NYSE:CP Canadian Pacific Kansas City Q3 2023 Earnings Report $72.48 -0.59 (-0.81%) Closing price 04/25/2025 03:59 PM EasternExtended Trading$72.24 -0.25 (-0.34%) As of 04/25/2025 06:56 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast Canadian Pacific Kansas City EPS ResultsActual EPS$0.69Consensus EPS $0.68Beat/MissBeat by +$0.01One Year Ago EPSN/ACanadian Pacific Kansas City Revenue ResultsActual Revenue$2.49 billionExpected Revenue$2.49 billionBeat/MissBeat by +$1.77 millionYoY Revenue GrowthN/ACanadian Pacific Kansas City Announcement DetailsQuarterQ3 2023Date10/25/2023TimeN/AConference Call DateWednesday, October 25, 2023Conference Call Time4:30PM ETUpcoming EarningsCanadian Pacific Kansas City's Q1 2025 earnings is scheduled for Wednesday, April 30, 2025, with a conference call scheduled at 4:30 PM ET. Check back for transcripts, audio, and key financial metrics as they become available.Q1 2025 Earnings ReportConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckInterim ReportEarnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Canadian Pacific Kansas City Q3 2023 Earnings Call TranscriptProvided by QuartrOctober 25, 2023 ShareLink copied to clipboard.There are 11 speakers on the call. Operator00:00:00Afternoon. My name is Travis, and I will be your conference operator today. At this time, I would like to welcome everyone to CPKC's Third Quarter 2023 Conference Call. The slides accompanying today's call are available at investor. Cpkcr.com. Operator00:00:15All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. I would now like to introduce Chris De Bruin, Vice President, Capital Markets to begin the conference. Please go ahead, sir. Speaker 100:00:37Thank you, Travis. 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 and A filed with Canadian and U. Speaker 100:00:58S. Regulators. This presentation also contains non GAAP measures outlined on Slide 3. Please note, in addition to our regular quarterly financials, there is supplemental Q3 combined revenue and operating performance data available at investor. Cpkcr.com, which some of today's discussion will focus on. Speaker 100:01:17With me here today is Keith Creel, President and Chief Executive Officer Nadim Bilani, our Executive Vice President and Chief Financial Officer John Brooks, our Executive Vice President and Chief Marketing Officer and Mark Reddy, our Executive Vice President and Chief Operating Officer. The formal remarks will be followed by Q and A. In the interest of time, we'd appreciate if you limit your questions to 1. It is now my pleasure to introduce our President and CEO, Mr. Keith Creel. Speaker 200:01:43Thanks, Chris. Let me start by thanking the CPKC family of 20,000 railroaders across our 3 great nations. We've been hard at work providing service for our customers. The effort and the passion they demonstrated Each day as we integrate and execute is truly commendable. So let's take a look at the results for the quarter. Speaker 200:02:02The 2nd quarter reduced revenues of 3,300,000,000 On volumes that were down 3% versus last year with an operating ratio of 61.7 and core EPS of $0.92 So no doubt a challenging quarter as we dealt with the softer demand environment and supply chain impacts from the strike at the Port of Vancouver. I will let John talk more As you've seen in the press release, given a more challenging environment, further stressed by the labor strike, we're adjusting our 'twenty three guidance accordingly. Certainly not the outcome we had planned, but it's the prudent thing to do at this point. That said, it's not the challenges that define us, but rather how we respond. And I'm very Proud of how this team, our collective CPKC family is responding to the challenges. Speaker 200:02:46Let's say a few things about the Mexico task force. That's an excellent case in point to how we respond in the task force. You'll recall back in our Q2 call, we talked about an enhanced focus on operations in Mexico. Shortly after that, we deployed A task force to Mexico that was led by John Orr. John, who many of you are familiar with, has a lot of experience in Mexico from his previous role as EVP Office of KCS and KCSM, and I can tell you this effort was monumental. Speaker 200:03:14It brought together railroaders from every part of the organization, Nearly 100 employees across information services, network services, marketing, engineering, mechanical and many others came together To support John and the task force objectives and we're seeing the results from that effort. You can see noticeable progress across all the operating metrics, Train speed improvements, terminal dwell reduction, car miles per car day improving, locomotive productivity, improving and ultimately the most important part of the service experience for the customer. And this transformation is ongoing and the investment in people, process, infrastructure and technology in our Mexican operations as well as our U. S. And Canadian operations as a continual journey. Speaker 200:03:58On the safety front, we've continued to rise to the challenge From a safety perspective, Mark will speak