Canadian Pacific Railway Ltd. (TSX:CP), under fire from a dissident investor who wants major changes at the company, said Thursday it remains focused on cutting costs.

"We are making great strides in enhancing our efficiency and we are starting to see the payoffs from the network enhancements and process improvements that are underway," CP president and chief executive Fred Green said.

"We have improved customer confidence and we will continue to take costs out of the system while maintaining and improving service levels across our network.

The Calgary-based railway earned $221 million, or $1.30 per share for the quarter ended Dec. 31, compared with a profit of $186 million a year ago, or $1.09 per share.

Excluding a $37-million one-time gain on taxes, CP said it earned $184 million or $1.08 per diluted share for its most recent quarter.

Canadian Pacific has been under fire from William Ackman and his firm Pershing Square Capital, the railway's largest shareholder, who is pushing for new members on the railway's board of directors and a new chief executive.

Ackman wants former Canadian National Railway Co. chief executive Hunter Harrison to take over at the helm at CP over the objections of CP's board. Harrison's former employer CN has also responded negatively to Ackman's plan and said Harrison may have violated terms of non-compete agreements signed when he retired at the end of 2009.

CP refused to take questions about Ackman and Pershing Square during a conference call with financial analysts Thursday, but the company noted that its spending on external advisers, which was up in the fourth quarter, was expected to continue as it faced the costs of keeping its shareholders informed of its plans.

Revenue grew to $1.4 billion in the last three months of 2011, compared with $1.29 billion in the same period a year earlier. However, the company's operating expenses were also higher, rising $109 million to $1.1 billion.

"These improved operational results in Q4 set the stage for meaningful improvements for our financial performance in 2012 starting as early as the first quarter," Green said.

CP reported an operating ratio — a measure of how much of the railway's revenue is required to pay for its operating activities — of 78.5 per cent for the quarter, up from 77 per cent a year ago.

Green said the railway is targeting reducing the ratio to between 70 and 72 per cent in three years.

"And once we hit those targets we won't stop," Green said.

On Tuesday, CN Rail, one of North America's most efficient railways, outdid CP with a fourth-quarter operating ratio of 64.7 per cent.

BMO Capital Markets analyst Fadi Chamoun said the CP Rail's results were largely as expected, while the railway's outlook for 2012 was positive.

"CP Rail is demonstrating encouraging progress from an operational standpoint with train velocity, dwell time and car miles per day metrics all tracking above 2010 levels," Chamoun wrote in a note to clients.

"We believe that continued deployment of capital on infrastructure upgrades and efficiency improvement will drive further improvement."

However RBC Capital Markets analyst Walter Spracklin called CP's results weak, though he didn't expect them to hurt the stock price.

"Under normal conditions, we would consider these weaker than expected results to put pressure on the stock — however we expect the shareholder activism to be the main driver of valuation in the near-term," Spracklin wrote in a note to clients.

Canadian Pacific shares closed unchanged at $71.65 on the Toronto Stock Exchange on Thursday.

The company transports coal, fertilizer, grain, automobiles, consumer goods and other materials across its vast North American rail network. As such, the railway is often thought of as a bellwether for the state of the overall economy.

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