Canadian Pacific Railway Limited (CP) on Q2 2021 Results - Earnings Call Transcript
Operator: Good afternoon. My name is , and I will be your conference operator today. At this time, I would like to welcome everyone to Canadian Pacific's Second Quarter 2021 Conference Call. The slides accompanying today's call are available at www.cpr.ca. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Chris De Bruyn: Thank you, . Good afternoon, everyone and thank you for joining us today. Before we begin, I want to remind you this presentation contains forward-looking information. Actual results may differ materially. The risks, uncertainties, and other factors that could influence actual results are described on Slide 2 in the press release and in the MD&A filed with Canadian and U.S. regulators. This presentation also contains non-GAAP measures as outlined on Slide 3. With me here today is our Keith Creel, President and Chief Executive Officer; Nadeem Velani, our Executive Vice President and Chief Financial Officer; and John Brooks, our Executive Vice President and Chief Marketing Officer. The formal remarks will be followed by Q&A. In the interest of time, we'd appreciate if you could limit your questions to one. It is now my pleasure to introduce our President and CEO, Mr. Keith Creel. Keith Creel: Good afternoon. Thanks, Chris. I want to begin my comments by saying that my thoughts and my prayers remain with those affected by the wildfires in British Columbia and specifically, those in Lytton. You know, our hearts at CP go out to everyone that's been impacted. The village to Lytton and Lytton First Nations and several members of the CP family who actually lost their homes in the Lytton fire. Next, I want to continue to thank the more than 12,000 strong CP railroaders that are truly the drivers behind the unique story of sustainable profitable growth at CP. it's the best team the industry. We continue to prove it. It's a team that I'm extremely proud to be railroading with. So, let's spend some time and focus on the results. Needless to say extremely proud of what the team has delivered this quarter. Through the collective efforts of our railroaders, the quarter we delivered record second quarter revenues and nearly 2.1 billion record second quarter operating ratio of 55.3, and earnings growth of an impressive 27% to a record $1.03. Behind those numbers obviously is a very impressive operating performance. Special thanks to Mark Redd, and the industry best team of talented railroaders that he leads and serves with daily, able to produce train weights, train length continue to improve built on last year's records up. One in 3% respectively, record second quarter car miles per day at 4% on the quarter, trip plan compliance for our customers better than 80% continues to improve. And most importantly, taking results for the quarter both all time lows with this company. Records on both reportable injuries, as well as reportable derailments, personal injuries were down 34%, and train accident frequency decreased 70%. This is only attainable at the right safety culture. John Brooks: All right. Thank you, Keith. And good afternoon, everyone. So, as Keith said, I'm extremely pleased with the record results this team delivered this quarter. We achieved all time record second quarter revenue at 2.1 billion, up 15% year-over-year. And I can tell you despite a choppy supply chain environment, we grew our top line by 4% versus 2019. Now looking specifically at the Q2, RTMs were up 9% in the quarter, fuel and FX combine to be a 2% headwind, price and mix combine to be positive 8%. The pricing environment, as many have talked about, remains very strong, and our mix was driven positively by moving more autos and carload merchandise volumes. Now taking a closer look at the second quarter revenue performance, I'll speak to the results on a currency adjusted basis. Grain volumes were down 1% on the quarter, while revenues were up 4%. Our U.S. grain volume was up close to 40% on the quarter as our P&W export demand continued to be strong. In Canada, I'm pleased to report that CP has moved over 30 million metric tons of grain and grain products this crop year setting an all-time company record. I want to thank all the members of the CP family and our customers that relentlessly drive every day to make records like this happen. In Q2, we did have lower volumes in Canadian grain, driven by a combination of factors, including high grain prices, and record movements resulting in lower grain supply and carry out. Now looking ahead, we're monitoring the dry conditions across the prairies. We see a high likelihood for an early harvest and are forecasting normal peak demand levels. Nadeem Velani: Great. Thanks, John and congrats on yet another contract win. I'm proud of the exceptional results this team has produced in the quarter. As john mentioned, we achieved a Q2 record in revenue and we did that while effectively managing resources and controlling costs. The outcome of the solid execution by our 12,000 plus team of railroaders was a Q2 record adjusted operating ratio of 55.3%. The team executed on all fronts with 15% revenue growth, 19% operating income improvements, a 170 basis point decrease in the OR, and grew adjusted diluted EPS 27%. Looking at the results, you'll note that we have adjusted a total of 308 million in costs related to the KCS transaction, 99 million from PS&O and 209 million below the line in other expense. I will speak to the adjusted results today. Taking a closer look at a few items on the expense side, I’ll speak to the results on a currency adjusted basis. Comp and benefits expense was up 13% or 44 million versus last year. The primary driver of the increase was higher volumes and increased training costs in support of the improved demand environment. Recall in Q2 last year, we refer lowing employees, so most training expenses were on-hold. Headcount was up , as we successfully bring on resources to accommodate the improved demand environment. Fuel expense increased 98 million or 82%, primarily as a result of higher fuel prices and increased volume. The lag in timing of recoveries in our fuel surcharge program was an $18 million headwind in the quarter, equipment rents was down 2 million or 7% as efficiency improvements more than offset increases in rent expense from automotive contract wins. Depreciation expense was 200 million, an increase of 6% as a result of a higher asset base. Purchase services was 256 million, adjusted for the acquisition costs an increase in 3 million or 1%. The main driver of the increase was the increase in