to some of this in more detail in a moment. But I can tell on a combined basis, we've seen year to date improvement in FRA personal injuries of 12%, The FRE train accident frequency of 37%, which is a tremendous result that I want to commend the entire team on as we continue To lead the industry in this space, safety is a never ending journey and it continues and will always be our number one priority. Few comments on the integration. On the integration front, integrating these two companies, obviously, is a challenge in and of itself, particularly so in today's world With an industry with a history of merger related service challenges, we certainly not been perfect. There are opportunities to improve that that we're mining every day 20 fourseven. Speaker 200:04:46The teams from the legacy CP and legacy KCS have embraced the challenge. They've united working together to produce a unique outcome that will benefit our customers, Our communities and each other. Couple of points on the MNBR, while we continue to make progress integrating these 2 railroads, we also continue to progress The MNBR transaction that we announced in June, pleased to announce that we filed our application for the deal with the SVB on October 6. So in closing, we're a little over 6 months in this combination into our forever story. There's no doubt there's a few Near term challenges from a softer demand environment regardless of the differentiated growth opportunities we've laid out and guided to remain unchanged. Speaker 200:05:32We're successfully integrating this network. We maintained our commitments to our customers, to the regulators and we're seeing momentum in our operating performance. So with that said, I'm going to hand it over to Mark to speak to the operations before John brings some colors on the markets and Nadine elaborates on the numbers. Speaker 300:05:49Thank you, Keith, and good afternoon. I'd like to start by thanking the CPKC operating professionals for their tireless work and dedication to safety and operational Excellent. The 1st 6 months of the merger has been both exciting and challenging. This team is up to the task and they're delivering on their mandate So if we look at safety for the quarter, I'm pleased to report that we continue to build on industry leading record. Our Our Q3 FRE reportable injuries improved by 35% to a 0.97%. Speaker 300:06:25Our train accident has reported Improvement 9% to 1.3%. As I discussed on last quarter, stakeholder engagement is a core pillar of our safety performance. We regularly engage our employees, our union leadership, our regulators to collaborate safety best efforts Since day 1, we have held 2 safety walkabouts for CPKC leadership and partners Directly engage with the field employees across the property. Our safety walkabouts are key to a strong consistent safety culture. Now turning to the operating performance, I'll speak on the metrics from a comparison to CPKC with a combined It's a combination that occurred in 2022. Speaker 300:07:10Locomotive productivity improved 4% versus Q3 last year. Average train speed and length declined 2% and 1%, respectively. And average train weight was down 2%. As we focus and remain on our aligning operating practices across our network, we feel very good about the progress that we have made in the 1st 6 months. We're optimizing our train consists to improve locomotive productivity and fuel efficiency. Speaker 300:07:36To that, fuel efficiency improves sequentially Q2 to Q3, I expect that to continue in the area for opportunity as we look forward. So if we look at where we sit today, Network wide dwell has improved 13% since the beginning of the Q3. We have further to go, but the metrics across the board locomotive productivity, Carmiles, Percarde and Duval are all moving in the right direction. We feel confident that these gains are sustainable. If we look at our capital projects for the year, our construction in the 2nd span of the Laredo bridge is 35% complete. Speaker 300:08:12We remain on target operationally, should be in by the end of 2024. If we look at our $275 merger capital A commitment we've made, we have put in service 2 of the 5 sidings. We look for the next 3 sidings to be within service within 3 months. And as we in closing, when we look at the early stages of the journey as a combined company, I'm very confident in the actions in the Taking the development of the network and alignment operations, this story will continue to have continuous improvement And my team will be laser focused on delivering strong results. With that, I'll turn it over to John. Speaker 400:08:51All right. Thank you, Mark, and good afternoon, everyone. So as Keith said, we're over just over a half a year in CPKC and I want to say that I'm excited as ever about the unique opportunities that this franchise has to offer our customers. While it's certainly been a more challenging quarter than I expected, nothing that we've seen This diminishes any of the exciting growth opportunities that we've guided to over the long term. My team has been hard at work in creating new markets, Capturing