Canadian Pacific Kansas City Ltd. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Team delivered 7% volume growth, revenues up 3% to $3.7 billion, operating ratio 60.7%, earnings $1.12 up 7% year-over-year.
• Continued ramp-up of Gemini partnership for international growth; 180/181 premium domestic intermodal service grew 40% year-over-year; increased traffic flows via CPKC land bridge between Canada and Mexico; launched Southeast Mexico Express service with CSX.
• Reaction to UP and NS proposed combination: CPKC remains focused on maximizing shareholder value, with unique network connecting U.S., Canada, and Mexico; will actively engage in regulatory process to protect customer and industry interests.
• Operational progress: System integration milestones achieved; safety improvements (FRA personal injuries down 8%, train accidents at 0.97 YTD record); resource management with selective head count management; capital investments including receipt of Tier 4 locomotives.

Segment Performance

• Bulk: Grain revenues up 11% on 13% volume growth (Canadian grain up 16%, U.S. grain up 11%); potash revenues down 8% on 7% volume growth; coal revenue up 8% on 5% volume growth.
• Merchandise: Energy, chemicals and plastics revenue grew 2% on 5% volume decline; forest products revenue down 5% on flat volumes; metals, minerals & consumer products revenue down 3% on 1% volume decline; automotive revenue down 5% on 8% volume growth; intermodal revenue up 8% on 18% volume growth (international up 28% from Gemini, domestic up 8% with MMX up 40% year-over-year and 20% sequentially).

Guidance

• Full year guidance remains on track with mid-single-digit volume growth expected.
• Second half of 2025 expected to recapture financial and operational momentum post-system integration.
• Confident in self-help growth initiatives, strong bulk fundamentals, and disciplined pricing strategy; outlook for full year is positive.

Risks

• Regulatory uncertainty around UP and NS proposed combination, including need for concessions to meet public interest standards.
• Potential industry consolidation and its downstream effects on competition.
• Impact of trade policies and tariffs on specific segments like soybean exports, cross-border steel, and international intermodal.

Question and Answer

Q: Chris Wetherbee with Wells Fargo asked about CP's role in industry dynamics and regulatory perspective.

A: Keith Creel discussed commercial opportunities, regulatory engagement, and the importance of concessions to meet public interest standards.

Q: Fadi Chamoun with BMO inquired about commercial opportunities and pipeline of growth.

A: Keith Creel stated CPKC sees ability to sustain mid-single-digit volume growth with existing pipeline of opportunities.

Q: Jonathan Chappell with Evercore ISI asked about system crossover impact on OR.

A: Nadeem Velani said system crossover had $30-40 million revenue impact, small carryover into July.

Q: Thomas Richard Wadewitz with UBS asked about single-line service and market power concerns.

A: Keith Creel discussed benefits of single-line service but emphasized broader complexities of merger review.

Q: Scott H. Group with Wolfe Research asked about enhanced competition and concessions for CP.

A: Keith Creel mentioned hypothetical concessions but noted need to see how the process unfolds.

Q: Brandon Robert Oglenski with Barclays asked about tariffs and auto business.

A: John Brooks discussed impact of tariffs on steel, automotive, and international spaces, but highlighted ongoing growth and service product strength.

Q: Ariel Luis Rosa with Citigroup asked about preliminary conversations with regulators and customers.

A: Keith Creel said conversations with other railroad CEOs are encouraging, but details were not disclosed.

Q: Stephanie Lynn Benjamin Moore with Jefferies asked about STB stance on competition and gateways.

A: Keith Creel discussed STB's need to enhance competition rather than just protect it, emphasizing concessions' importance.

Q: Daniel Robert Imbro with Stephens asked about pricing headwinds and core pricing flow-through.

A: John Brooks explained impact of fuel, carbon tax, and mix on pricing, expecting improvement in fuel and mix in the second half.

Q: Ravi Shanker with Morgan Stanley asked about MMX volume growth.

A: John Brooks attributed MMX growth to strong sales effort, partnership with Schneider, and ramping automotive parts and reefer business.