lazard.
Texas Instruments Inc. (NYSE: TXN) Started as Outperform at BNP Paribas.
Williams-Sonoma Inc. (NYSE: WSM) Raised to Outperform at Oppenheimer.

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JON C. OGG

Kinross Gold Corporation (NYSE:KGC)
EnCana Corporation  (NYSE:ECA)
TransCanada Corporation  (NYSE:TRP)
Canadian National Railway Company  (NYSE:CNI)
BCE Inc.   (NYSE:BCI)
Royal Bank of Canada   (NYSE:RY)
Thomson Reuters Corporation  (NYSE:TRI)
Husky Energy Inc.  
Shoppers Drug Mart Corporation  
Potash Corporation of Saskatchewan Inc.   (NYSE:POT)
Rogers Communications Inc.  (NYSE:RCI)

US companies aren’t the only ones with pay issues.

Douglas A. McIntyre

Cascade Investment, L.L.C.
COMPANY (TICKER)                              $(000)       SHARES
AUTONATION INC (AN)                      111,799   11,315,688
BERKSHIRE HATHAWAY (BRK-A)  391,230   4,050
CANADIAN NATL RY (CNI)           1,279,599   34,809,544
COCA-COLA FEMSA (KOF)                  37,294     857,128
EASTMAN KODAK (EK)                         52,311    7,950,000
FOMENTO ECONOMICO  (FMX)       678,431   22,516,795
GRUPO TELEVISA (TV)                       301,495   20,180,400
OTTER TAIL CORP (OTTR)                  79,474    3,406,499
PNM RES INC (PNM)                             70,757    7,019,550
REPUBLIC SERVICES (RSG)              879,233   35,467,230

Smaller positions listed as under $50 million for the BILL & MELINDA GATES FOUNDATION are BANK FLA CORP NAPLES, VIACOM, COCA COLA ENTERPRISES, COX RADIO, CROCS INC, DAIMLER, DICKS SPORTING GOODS, EASTMAN KODAK, GREATER CHINA FUNDD INC, HOME DEPOT, IAC/INTERACTIVE CORP, ELI LILLY & CO, PEABODY ENERGY, PROGRESSIVE CORP, SEATTLE GENETICS, TEVA PHAMRACEUTICAL, TRACTOR SUPPLY, VIACOM…. We listed Republic Services (RSG) because Bill Gates’ Cascade has been acquiring these share actively via Cascade.

Smaller positions listed as under $50 million for CASCADE INVESTMENTS are CROCS, FISHER COMMUNICATIONS, GAMCO INVESTORS, PATRIOT COAL, PLANETOUT INC, SIX FLAGS, STRATEGIC HOTELS & RESORTS.

JON C. OGG
FEBRUARY 17, 2009

• Apollo Investment (AINV) Cut to Neutral at JPMorgan.
• Baker Hughes (BHI) Cut to Underweight at Morgan Stanley.
• Canadian National Railway (CNI) Cut to Neutral at Goldman Sachs.
• Elizabeth Arden, Inc. (RDEN) Cut to Market Perform at Wachovia.
• Kansas City Southern (KSU) Cut to Neutral at JPMorgan.
• Palm (PALM) Cut to Neutral at JPMorgan.
• Polo Ralph Lauren (RL) Cut to Sell at Goldman Sachs.
• Red Robin Gourmet (RRGB) Cut to Equal Weight at Morgan Stanley.
• Smith International (SII) Cut to Equal Weight at Morgan Stanley.
• Teradyne (TER) Cut to Perform at Oppenheimer.

Jon C. Ogg
January 20, 2009

• AUTONATION (NYSE: AN)                                5,263,588
• BERKSHIRE HATHAWAY (NYSE: BRK-A)         4,050
• CANADIAN NATL RY (NYSE: CNI)                     33,859,544
• COCA COLA FEMSA S A B (NYSE: KOF)         857,128
• FISHER COMMUNICATIONS (NASDAQ: FSCI)  455,700
• FOMENTO ECONOMICO (NYSE: FMX)             20,966,795
• GAMCO INVESTORS (NYSE: GBL)                  90,845
• GRUPO TELEVISA SA (NYSE: TV)                  19,680,400
• OTTER TAIL (NASDAQ: OTTR)                         2,556,499
• PATRIOT COAL (NYSE: PCX)                          2,408,653
• PLANETOUT (NASDAQ: LGBT)                        521,739
• PNM RESOURCES (NYSE: PNM)                    7,019,550
• REPUBLIC SERVICES (NYSE: RSG)               34,873,836
• SIX FLAGS (NYSE: SIX)                                   10,210,600
• STRATEGIC HOTELS & RESORT (NYSE: BEE) 4,190,000

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Jon C. Ogg
November 14, 2008