new business and I'm extremely proud of what we've accomplished to date despite this challenging economic backdrop. Speaker 400:09:30CPKC's unique footprint and our self help initiatives are differentiators in this marketplace, And we are extremely well positioned as the volume environment rebounds. Speaker 500:09:43Now as I look to Speaker 400:09:44the 3rd quarter results, On a reported basis versus CP standalone in 2022, total revenues were up 44%, while volumes were up 31%. On a combined basis, total revenue was down 4% while volume declined 3% versus pro form a CPKC a year ago. FX was a 3% tailwind, while fuel was a 6% headwind on the quarter. The pricing environment remains strong with inflation Plus renewals across our book of business. Now taking a closer look at our Q3 revenue performance, I'll speak to the FX adjusted results Grain revenues were up 7% on 9% RTM growth. Speaker 400:10:36Canadian grain volumes were up 13% year over year driven by the improved harvest Lapping the drought affected prior year, U. S. Grain volumes were up 6% as this year's harvest has been solid in our service territory And we are benefiting from our expanded destination market reach. We continue to see new and unique grain flows emerge on the CPKP system. Customers are taking advantage of the opportunity to connect grain origination and destination in ways never available to them in the past. Speaker 400:11:10Now looking forward, projections for the current Canadian grain crop harvest has come down since our Q2 call. Our customers are now estimating the crop size to be in the 60,000,000 to 65,000,000 metric ton range. Currently in Canada, We are seeing customer demand to start this crop year at levels below our resource planning, giving us available capacity To offset some of this headwind was shipments of U. S. Grain. Speaker 400:11:39As a reminder, the CPKC combination has further diversified Our grain franchise in the U. S. Grain markets now make up more than half of our grain revenues. On the potash front, Revenues were down 22% on a 28% volume decline. Our potash volumes were impacted in the quarter by the strike at the Port of Vancouver and continued outage of Canpotex Portland Terminal. Speaker 400:12:05To say this has been a challenging supply chain year for our export potash volumes with Canpotex is a true understatement. Now looking ahead, although we do not expect the Portland terminal to come back online before the end of the year, We do have a strong demand outlook for Q4 and we're working hard to maximize our volumes through all available terminals to build some momentum with Canpotex as we close out the year. And to finish out on our bulk business, coal revenue was flat on 7% volume growth With favorable compares in Q4 following last year's outage of Teck's Elkview Mine and higher met coal prices as we sit here today, I see a Strong a very strong growth in coal as we finish out the rest of this year. Now moving on to merchandise, The Energy Chemicals Plastics portfolio saw a 3% decline in revenue and a 5% decline in volumes. Lower volumes were driven by a decrease in crude business as a result of the facility maintenance and less demand in LPG. Speaker 400:13:11However, this was partially offset by growth in our refined fuels, including new business with Shell that began in August and continues to ramp up And plastics growth out of Canada into the U. S. And all the way down into Mexico. Now as we move into the 4th quarter, I expect positive RTM growth in Energy Chemicals Plastics, driven by continued strength in refined fuels as Shell continues to ramp up and we onboard new share wins. Forest Products revenues declined 6% on a 4% decline in volumes. Speaker 400:13:46While we are seeing the impact of a softer economy and slower housing markets, we are very encouraged about the quick development of long haul forest product shipments from Canada down to our southern markets. The combination of our seamless route to market and the development of our transload network We'll position us well to capture synergies in this market as it rebounds. The metals, minerals and consumers products portfolio Was up 2% on a 1% decline in volumes. Performance in this space was mixed as consumer products and frac sand were down, but metals Continued to have a strong performance. We are particularly encouraged by continued growth And CPKC's footprint in Mexico is uniquely positioned to service this growing market. Speaker 400:14:50Automotive revenues continued to be strong, up 21% on 11% volume growth, a record quarter. Demand for finished vehicles remains strong as the auto industry continues to be challenged with high finished vehicle ground counts Seating available supply chain capacity to move these vehicles to market. We are working with many of the OEMs to create unique solutions to improve rail efficiencies that will increase capacity and help clear this inventory. I'll note that as of now, we do not expect the auto strike to materially impact our business as we are focused on servicing the strong demand from production facilities in Canada and in