Canadian Pacific Railway Ltd. overcame a weak freight market to post a higher first-quarter profit aided by a tight leash on costs and a weak loonie.

Calgary-based CP said it will raise the quarterly dividend to 50 cents from 35 cents, and repurchase as many as seven million – 5 per cent – of its outstanding shares, a move intended to reward investors in the wake of the failed takeover bid for Virginia-based Norfolk Southern Corp.

The company's shares were down close to 1 per cent on the Toronto Stock Exchange on Wednesday, as investors apparently expected a larger repurchase program, which halted last fall as CP attempted a $28-billion merger with Norfolk Southern.

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The new buyback spurred Moody's Investors Service to downgrade CP's credit outlook to "negative." Jamie Koutsoukis, a Moody's analyst, said the "aggressive" buyback could cost the company $1.2-billion over 12 months, and will not allow for the amount of debt repayment the ratings agency had expected.

CP last week gave up its attempt to become a coast-to-coast railway, faced with stiff opposition from the U.S. Department of Justice, a long list of rail customers and Norfolk Southern itself.

Hunter Harrison, CP's chief executive officer, said he hasn't abandoned the view that railway mergers are the solution to congestion in the key Chicago hub, aging track and complaints from customers about service, particularly in the harsh winter of 2014.

"The potential exists for a repeat of 2014, which nobody wants," Mr. Harrison said in an interview. "But it appears that too many people are sticking their head in the sand and saying, 'Let somebody else worry about it.' That's one of the reasons – certainly not the only reason – we were were encouraging the M&A activity.

"We're probably not going to be allowed to build any more railroads, given the environmental concerns and all the other issues. We've got to learn to do more with less and nobody seems to want to deal with it. I guess we'll have to go through another crisis. At some point in time, somebody's got to wake up and say, we've got to have a plan, a national transportation policy."

As it sought shareholder and public support for its planned merger, CP said a merged railway would be able to skirt Chicago, a famously clogged hub where all the big carriers swap cars. Previously, CP had approached CSX Corp. and offered to buy both of the small Chicago railways that link the big rail lines in the city, but was turned down.

Mr. Harrison, whose contract with CP expires next year, signalled he is done with the takeover battles. "So far, every time we come up with an idea … somebody wants to stand in the way," he said. "How many times do you have to be turned down?"

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But reaching his target of at least 10 per cent profit growth this year amid a wobbly North American economy and steep declines in volumes of grain and industrial commodities – the company's main freight – will be challenging, analysts said.

Cameron Doerksen, a National Bank Financial analyst, said in a research note he expects CP's profit to rise by 9 per cent in 2016. He noted Chinese steel production rose by almost 3 per cent in March, which is good news for Teck Resources Ltd., a major coal miner and a key CP customer.

CP's revenue fell by 5 per cent in the first three months of the year as U.S. grain shipments fell by 18 per cent, crude oil slumped by 28 per cent and metals, minerals and consumer products declined by 16 per cent. Canadian grain revenue, the company's largest cargo, fell by 1 per cent. Chemicals, the second-biggest revenue generator, rose by 9 per cent.

However, the company beat analyst expectations with a 69-per-cent rise in profit, to $540-million, or $3.51 a share, compared with the year-earlier quarter.

The operating ratio, a closely watched comparison of revenue and expenses, improved to 58.9 per cent.

The stronger U.S. dollar gave a boost to CP, which gets about 55 per cent of its revenue in U.S. dollars. The company trimmed expenses, ran faster, longer trains and raised freight charges amid what Mr. Harrison said were "soft economic conditions." CP also raised its estimate for job reductions this year to 1,400 jobs this year from 1,000.

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The $43-million after-tax gain on the sale of a rail corridor to Vancouver helped boost profit, but analysts noted land sales were higher in the previous year's quarter.

The company is consolidating its three regional divisions into two. Eliminating yards, unneeded sidings and mainline switches will help it reduce operating expenses further, executives said in a conference call with analysts on Wednesday morning.