volume. Keith Creel: Thanks, Nadeem and John for that color. You know, to sum it up, volumes came in strong against 2020, but also very importantly, John made this point uniquely exceeded our 2019 volumes and the team bottom line, driving operating income growth, earnings growth, and margin improvement safer than ever before. That has set us up well to close out a very strong 2021 enjoying a very strong demand environment, which we see continuing well into 2022. In partnership with our self health initiatives, you can continue to expect to see our performance by this team at Canadian Pacific. So, with that, let me open it up to the operator for questions and commentary. Operator: Thank you, sir. Thank you for your patience. And your first question will be from Jon Chappell at Evercore ISI. Please go ahead, John. Jon Chappell: Thank you. Good afternoon, everybody. Keith Creel: Hi, good afternoon. Jon Chappell: Keith, you've been pretty passionate about the merger activity thus far this year. And, you know, maybe you've said everything you want to say, and it's in the STBs hands at this point, but I would have thought maybe with the executive order earlier this month, and the house transportation letter that you guys published earlier this week, you might have been even more emboldened with some updates there. So, maybe you can just kind of catch us up to speed on what you're thinking, you know, post some of those important letters have been posted, and how you think, how you think things proceed from here? Keith Creel: Well thanks. I can tell you my conviction about the beliefs of and the strengths of the proposal that we successfully negotiated with KCS initially, has not changed, has not wavered at all. In fact, it's grown stronger. The facts are very compelling. It's the only class-one combination that presents pro service, pro competition, pro growth, new lanes, essentially it's all winners, there's zero overlap, there's no losers. No debits and credits, it's not about trying to suggest that you enhance. It's about preserving and enhancing. So, it's very unique in the facts. And with that said, you know, we think that, obviously, those facts are being weighed on, obviously, it's in the STBs hands. We expect the decision in the coming weeks and we stand ready to re-engage with the KCS. You know, we're gratified by the outpouring of support that our deal, even not signed that still continues to go on. We've got over 1,050 support letters. And yes, CN has support letters to. I think their number is over 1,750, which they have proudly communicated. However, they’ve forgotten that there's also over 340 opposition letters to their combination. Customers labor unions, certainly not just what has been discussed this week. But with all that being said, you think about the executive order, how does that affect our beliefs and the way we look at this? I can say this overall, we're not fans of more regulation. I'm not going to suggest that. We think competition is the best way to ensure good outcomes for our customers and for the North American economy. But with regard to this specific executive order, we think that in fact, it emphasizes the importance of competition, it emphasizes the importance of Amtrak access, both of which are unique facts, speak well to, without the need for the STB to enforce through any new promises. So, we think that proves and sits well for our proposed combination. You know, I think in reading and listening to the statement that Chairman Oberman spoke to and I believe even perhaps spoke to it last week. Consolidation can be beneficial under certain circumstances. We firmly believe that our facts satisfies and complements those certain circumstances where consolidation can be beneficial. So again, we feel very strongly about this, ultimately, you know, it's up to the STB, it's in their capable hands. And, you know, I'll finish where I started. We stand ready to engage, re-engage with the KCS, should the STB rule in opposition to Canadian nationals trust? So, we'll see where it goes. We're in a wait and see just like everyone else. Jon Chappell: Got it. Thank you, Keith. Keith Creel: Hopefully that addresses your question? Jon Chappell: It does. Thank you. Operator: Thank you. Next question will be from Fadi Chamoun at BMO Capital Markets. Please go ahead. Fadi Chamoun: Good evening. Thank you. Keith, I mean, you've laid out quarter-after-quarter here, a very compelling, kind of organic growth story for CP and you continue to execute on that front, but just wanted to get your thoughts as the M&A pass becomes harder for whatever reason. And thinking kind of 3, 5, 10 years out, what are the leavers? What are the things that CP can do to, kind of stimulate the growth story for CP on a long-term basis? Are there things that you can do as peers in the industry, as far as commercial agreements go or marketing strategy that could, kind of enhance your access to markets and enable you to, kind of produce a kind of growth outcome longer-term that would have come in an M&A transaction. Keith Creel: Yeah, let me, you Fadi, you’re right in target with a line of thinking. Let me start though, in our own backyard. We still have over a thousand acres of development land currency, so to speak across our network, which is very unique in our competitive space. It has been table stakes for our success. It's been part of our strategies that will take you back to our Investor Day, three years ago, four years ago, the time is flying by. So, there's still several opportunities for self help initiatives be it CMQ property, build that out, be it build-out capacity in the Chicago gateway, be it build-out additional land assets in Vancouver. So, there's still many chapters left of that growth store that in and of itself, is going to drive organic growth that’s unique we believe, to the industry and Canadian Pacific. When you think about replicating M&A, obviously, I don't need to speak to the attributes of, you know, the unique opportunities that a combination with KCS. We’ve spoken enough about that. But in the absence of that, Fadi I think with our unique origin strengths, our unique assets, access to some of those markets, shortest length of haul, in partnership, perhaps with marketing alliances with Western rails, you can make the case to different markets for both, and even some of the markets east of the Mississippi as well. So, we'll continue to look at those opportunities. They've never been bashful about doing what's best for the customer to try to create new Supply Chain Solutions. Obviously, if we can give them the origin, and