Mexico. And finally, on the intermodal side, revenue was down 19% Higher inventories and competitive over the road rates. Speaker 400:15:51However, we remain extremely encouraged By the uptake of our new 18,181 cross border service, the opportunity in the cross border intermodal space is significant. Our service is consistent and truck like and we are in the earliest stages of developing this premium rail market. Moving over to the international intermodal area, volumes were challenged in the quarter by the Vancouver port strike and Softer demand. Although we are excited as ever about this space and we look to continue to expand our services out of the Port of St. John And to grow Lazydro Cardenas, we expect near term headwinds as ocean carriers continue to blank sailings and right size their capacity in reaction to the strength of softer demand. Speaker 400:16:45In closing, So certainly, while we are not immune to the headwinds impacting the economy and certainly the entire rail and transportation sectors, We remain uniquely positioned to deliver long term differentiated growth. This powerful combined franchise It's creating new opportunities for our customers to grow and our synergy gains and the opportunities ahead of us Continue to exceed our expectations. So with that, I'll now pass it over to Nadim. Speaker 600:17:16All right. Thanks, John, and good afternoon. I would like to first thank the entire CPKC team for its hard work, focus and resilience. This team of railroaders is making history And I'm very pleased with their perseverance and dedication in the face of a more challenging operating and macro environment. Looking at Speaker 700:17:35the quarter, Speaker 600:17:36CPKC's reported operating ratio was 64.9% and the core adjusted combined operating ratio came in at 61.7 percent. Earnings per share was $0.84 and core adjusted combined earnings per share was $0.92 Results this quarter were impacted by the change in fuel price on both revenue and operating expenses. The impact of fuel price was a $95,000,000 headwind to combined operating income. This includes a $72,000,000 unfavorable lag effect on combined fuel revenue. The $95,000,000 impact to combined operating income translated to a 70 basis point and $0.08 headwind to core adjusted combined operating ratio and Based on where fuel prices sit today, we expect the fuel price headwind from Q3 to be a slight tailwind in Q4. Speaker 600:18:31Now taking a closer look at our income statement, reported operating expenses provided on Slide 14 and combined operating expense on Slide 15. Similar to what we shared last quarter, our combined operating expense illustrates the estimated effects Of the acquisition for the Q3 is that the acquisition closed on January 1, 2022. Reported comp and benefits expense was $598,000,000 down 4% on an FX adjusted basis when compared to combined comp and benefits a year ago. Driving the FX adjusted decline was lower current service costs in the DB pension plan resulting from higher discount rates and lower stock based Compensation. That decline was partially offset by wage inflation. Speaker 600:19:18Headcount was down slightly sequentially in Q3. We expect headcount to be down sequentially again in 4Q, which will continue to give us improved operating leverage as volumes accelerate into the end of the year. Fuel expense was down $86,000,000 or 21% on an FX adjusted basis when compared to combined fuel in Q3 20 The decline was primarily driven by a $93,000,000 or 16% decline in combined fuel price along with lower GTMs versus prior year. As I mentioned a moment ago, that reduction in fuel expense due to price is more than offset by $188,000,000 headwind from a decline in combined fuel surcharge revenue. Combined materials expense was down 4% on an FX adjusted basis. Speaker 600:20:07The decline was largely driven by reduced locomotive maintenance material spend. Equipment rents were up $24,000,000 on a combined basis for 34% on an FX adjusted basis. Equipment rents increased due to higher car higher payments resulting from automotive volume growth, Lower use of CPKC intermodal equipment by other roads and increased use of pooled equipment. Combined depreciation expense was up $32,000,000 or an FX adjusted 6%, resulting from a higher asset base. Combined purchase services and other was $506,000,000 or roughly flat year over year on an FX adjusted basis. Speaker 600:20:49A business interruption insurance recovery in the quarter related to 2021 flooding and wildfires in British Columbia offset increased casualty expense Looking to 4Q, I still expect PS and O to come in around $530,000,000 to close the year. Moving below the line, other components of net periodic benefit recovery decreased $17,000,000 reflecting higher discount rates compared to 2022 And other expense was up $6,000,000 in the 3rd quarter on a reported basis. Net interest expense was $207,000,000 or 2 0 $2,000,000 on adjusted basis. The decline was driven by a reduced debt balance. On a combined basis, income tax expense was $258,000,000 We now expect the CPKC core adjusted combined effective tax