* Q4 2011 EPS C$1.30 v Street est C$1.09
* Revenues up 8.8 pct to C$1.408 bln
* Operating ratio rises to 78.5 pct v 77 pct in Q4 2010
(Adds details, CEO quote)
Jan 26 (Reuters) - Canadian Pacific Railway (CP.TO) reported a 18.8 percent increase in fourth-quarter net income on Thursday but an important measure of operating efficiency weakened, a trend that will likely fuel demands by CP's largest shareholder for a new CEO.
CP, Canada's second largest railway, said its operating ratio rose to 78.5 percent in the quarter, from 77 percent in the year-ago period. That compares with a ratio of 64.7 percent for Canadian National Railway, the country's largest.
The higher the ratio, which measures operating costs as a percentage of revenue, the less efficient the railway. On this measure, CP is one of the less efficient of the major North American railways.
William Ackman, who runs Pershing Square Management LP, wants to install the former CEO of Canadian National Railway (CNR.TO) Hunter Harrison at CP to try to improve its operating performance.
CP is backing the current CEO, Fred Green, setting the stage for a proxy battle with Pershing, which holds 14.2 percent of the shares. Net income rose C$221 million ($218.37 million), or C$1.30 a share, in the three months to end-December, from C$186 million, or C$1.09, in the same period in 2010.
Analysts on average expected earnings of C$1.09, according to Thomson Reuters data.
Revenue rose 8.8 percent to C$1.408 billion, in line with expectations.
For all of 2011, CP's operating ratio was 81.3 percent, compared with 77.6 percent in 2010.
Even though the ratio deteriorated, the company reported strong increases in car miles per car day, average terminal dwell and average daily active cars on-line, for the quarter.
"Given our recent market successes and operating trends, we can now with confidence, narrow our target operating ratio range to 70 to 72 per cent in three years and we have no intention of stopping there," said Green in a statement.
Earlier this week, CN reported financial results that showed a 64.7 percent operating ratio for the fourth quarter and 63.5 percent for all of 2011.
($1 = 1.0121 Canadian dollars)
(Reporting By Nicole Mordant and Julie Gordon; Editing by Frank McGurty)
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