give them the destination, we can do it controlling our own destiny and controlling the product the best outcome, but in the absence of that opportunity, we're certainly going to leverage the way we run the railway, the origins and strength, the shortest link, the power to the markets to get into some of these additional growth markets that M&A would allow and again leverage it with our unique capacity at our terminals be it in Chicago, be it in Toronto, be it in Montreal, be it in Calgary, be it in Winnipeg, be it in Vancouver. We have a very unique opportunity unlike anybody else in this industry to enable that. So again, priority one, we think the best outcome comes through M&A, but in the absence of M&A, we're going to make the best. And I think you better than the balance of the industry with a very unique outcome. Fadi Chamoun: Okay, great. Thank you. Keith Creel: Thank you, Fadi. Operator: Thank you. Your next question is from Allison Landry at Credit Suisse. Please go ahead. Allison Landry: Thanks. Good afternoon and appreciate you taking my questions. So Keith, I mean, obviously, CP has set what’s arguably a new bar for what the industry can achieve from an OR perspective, especially seeing the 55 in Q2. Granted, that's just one quarter. But could you could you address how much further to improve you have in terms of the productivity metrics, train length, weight, fuel efficiency, and what that may tell us about the trajectory of the long-term OR? And maybe just, if I could ask that in a different way, if this is a better way, since you do have a demonstrated track record for growth? Is there a point where you think the OR bottoms out and the focus then shifts to growing EBIT dollars and improving ROI? Keith Creel: Well, let me start with ROIC. We've got the best in the industry. So, I'm pretty proud of where it's at. I think it's in a healthy place. Again, I think if you get fixated too strongly on any one particular number, you don't optimize all numbers. And then I'll go back to the operating ratio. We don't have a focus on the operating ratio. It's a natural outcome of running the business the proper way. When you bring on sustainable profitable growth that's key, you have the assets and the resources property in place to create a fluid network. You're going to be controlling your cost, that's going to drive your operating income, that's going to drive your earnings growth and the output asset is a very impressive operating margin. So, we're at industry best, you know, how much further do we have to go, I can tell you now, that until we have every train linked optimized, we haven't converted all the 85 facilities. We don't have a perfectly organic fleet of high capacity . We don't have flawless equipment. We don't have part of network if I go to, I’ll give you – for instance, it's much better than it was, and it's been a journey of constant improvement even for . You know, if I go back a year and a half ago, we were running 130 car train sets to Portland with partnership to , that was pre-PSR and UP and that was part of our, you know, part of our evolution. We're now running 188 car trains to Portland. But that still is not the same as Vancouver where we enjoy the efficiency of running a 200 car train. So there are gaps all the way across the network as we continue to strategically invest, you should expect us to continue to make incremental improvements in train length, in train weights, and locomotive productivity in Terminal dwell. You know, that's truly what PSR is, it's a continual pursuit of excellence. Yesterday's records become your floor, your benchmarks, and you pursue improvement. You don't accept excuses, you create constructive tension, you have a list of opportunity areas, you have in simple terms, a top 10 list. And once you accomplish those top 10, then guess what, you've got another list of 10. So, it's an imperfect science. It’s an outdoor sport. You're never going to fully get perfection. It's just a constant pursuit of that, and an ability to understand how to manage the business flows, how to manage when the business goes down, when you go into a pandemic, how to adjust resources? And how do you adjust those resources so that you're positioned well, when the rebound comes? So that you can avoid some of the lumpiness. And some of the challenges that quite frankly, until you have gone through those cycles and truly understand how to manage it as well coming up as you down and vice versa. You can't have the kind of results that CP is producing. So again, it's work-in-progress, we're going to remain humble, we're going to continue to work hard, we're going to identify opportunities, we're going to invest in our people to develop the culture, we're going to invest in our process and our technology. And at the end of the day, you'll see continued improvement. I believe on margins. I believe, bringing it to the bottom line and into your point, driving pretty impressive earnings growth as a result. I think it's a recipe for success. It's a gift that keeps on giving. If you truly know how to run a PSR railroad, you can satisfy the shareholder in a very unique way. You can satisfy the customer, and you can do it in a safe and efficient manner day-in and day-out. It's just the recipe for how to run a railway successfully. Allison Landry: Thank you. Keith Creel: Thank you, Allison. Operator: And your next question will be from Chris Wetherbee at Citi. Please go ahead. Chris Wetherbee: Hey, thank you. Good afternoon. Maybe, if I can ask you to sort of take that answer and then pull it down into maybe the second half of the year, and maybe give us a little bit of sense of how you think the potential on OR maybe it looks in the back half? Obviously, you’ve made some great strides in the first half. The comps are a little uneven for your 3Q versus 4Q, one being a little bit easier than the other, can you kind of give a sense of maybe what the full year operating ratio looks like and sort of how that plays in? You know, with obviously a pretty robust top line opportunity seems like a better pricing environment, but there are some inflationary costs out there. So, maybe if you can just put that into altogether and give us a sense of how the margin opportunity looks in the back half that'd be great? Thank you. John Brooks: Chris, let me take that. So obviously, this, you know, we're half of the year in, we had a bit of a challenging winter, I think we got some, you know, fuel prices, which can impact the OR a bit negatively, we've been able to overcome that. You know, we've got the wildfires that we're dealing