rate to be approximately 25% for the year, a reduction of 50 basis points from the outlook provided in Q2. Speaker 600:21:47Turning to Slide 17, we are generating strong cash flow with cash Provided by operating activities of $10,27,000,000 in Q3. Our first call on capital remains the business and growth. And in the quarter, we reinvested over $700,000,000 in line with our expectation to invest times on our path back to our target leverage of 2.5 times. In review of the quarter, despite challenges, John's teams Continued to bring on synergies and our operations are gaining momentum, especially in Mexico. We remain well positioned to deliver on our long term guidance And I am extremely confident in this team's ability to execute. Speaker 600:22:45I'm excited about what this franchise can deliver and I look forward to sharing our success with you going forward. In fact, Keith, let me turn things over to you. Speaker 200:22:53Okay. Thank you, gentlemen. Let's go and open it up to questions. Operator00:23:02Thank Our first question comes from Chris Wetherbee, Citi. Speaker 700:23:21Hey, thanks. Good afternoon, guys. I guess you just mentioned that you've been able to capture some of the synergies from the deal. So maybe If you could help us sort of understand what you think from a synergy perspective you'll be able to realize here in 2023? And then I guess, what it will take to maybe reaccelerate earnings growth back towards some of the longer term targets that you have? Speaker 700:23:41Is it simply just getting into a better macro environment? Or are there some incremental cost actions or others that you can take sort of early in 2024 to kind of reaccelerate the earnings growth profile? Speaker 400:23:55Well, maybe I'll start, Chris, on the synergy piece. This is John. So as I said, I'm really pleased. Despite the challenges we're facing, certainly in the macro and all the geopolitical things going on that we're all facing, The team has been laser focused on the synergies and certainly delivering on a lot of things we laid At Investor Day, I think we said at Investor Day, we saw an immediate run rate of 240,000,000 Sort of annualized, I can tell you, I know we pushed that to $350,000,000 that we talked about at some conferences and I'm Comfortable in telling you that we're beyond that now. I'm not going to peg quite a number for you at This time, but I'm quite comfortable we're going to end up north of a number like that. Speaker 400:24:50So I'm quite pleased. And I'll tell you, There's a number of contracts and opportunities that We're ready to go, but we'll start up in 2024, but that will continue to add to that story. Speaker 200:25:08Chris, I'll just add a little color on the cost side. We're ahead of our target on the cost side as well. If we talk about Accelerating what I expect to see in 2024 as we debottleneck and continue to improve upon even numbers that Mexico was experiencing Back to November of last year, that momentum will continue. We've got the investments we've made this year And the physical infrastructure that's tied to the merger application, I think we've got 5 sidings that are fewer online now, 2 more come on Within about a month and then we've got one more to close the year out. So we'll get the benefit of that in 2024. Speaker 200:25:47So what I expect is the railroad to continue To incrementally improve from a fluidity standpoint, the locomotive productivity standpoint and ultimately you put those 2 together, You're going to turn your assets faster, we'll have better car productivity, car miles per car day and you'll see operating expense tied to the synergies between these two networks Accelerate a bit from the run rate that we've been after the last 6 months. And again, I'll finish where I started. We're exceeding our expectations. There's some puts and takes to that, but As far as where we thought we would be or where we should be to realize the synergies that we committed to on the cost side, we're in a good spot getting better every day. Speaker 600:26:26And Chris, I'd just add, running a fluid network, which we're seeing clearly today is going to help us on the operating cost side, ex synergies. We had talked about finishing the year with a lower labor headcount number and that's certainly going to be the case. I think we'll have incrementally sequentially about a 1,000 person reduction in headcount and that's just attributed to timing of some of the work projects and also Just your normal seasonality. So you're going to see us see the benefits of operating leverage. We do expect To see growth in this quarter from a volume standpoint, so that operating leverage is going to naturally provide us some the ability to take our costs down, improve our margins. Speaker 600:27:11And I fully expect and I'm sure we're going to get this question, so might as well hit it now. I fully expect the sub-sixty OR in this quarter. Speaker 700:27:21That's very helpful. Appreciate the time. Thank you. Operator00:27:25Our next question comes from Scott Group, Wolfe Research. Speaker 700:27:31Hey, thanks. Good afternoon. So, Nadim, you