Canadian Pacific Kansas City Ltd. Q4 FY2025 earnings call

Management Statement and Operational Highlights

• Gratitude to the 20,000 CPKC employees for their dedication. Fourth quarter revenue $3.9 billion, up 1% y-o-y; operating ratio 55.9%, 120 basis points improvement; EPS $1.33, up 3% y-o-y. Full year revenue $15.1 billion, up 4%; volume growth 4%; operating ratio 59.9%, 140 basis points improvement; core EPS $4.61, up 8% y-o-y.
• Operational highlights: Record safety performance, 10 years in a row earning Amtrak's Best Carrier designation with A+ performance. Network running well with improvements in train weight, speed, locomotive productivity, and car velocity since merger. Labor progress with 16 5-year collective bargaining agreements ratified. Capital investment: 100 new locomotives in 2026, 5% share buyback program announced.
• John Brooks discussed segment revenues: Bulk, merchandise, automotive, intermodal performance and outlooks. Nadeem Velani detailed financials, operating ratios, expenses, cash flow, and share repurchases.

Segment Performance

• Bulk: Fourth quarter: Record grain revenues up 4% on 2% volume growth; Potash revenue down 2% on 2% volume growth; Coal revenue up 2% on 1% volume decline. Full year: Bulk showed growth with grain, potash, and coal.
• Merchandise Franchise: Energy, chemicals and plastics: down 3% on 5% volume decline; Forest Products: down 13% on 12% volume decline; Metals, minerals and consumer products: up 1%; Automotive: down 3% on 1% volume growth; Intermodal: up 3% on 4% volume growth.

Guidance

• Expect mid-single-digit volume growth in 2026 enabled by bulk business and unique growth drivers. Aim for low double-digit earnings growth. Announced a 5% share buyback program for 2026. Capital outlook reduced by 15% to $2.65 billion in 2026 due to timing shifts in investment, including pulling forward maintenance projects and shifting focus from systems integration to other growth areas.

Risks

• Macro conditions and trade policy uncertainties. Reciprocal switching proposals and their potential impact. USMCA renegotiation risks. Uncertainties related to tariff changes and harbor maintenance tax exemptions. Potential impact of a UP-NS merger and its implications on competition and the rail network.

Question and Answer

Q: Double-click on volume growth assumption of mid-single digit. How much is carryover of wins and new wins?

A: John Brooks noted Q1 challenges but optimism on grain, potash, intermodal, and new products like SMX. Keith Creel mentioned lapping integration cutover period as a benefit.

Q: Thoughts on reciprocal switching proposed in US?

A: Keith Creel said if providing good service, not concerned; but proposed plan differs from Canada, needs to be fair and balanced with unintended consequences considered.

Q: OR potential moving forward?

A: Nadeem Velani stated operating leverage expected from bulk opportunity, workforce efficiency, new locomotives, and fuel efficiency, expecting 100 basis point OR improvements annually if executing well.

Q: Impact of harbor maintenance tax exemption potentially going away on cross-border volumes?

A: John Brooks said cross-border volume business is small in CPKC's book currently, not a major concern.

Q: Thoughts on USMCA renegotiation and timing?

A: Keith Creel said likely to get active in summer, possibly renewed before midterms.