with and some of the impact that that has in July. But these aren't excuses. I think to us, you know, you've pointed out some of the upside and the opportunities – the railroad has never been run so effectively from a casualty and safety point of view. You know, to Keith's remarks and my remarks earlier, you know, continue to find ways to do things more efficiently. Mark Redd and the operating team are standing group of railroaders and the continuous improvement culture driving opportunities to offset some of those challenges that present themselves. So, to me, you know, our ability, we've said at the beginning of the year that’s at least a 100 basis point improvement off of 57.1, not backing off of that. There's probably upside on that, you know, could we do 150 basis point type of improvement, absolutely. So, we're pretty bullish on what we can do from an efficiency point of view in the back half of the year. Chris Wetherbee: Thanks very much. Appreciate it. John Brooks: Thanks, Chris. Keith Creel: Thanks, Chris. Operator: Next question will be from Tom Wadewitz at UBS. Please go ahead. Tom Wadewitz: Yeah, good afternoon. I wanted to – hope you don’t mind, but I wanted to ask you one additional question on the M&A stuff? You know, if SCB, I’ll just give you a scenario and see how you respond to it. But, you know, obviously, there's a scenario where SCB could reject the voting trust and see and deal with KSU doesn't expire to February. So, there could be this kind of a period of time where there's uncertainty about, you know, whether what would CN would try to do, but it also might be an obvious period for you to get engaged with KSU again. I'm just wondering if you could talk about your thoughts on the approvals that you achieved. The waiver in the voting process, is there an expiration date on those? You know, we've time a consideration relative to the, you know, sizable break fees, or just how do you think about, you know, how quickly you might want to re-engage if the scenario is that, you know, there is a rejection of the voting trust from SCB? Keith Creel: Tom, it would be pure speculation on our part. You know, we've been clear on the strength of the facts obviously. It depends on what the STB says and it depends on how they say it and what they're focused on. And, you know, at the end of the day, I guess the best question is to the KCS shareholders. You know, how much risk are they willing to take? So, you know, I think the best way to answer your question is, we stand ready to engage, we've got a very compelling value proposition. We've got a path to approval, you know, to deal with certainty. We've got the unique facts that are pro-competitive. There's so much uniqueness in strength, value creation in our story, again. We think it's compelling, but at the end of the day, KCS made a decision to partner with Canadian National. We think Canadian national’s facts are not supportive. We think they're bad. We think they're anti-competitive. We've not been bashful about saying it, but at the end of the day, what we think is just our view and our opinion, ultimately, the STB is the regulator and the STB certainly holds the authority and has the experience and I feel will make a decision. And when they do, we'll assess it. And again, it's going to be up to the KCS shareholders, you know, should they not allow it? It's going to be the question to be answered is, how much risk is the KCS shareholder willing to take? Maybe open a window for us, we'll see. Tom Wadewitz: Maybe if I can just narrow it a little bit to give you a better chance to respond, do you think there's any kind of risk the further time goes out that STB would come back and say your waiver and your voting trust approval have expired or is your understanding that, you know, they're as good in a year as they were, you know, when they were originally granted? Keith Creel: Our facts have been changed. Now, again, I'd be speculating because there's no precedence in this, Tom. So, it's just my guess. And my view is based on the facts are facts, which uniquely allowed us to be granted. The trust under the old rules uniquely allowed us to be granted the old rule consideration. As long as those facts don't change, and they don't, it's pro-competitive, it’s end-to-end for all those reasons. I would only assume that we get the same consideration, but again, there's not a precedence, and I don't want to get ahead of my skis here. Ultimately, STB is the decision maker, but I do believe our facts are compelling. And I would suggest or assume that we get the same consideration. Tom Wadewitz: Okay, thanks for entertaining the question. Appreciate it. Keith Creel: Thank you, Tom. Operator: Next question will be from Brian Ossenbeck at JPMorgan. Please go ahead. Brian Ossenbeck: Hi, good afternoon. Thanks for taking the question. Wanted to switch over to the end markets for a minute? Obviously, it's been quite a few challenges on the network, as we've talked about earlier, but you're still reiterating the guidance for double-digit EPS growth, I’m assuming that still has the high-single-digit RTMs in there. So, maybe, John, you can just walk us through where you feel more convinced in terms of hitting that target where you expect to see some growth, I know you gave us a few commentaries before. But maybe finer point on that and kind of what underscores the confidence and then separately, just how you feel about staffing and resourcing to that level of growth? Thank you. John Brooks: All right, Brian. So, yeah, definitely standing by strongly our guidance of double-digit RTMs. I can tell you that first half of 2021 as everybody has seen it feels like we've been through breakfasts have issues, cold snaps, chip shortages, mine outages, fires, supply chain disruption, strong demand, and now draughts and we’ve delivered. And frankly, as I look across all our business units, you know, maybe grain being a little bit uncertainty around the drought, but you know, my experience in the grain side of the business is, as you approach harvest, and you get into harvest, we're going to see probably pricing moderate, and farmers wanting to monetize their success and what they have produced on the crop will produce a strong push during harvest. So, I feel confident that that's going to give us a strong grain book towards the end of the year. You know, as I said, I see no change in the consumer side of our business, in terms of the domestic intermodal. We've set records, we're going to continue to set records, our retailers are strong, our reefer business is growing strongly. International side of