got me on the OR question already, so I won't ask it again. How are you thinking about Good question, Travis. No, I'm Speaker 800:27:41kidding. Go ahead, Scott. Sorry. Speaker 700:27:44How are you thinking about RTM growth in the quarter and then I know it's early, but when I think back to the Analyst Day, you talked about High single digit revenue growth, mid teens kind of earnings growth. Do you have visibility to getting Those kinds of growth rates in 2024, is it just too early to tell at this point? Speaker 200:28:06Yes, let me take the RTM piece. So we're slightly positive now for the quarter, Scott. We continue to expect to ramp up in November, December and I fully expect a quarter probably mid single 4% to 5 percent part time growth versus last year? Speaker 600:28:22Yes. And Scott, I mean, when we gave our guidance, I guess, 3 or 4 months ago now, We had talked about a 5 year plan. Nothing's changed on that front when you look at it from a long term perspective. We didn't expect it to just be Without some level of cycle in during that timeframe and so we're seeing that macro challenge now. I think we'll see a bit of a softer grain crop in Canada next year. Speaker 600:28:51I mean, we've diversified our franchise, as John pointed out. We're not as reliant on Canadian grain, but it's going to affect us probably Q2 of 2024. That being said, I fully expect When we give guidance in January, consistent with what we've described in June that we're going to have double digit EPS growth In our sites, we always said that over that 4 or 5 year period of guidance that we're going to ramp up the synergies And in the outer years, you're going to be at stronger levels, not only because of the ramp up in synergies, but also the benefit of some The ability to buy back shares and lower the share count and what that provides from EPS accretion. So from our perspective, as Operator00:29:48Our next question comes from Brandon Oglenski, Barclays. Speaker 100:29:53Hey, good evening. Thanks for taking the question. John, I think On the last earnings call here, we were talking about incremental business wins that had you guys pretty relatively bullish on the volume outlook in your network Is that still coming through the way you thought back then? And can Operator00:30:10you talk some of those specific opportunities that we should Speaker 100:30:12be looking for coming online in the near term? Speaker 400:30:16Yes, Brandon. So certainly we've seen we talked about the winning in the ECP area with We have definitely seen that volume ramp up and that frankly has caused the ECP area to inflect Positive. I'll tell you that that's an area where I continue to see ramp up. There's 2 or 3 recent contract renewals in that area That I feel really good about the share growth that CPKC and the team has delivered in that area. So I think you'll continue to see upside In that space, I said we're just getting started on that 180 and 181 train pair north south. Speaker 400:30:59There is a number of pieces of business that you should expect to see start up on that train pair. Chicago, Kansas City, down to and into Mexico and at Laredo, we're projecting nearly, I'm going to say 10% growth in our reefer business this year in a year where much of intermodal is down. That's been an area of growth and it's going to be an area of growth you're going to see to continue to come on to that north south train pair. And then maybe last, I'll leave you with this. As you look across all the North American ports, I'm quite pleased with where Lazaro Cardenas sits today. Speaker 400:31:43It's got we're seeing importexport Growth of about 26% at that terminal and you think about LA Long Beach minus 20%, Rupert minus 30 East Coast ports minus certainly double digits. Lazaro has seen growth and I'm not suggesting we got a long ways to go and a lot of work to do in a challenged international area, But we are making some headway. We're doing a lot of ease of business thing. We're working with Half Egg. I don't know if you saw, but ZEM recently announced a new port of call into Lazaro that's going to start up November 9 for not only domestic Mexico, but For also shipments into the U. Speaker 400:32:31S. So that's another area that I just think you're going to see us continue To position ourselves well and when things rebound, we're going to be in a really good spot there. Speaker 500:32:45Thanks, John. Yes. Operator00:32:50Our next question comes from Fadi Chamoun, BMO. Speaker 500:32:56Thank you. Good evening. John, I'm not sure if you're willing to take a stab at like this 350,000,000 What would that number you hope to look like kind of a year from now, given the pipeline of all these A turnarib that you seem to have your eyes on. And just a follow-up on some of the cost commentary. And Nadeem, You had a 10% decline in your ex fuel costs kind of Q4 Q3 versus Q2 on flat volume, which is impressive obviously. Speaker 500:33:30But Was there any unique items in there or I mean you're calling headcount going down again going into Q4, like is this a new level that we get to improve from? Or are there