the business is, it's there for the taking. You know, I think all the things that the other roads have talked about, you know, we've felt some of those pressures. But I also think we're going to not only catch a tail wind in that space, as some of those things improve, as we move through the back half of the year. You couple that with our market wins, and I see a significant upside in our international business. Frankly, I see upside. If you think about all the challenges the U.S. ports have had and some of the challenges in Chicago, you know, we're open for business in Vancouver and St. John. You know, we've taken a few additional add to plan vessels at those ports to feed the Chicago market, as others have had challenges. And I can see some of those opportunities continuing into the back half of the year. You know, we're blessed by an automotive book that is, is makes up, you know, the mix of the automotive products that our OEMs produce are strong, they're the top selling vehicles. So, they're getting, I think, in most of those companies, areas they're getting the chips versus maybe other models aren't. So, not that we won't face challenges in the auto space, but I continue to feel very strong in that area. We've got potash upside. We've got makeup from the fires and the coal. So, and frankly, I don't see the forest products and steel business slowing down either Brian. So, you know, I'm completely bullish. We could use a little luck and some of the supply chain issues, but if we don't get it, we'll continue to make our luck. Oh, and then the second part on resourcing? Brian Ossenbeck: Yes. John Brooks: Yeah, you know, maybe I'll say it definitely and Keith may want to add, but frankly, we've built this railroad with the capacity to bring on business, we do it in a lockstep way. You know, my team's constantly tied to hip to Mike Foran and Mark Redd on understanding those flow. So, frankly, I don't have concerns. And as I said, we're actually chasing some opportunities that we see in the intermodal spaces because we have the capacity. Keith Creel: Yeah. I would only add on the resources side. There's no concerns at Canadian Pacific. We're ready for the business. You know, we ramped up last year, we had pandemic, if, you know, we think about back in the days when we thought crew was running away, and there was a big demand, we pulled for capital, we've got over 100 locomotives and storage ready to engage as we need, we're fine on workforce. We did some very unique things back during the pandemic to compensate our employees in a way that we didn't have to do. In fact, to help them get through the pandemic, those that were laid off, we enhance the benefits and in exchange for that our employees have stuck with us. They're committed to us and we've not had the same ramp up challenges perhaps that the industry has had. We're in a good place on training, and more prepared for the business. So, we're going to work closely with our customers to continue to bring it on or bring it to the bottom line in a very efficient manner so that we satisfy our customer’s needs. Brian Ossenbeck: All right. Thank you guys. Operator: Next question will be from Justin Long at Stephens. Please go ahead. Justin Long: Thanks. Good afternoon. I wanted to see if you could comment on truckload conversions and how they've trended recently on the network. You've talked a lot about the truckload conversion opportunity related to the merger, but when you just think about the organic opportunity for truckload convergence, going forward, any way you can help us think through what that addressable market looks like? John Brooks: Yeah, Justin. So, maybe a couple comments there. You know, first of all, actually I was on a call with my team earlier. Operator: Please stand by, it appears that Mr. De Bruyn has disconnected. One moment, please. Keith Creel: Operator, do we still have our guests? Justin Long: This is Justin. I'm still on. I think we may have lost John. Operator: Yes. One moment, while we reconnect. Keith Creel: John's on. Go and continue, John. John Brooks: All right. So Justin, I was saying, I was working with my team earlier today focusing on a couple of those areas specific to truck conversion. You know, our major retailers across Canada have felt the trucking pinch similar to what, you know, maybe a little more intensified pace of face, the U.S. side has faced. So, there's a fair amount of effort to look at how we can convert and dive into the book of our major retail companies in Canada to convert those truck options. In particular, a focus on some of the cross border opportunities. Not only between, say, Eastern Canada in the Chicago market, but also looking at, you know, how we work with our Eastern carriers as they are very – the they're very focused on truck conversion and looking at those opportunities to utilize our capacity up into the upper Midwest, up into the Twin Cities markets. And, you know, ultimately, maybe even in the western Canada. So, I'm always having a $20 million to $30 million road to rail conversion target for my domestic intermodal team. And, you know, those are some of the areas that we're focusing on. Justin Long: And is there a way to think about the opportunity outside of domestic intermodal as well, if it's $20 million to $30 million there? If you look at merchandised traffic, what would be a reasonable target on that front? John Brooks: You know what, I look at, specifically, I can tell you, we just converted a significant piece of steel business. I think about $8 million a year through our new St. Louis Transload. Previously business that was trucking, believe it or not, all the way down in the Mexico and down into the Minneapolis market, we've converted that to where it'll be truck now into our transload and rail down to those marketplaces. So, it's a little hard to quantify Justin, big picture. But it's really the foundation of, you know, why we've created these transloads across our network to go after that type of business. I wouldn't be surprised if it's similar type numbers. Justin Long: Okay, great. I appreciate the time. Operator: Thank you. Next question will be from Scott Group at Wolfe Research. Please go ahead. Scott Group: Hey, thanks. Keith, I wanted to ask you a question. You referenced the capacity challenges in the industry. And I know you said it's, you're not seeing them, but I'm sure it doesn't help you with respect to your interchange business. And I just want to get your perspective here. What's the fix for the industry? Is it just as simple as more people and more equipment? Does it mean maybe the rails, the other rails didn't do PSR in the right way. Just curious, your thoughts about how to fix this? Keith Creel: Yeah, you know, that's, that's a pretty global question. It will be a very global answer. I think it's different stories, different railways. I mean, I can imagine, think about the tidal wave with the tsunami of traffic that's came in on the West Coast, you know, if you're a Western rail to have to digest that all bringing it in East and having things out of balance. That's the key here. While we reset in this economy, PSR or no PSR there's going to be a lot of noise. You've got supply chains that are completely out of sync. You know, I think about our network alone. I think about all the empty moves I've made on intermodal equipment, and all the lost revenue because I'm hauling air just to get those containers back to the West Coast forth, so they can get back over to get the next load to bring the next tsunami. So, it's going back and forth. It's like sloshing it, you know, water sloshing back and forth inside of a big tank. Some of this is inevitable. You know, I think if I look at overall, the way the industry is handled this, you know, for the customer experience in the pain of it, I'm not going to suggest that it's pleasant, but at the same time overall, I think the industry has done well. And if not, for PSR, the outcome I believe would have been a whole lot worse. Given all the additional resources in cars and congestion and terminals, they quite frankly, we've had to depend upon now having more fluid operations to get a better outcome. So, I don't think it's a matter of any of the railroads not doing a good job. I think the PSR is a learning process. Obviously, those of us that have been doing it for 20 years, we've learned a lot. We've learned a lot over the years and we apply it. We're frankly, pretty efficient. Our results speak for themselves. I don't want to , but we know how to manage it coming down. We know how to manage it coming up. We know what to look for. And sometimes you just don't know what you don't know. So, overall, the industry is, I think has done well. I think the outcome because the PSR is better than it would have been otherwise. What I see the other railroads doing and the hiring that they're doing, and the investments that they're making. Once you get some of this choppiness out of supply chain, I think you're going to see an extremely impressive outcome for the customers and for the industry. So again, I know for those that have been adversely impacted, it's not an easy answer. And I'm not going to minimize that. But at the same time, we trust this process we go through and you're going to see, as we all get better at doing this, across the industry a much improved outcome. Scott Group: Thanks for the thoughts. Keith Creel: Thank you, Scott. Operator: Next question, comes from Steven Hansen at Raymond James. Please go ahead. Steven Hansen: Yeah, good afternoon, guys. Just a quick one for me is, is in relation to the grain side again. John, I know, you've already spoken to it to some degree, but I'm just trying to get a sense for how you think that grain move starts off? We've obviously got a dry period. We're coming up against a dry and early harvest last year as well. But you still think that the back half can be quite strong as the farmers move the product they do have, I guess we'll see the derivative benefit. The derivative hit in the 2022, I guess, is the way to think about it. John Brooks: I think that's the right way to think about it, Steve. You know, obviously we're staying super close to our customer. There’s no doubt yields are going to be impacted by this. You know, it frankly, could be a pretty strong, sort of quality crop in terms of proteins and different things, which will bring some uniqueness in terms of maybe needing to blend in some different movements. But I think we're – the message we're getting is the peak will be as close as normal as we've seen in recent years, and then the impact will be in more in 2022 depending on what the total size ends up being. I think the other thing to keep in mind is, you know, we're going to see some unique movements. You know, the U.S. has some deficits in some areas, where I think is going to present actually the Canadian farmer and producer, some good pricing opportunities right out of the chute to feed the U.S. markets. So, we're doing the things we need to do to be nimble to be able to handle this crop once it starts up here. Steven Hansen: Okay, very helpful. Appreciate the time. John Brooks: Yep. Operator: Next question will be from Jason Seidl at Cowen. Please go ahead. Jason Seidl: Thank you operator, Keith and team. Appreciate the time. As we look into 2022, a lot of companies are starting to say, hey, we see strength out into the year. Could you talk a little bit on the intermodal side that you mentioned about re-stocking? How long do you think that's going to continue and what are your customers telling you in terms of where they want to get their stock back to as a back to prior levels or are we looking at even going beyond that, because people are re-thinking the supply chain? John Brooks: Well, I can start Jason. You know, actually Keith and I just met with a major international shipper last week. And they were extremely bullish that this is going to push right on into 2022 and probably be the better part of the whole year. They were quite bullish on the contracting opportunity that they see, sort of the, you know, the demand profile and frankly some of the challenges that continue at the overseas ports continuing, and that just creating this longer and longer tail. They had recently met with a number of their big BCO retailers. And that was the exact same settlement that this has really pushed itself. You know, a couple of months ago, I would have said, just right past the, you know, maybe the Chinese New Year and now, you know, the settlement is, this is likely to push well through 2022. Jason Seidl: And just for clarification, was this an intermodal shipper that you met with? John Brooks: It was, yes. Jason Seidl: Okay. Perfect. That's great color. Appreciate the time. Nice quarter. John Brooks: Thank you. Operator: Next question comes from Konark Gupta at Scotiabank. Please go ahead. Konark Gupta: Thanks, operator and good afternoon, everyone. I just wanted to dig into the pricing and mix. So, you guys mentioned pricing next was combined, I think 8%, seems like very good support from mix as well. But just kind of looking ahead, how do you see or what kind of visibility you have on same store pricing, given