some unique items maybe in the Q2 I mean, in the Q3 that we should take into account. Speaker 600:33:52No, this is a new base. Now we're going to Some volume growth in Q4, so you're going to have some volume expansion related to volume ramp up. We did have an insurance recovery in purchase services. Now we also had higher casualties. So the net of 2 was a small benefit in purchase Services and other, and that's why I mentioned that we'll ramp that up a little bit from 506 closer to 530. Speaker 600:34:20But Certainly, we expect labor costs come down as the headcount comes down And we don't backfill, attrition does its job on that front. Speaker 400:34:35And Patty, I'll just say that I continue to see us exceeding in our revenue synergy area. And I would say, you know what, we At our Investor Day, we guided to sort of our what our multiyear plan expectations would be annually. We're right on pace for that Or even again some upside as I look to that. Speaker 500:35:00Okay, great. Thanks. Operator00:35:04Our next question comes from Steve Hansen, Raymond James. Speaker 100:35:09Yes. Good afternoon, guys. Speaker 700:35:10Thanks for the John, question for you perhaps. The disruptions and constraints facing potash have been significant thus far as you've described. You've now got some constraints in the eastern direction with the Seaway as well. I mean, do you want to maybe just give us a sense for how the potash volume outlook looks through the next quarter or Speaker 400:35:32Yes. Thanks, Steve. So Epotaxis has a pretty good sales book on for Q4. It's just their ability to execute. Without the Portland terminal, which is a significant workhorse for them and a good route for us, it's been horribly challenging. Speaker 400:35:54So I'm optimistic that we're going to sequentially improve. The numbers are so low, we better sequentially improve as we move through Q4 in potash and we'll get that terminal back up at the end of the year. And as I said, I'm hoping we gain some momentum in November December and really hit the ground running as you look to 2024. I know Canpotex Has ambitious plans to sort of gain back the market share that they've lost in over 2023 into 2024 As a result of a number of these challenges they faced. Speaker 700:36:33That's great for you, Tim. Operator00:36:37Our next question comes from Tom Wadewitz, Speaker 700:36:40UBS. Speaker 900:36:44Yes. Good afternoon. So I think I've had a couple of questions on 2024. I want to kind of circle back to that a little bit. I think the broader theme for transports has been Somewhat weaker freight markets, lowering of expectations for 2024, just to reflect Kind of lower momentum. Speaker 900:37:04I think you have a lot of puts and takes, right? Like clearly the conversation on potash, you would think that's easy Comps in 'twenty four, but I know you got Canadian grain down a little bit. So maybe just at a high level as you go into 'twenty four, do you view that as kind of a Low base or easy comps, so you can have kind of stronger growth than normal and that maybe gets you up towards where the Street is with 20% earnings growth? Or do you think that it's like, hey, well, let's be a little careful because there is enough weakness that's kind of Macro weakness in the markets that we ought to be a little bit careful on expectations. Thank you. Speaker 500:37:42Tom, I'll make a couple Speaker 400:37:43of comments and then Maybe you want to make a comment or 2, but look, I got bit in 2023. I thought I was had easy comps For potash coming into 2023 and, well, frankly, the numbers were I saw 10% growth in potash and we're at a 10% decline in potash. So fool me once, but we're going to be a little more cautious on that front. Again, in that area, I expect to be We're going to move a lot of Canadian grain, U. S. Speaker 400:38:17Grain over the next Couple of quarters here and we'll watch what materializes, Speaker 500:38:25Tom, as we Speaker 400:38:26move into Q2 and beyond with this crop. That's certainly more challenged in the southern part of Canada. And maybe my last comment is, overall, I feel Hopefully good about the synergies and that ramp up as we look to next year. I do believe this pricing environment Continues to be favorable. As I look to next year, it's all about the macro in the base And how the intermodal business and some of these very heavy consumer driven areas rebound or not. Speaker 400:39:02And we're just going to be very prudent about how we look at those volumes into 2024. Speaker 600:39:08Yes. And Tom, not to get into Too much detail. I mean, it is still October here, about 2024. But I think just fundamentally, you should think about it in The usual way of how we've been successful in the past, which is some volume growth, pricing. We've been hurt by inflation. Speaker 600:39:30It's been a, call it, a significant impact, I think, in transportation in general in 2023. But I think the ability to price above inflation comes back in 2024, which will be positive and accretive. I think currency is going to be Could be supportive as well. And so you factor that in and you can get to