the supply chain being tied here? And then how does the mix evolve over the next couple of quarters with potash coming back and obviously being a little bit volatile in the short-term here, as well as DRU starting up? Thanks. John Brooks : Yeah. So, you know, I expect the pricing to remain strong. I now probably sound like a little bit of a broken record here. But, you know, we started to see a uptick into what I consider the upper range of our guidance on pricing, actually, all the way back in Q4, of last year, it accelerated in Q1 and it has hit even stronger levels in Q2. I don't see that changing, just looking at our book of renewals for Q3. You know, particularly our intermodal in our merchandise carload business at the top end of our high-end range in terms of pricing. You know, on the mix front, it was quite strong here in Q2. I expected as you described as maybe the potash picks up, you know, to moderate a little bit, but I do expect mix to remain positive over the next two quarters. Probably, you know, we've still seen a little bit of a headwind and FX and fuel combo. And we probably expect that to moderate a little bit as we move through the year too. So that gives us I think, a little bit of a tailwind on that front if you think about our sense per RTM going forward. Konark Gupta: That's great. Thank you. John Brooks: Yep. Operator: Next question comes from Benoit Poirier at Desjardins. Please go ahead. Unidentified Analyst: Yeah. Thanks for taking my question. It’s actually Jeff on behalf of Benoit. So, I just wanted to come back on the contract with COSCO and OOCL, congratulation for this new one. Could you provide a bit more detail about the timing? And kind of the seasonality of this contract please? Thank you very much. John Brooks: Yeah, so the contract actually starts up immediately. We're actually seeing some freight convert over to our rail lines this week. And I expect it to ramp up into – through August. And we should be at a full run rate at some point here in Q3. You know, it's a partnership that just flat out works. We've got good capacity coming from the south shore. This will allow us to use that train capacity. And frankly, it takes our share at our Centerm Terminal, which is on the South Shore, which we serve, up to over 50%. And why that matters is, the Maersk business, a lot of that will flow through Centerm. This COSCO OOCL business will run through for that terminal also, and it allows us to begin to really leverage and build direct trains out of there into not only Eastern Canada, but also the Chicago market. So, we're quite excited about the service product that we're able to provide COSCO, OOCL, Maersk and our other customers coming out of that terminal. Unidentified Analyst: Thank you very much. Congrats again. John Brooks : All right, thank you. Operator: Next question comes from Brandon Oglenski at Barclays. Please go ahead. Brandon Oglenski: Hey guys, good afternoon. Sorry, got disconnected. So, I hope I'm not being repetitive with my question here. But Keith, you know, I think in response earlier, you were talking about how, you know, marketing alliances with other North American carriers could help, you know, drive further organic growth for CP, I guess, you know, maybe this question is to John as well, but you guys, you know, really look beyond your network for the next 5 years to 10 years of growth? Or do you think some of these organic opportunities that you guys have been driving the past, you know, 3 years to 5 years can continue while down the road here? John Brooks: I can start Brandon. It’s John. So, two things. One is, Keith nailed it on the head earlier, when he said our land capacity has, you know, something we talked about previously, it's a currency that can continue to provide growth on this network as I look ahead. And you combine I think that with the ability to convert the truck business. You know, there's a, I think, an extensive focus, particularly in the U.S. with U.S. roads to look at how bringing, they can bring more to the rail. And I think the opportunity is you think about alliances. And in other, you know, marketing partnerships. As Keith spoke to is, how we take that, you know, that inner line, rail move and make it truck competitive. You know, a lot of the opportunities we always talk about are, you know, focused on just maybe our long haul single line shipments. But if you really think about, as more and more PSR evolves on the U.S. roads, you get more like mindedness in terms of opportunities and service, how can you combine networks to really drive, you know that truck conversion? So, you know, look, it's a combination, we're constantly looking at what we got to do with our own network and where those opportunities are and how we use our land. But also, you begin to think about, well, you know, if M&A doesn't happen, you know, what are these areas that you can create this seamless model to potentially better service, you know, those truck markets. Brandon Oglenski: Thank you. Keith Creel: Thank you. Operator: We are now out of time. I will turn the call back over to Mr. Keith Creel. Please go ahead, sir. Keith Creel: Okay, well, let me wrap up with where I started thanking everyone for joining us today to go through our results. Certainly, extremely proud of this team's execution during the quarter, but even more excited about the balance of the year. We're going to finish 2021 strong. Meet expectations, meet or exceed guidance, and carry that momentum into a strong 2022 looking forward. We look forward to sharing our third quarter results soon. Have a safe and productive day. Operator: Thank you. This concludes today's conference. You may now disconnect your lines.CP Ratings Summary
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CPKC Sets First-Quarter 2024 Earnings Results Date - April 24, 2024
Canadian Pacific Kansas City (CPKC) Announces First-Quarter 2024 Earnings Results Date
Canadian Pacific Kansas City (CPKC), known by its trading symbols TSX: CP and NYSE: CP, has made headlines with its announcement regarding the first-quarter 2024 earnings results. Scheduled for April 24, 2024, this event is eagerly anticipated by investors and analysts alike, given the company's significant role in the North American transportation sector. CPKC, with its unique position as the only single-line railway connecting Canada, the United States, and México, has a substantial impact on freight transportation across the continent. The company's upcoming financial and operating results will provide valuable insights into its performance and strategic direction.
The financial community is particularly interested in CPKC's performance, especially in light of its recent quarterly report. The company reported impressive figures, with revenue reaching approximately $3.78 billion and net income standing at around $1.02 billion. Such strong financial metrics, including a gross profit of nearly $1.99 billion and an operating income of about $1.44 billion, underscore CPKC's robust operational efficiency and profitability. The earnings per share (EPS) of $1.1 further highlight the company's ability to generate value for its shareholders.
CPKC's commitment to growth and customer service is evident in its extensive rail network, which spans approximately 20,000 route miles and employs around 20,000 railroaders. This expansive network, coupled with the company's comprehensive range of freight transportation services, logistics solutions, and supply chain expertise, positions CPKC as a key player in the North American transportation industry. The upcoming earnings call and webcast will likely shed more light on how CPKC plans to leverage its unique assets and capabilities to drive future growth.
Investors and analysts looking to participate in the conference call on April 24, 2024, have been provided with access numbers for both Canada and the U.S. (800-225-9448) and international callers (203-518-9708), ensuring that a wide audience can engage with CPKC's executive team. The availability of a webcast and presentation material on CPKC's website, along with the option to replay the conference call until May 1, 2024, demonstrates the company's commitment to transparency and accessibility.
Given CPKC's recent financial achievements, including an EBITDA of roughly $1.99 billion and a cost of revenue at approximately $1.78 billion, stakeholders are keenly awaiting the first-quarter 2024 earnings results. These results will not only provide a snapshot of the company's current financial health but also offer clues about its future trajectory in the competitive landscape of North American rail transportation.
CPKC Sets First-Quarter 2024 Earnings Results Date - April 24, 2024
Canadian Pacific Kansas City (CPKC) Announces First-Quarter 2024 Earnings Results Date
Canadian Pacific Kansas City (CPKC), known by its trading symbols TSX: CP and NYSE: CP, has made headlines with its announcement regarding the first-quarter 2024 earnings results. Scheduled for April 24, 2024, this event is eagerly anticipated by investors and analysts alike, given the company's significant role in the North American transportation sector. CPKC, with its unique position as the only single-line railway connecting Canada, the United States, and México, has a substantial impact on freight transportation across the continent. The company's upcoming financial and operating results will provide valuable insights into its performance and strategic direction.
The financial community is particularly interested in CPKC's performance, especially in light of its recent quarterly report. The company reported impressive figures, with revenue reaching approximately $3.78 billion and net income standing at around $1.02 billion. Such strong financial metrics, including a gross profit of nearly $1.99 billion and an operating income of about $1.44 billion, underscore CPKC's robust operational efficiency and profitability. The earnings per share (EPS) of $1.1 further highlight the company's ability to generate value for its shareholders.
CPKC's commitment to growth and customer service is evident in its extensive rail network, which spans approximately 20,000 route miles and employs around 20,000 railroaders. This expansive network, coupled with the company's comprehensive range of freight transportation services, logistics solutions, and supply chain expertise, positions CPKC as a key player in the North American transportation industry. The upcoming earnings call and webcast will likely shed more light on how CPKC plans to leverage its unique assets and capabilities to drive future growth.
Investors and analysts looking to participate in the conference call on April 24, 2024, have been provided with access numbers for both Canada and the U.S. (800-225-9448) and international callers (203-518-9708), ensuring that a wide audience can engage with CPKC's executive team. The availability of a webcast and presentation material on CPKC's website, along with the option to replay the conference call until May 1, 2024, demonstrates the company's commitment to transparency and accessibility.
Given CPKC's recent financial achievements, including an EBITDA of roughly $1.99 billion and a cost of revenue at approximately $1.78 billion, stakeholders are keenly awaiting the first-quarter 2024 earnings results. These results will not only provide a snapshot of the company's current financial health but also offer clues about its future trajectory in the competitive landscape of North American rail transportation.
Canadian Pacific Railway Limited Downgraded at Deutsche Bank
Analysts at Deutsche Bank downgraded Canadian Pacific Railway Limited (NYSE:CP) to hold from buy predominantly to reflect the significant additional debt (the company is in the process of raising over C$10 billion in new debt) and new equity (the company will issue 262 new shares to pay for its KSU acquisition), as well as a bit too optimistic 2023 EPS expectations.
The analysts believe the near-term risks associated with higher debt and equity and optimistic EPS expectations have the potential to more than offset the long-term benefits of the KSU acquisition over the course of 2022.
Canadian Pacific Railway Limited Downgraded at Deutsche Bank
Analysts at Deutsche Bank downgraded Canadian Pacific Railway Limited (NYSE:CP) to hold from buy predominantly to reflect the significant additional debt (the company is in the process of raising over C$10 billion in new debt) and new equity (the company will issue 262 new shares to pay for its KSU acquisition), as well as a bit too optimistic 2023 EPS expectations.
The analysts believe the near-term risks associated with higher debt and equity and optimistic EPS expectations have the potential to more than offset the long-term benefits of the KSU acquisition over the course of 2022.