that kind of mid to high single The revenue number, and then I think the more important thing is the operating leverage. As this network It starts humming as we start to continue to invest the capacity sidings that Keith mentioned and Mark mentioned, you get the benefits of running A better network as a whole, you get the benefits of some of the synergies, both on the top line and on the operating costs. Speaker 600:40:19I think it Formally, it's a pretty decent EPS growth number. So I'm not backing off. We're not backing off what we think we can achieve. Sure, there's going to be some challenges on the macro side that we're fully aware of and we'll get into that in January and Have a better view of that. But as we stand here now, I don't think we're changing the kind of the earnings model of how We've been successful in the past both at CP and at KCS. Speaker 900:40:50Okay, great. Thank you. Speaker 600:40:52Thanks, Scott. Operator00:40:55Our next question comes from Jon Chappell, Evercore ISI. Speaker 400:41:00Thank you and good afternoon. John or Nadim, about 6 months in, where do you think you stand on the unique pricing true up opportunities that you had across the entire Is that something that's easier to do once you've integrated for a full year when you have more of a demand tailwind at your back? Or was that something where you can enact pretty quickly and we should Start to see the benefit of that as soon as the Q4. Yes. I would say we John, we've attacked that pretty aggressively. Speaker 400:41:28I feel Good. In terms of where we are, we're still discovering things and I don't know maybe we're in the Mid innings of that story as a whole, I can tell you, I think you'll start to see some of Those benefits become probably Q1 of next year, but we still have a number of areas of opportunity that we're going to work over the next certainly this quarter and into Q1. And I do believe that that's given us that does give us a little bit of tailwind as you think about Some of our pricing and since for RTM as you look to 2024. Yes, that makes sense. Thank you. Operator00:42:20Our next question comes from Cherilyn Radbourne, TD Cowen. Speaker 1000:42:26Thanks very Good afternoon. As everyone is aware, the industry is facing a softer freight demand environment. And so I'd be curious whether There are any capital projects that you would contemplate accelerating to take advantage of lower network activity levels and better condition the company for synergy Capture once we get into an eventual recovery scenario. Speaker 200:42:55Sheryl, I would say that from a sourcing standpoint, maybe materials, we'll look at that. But as far as actually executing Capital projects uniquely in this industry, we've got a pretty full plate across our network in line with the commitments we made to the SCB, the Laredo Bridge, The expansion at Bensenville, the sidings, so for us to have too much of an aggressive appetite, I don't think would be the right thing to do because we certainly don't want I don't think that's a cycle we want to get into. So we'll be opportunistic on material purchase perhaps, So still perhaps maybe look at locomotives. We are looking at our locomotive fleet and developing overall long term strategy relative To our demands, our unique industry demands for the business growth as well as some of our ESG objectives and commitments. So those 2 together may give us some chances but to leverage, but again, I think they'll be opportunistic and not anything large scale. Speaker 200:43:56Yes, it's helping Speaker 600:43:57some of our to your point the overall capital efficiency on what we can get done in terms of the fundamentals of changing ties and putting ballast and getting Access to the network. So that's where we're seeing the benefit overall, Cherilyn. Speaker 1000:44:12Thank you for the time. Speaker 600:44:13Thanks. Thank you. Operator00:44:17Our next question comes from Konark Gupta, Scotia Capital. Speaker 800:44:22Thanks for Just on the Q4, John, I wanted to figure out mid single digit RTM growth. Currently, you are down about Maybe flat to down in the 1st 3 weeks of October. Coal, potash are doing fine, they're easy comps, but I think intermodal and green are still a bit soft here. Do you expect some sort of rebound in green intermodal as you head into November, December? And Any new contracts you can point to which might start later this month? Speaker 400:44:55Yes. So as I sit here today, actually We're slightly positive from an RTM perspective in October. I do expect acceleration as we move into November December. I think the grain outlook, Not only Canadian grain, but also our U. S. Speaker 400:45:17Grain franchise looks positive. As I said, Frankly, the potash area couldn't have been more troubling and I'm optimistic we're going to gain some rhythm to close out the year With Potash, again, we're just really ramping. Met coal prices are high. Tech has really strong Demand, we're lapping that outage. So we've got pretty strong growth in not only our net coal, but also some of our Thermal coal in the U. Speaker 400:45:51S. And I do believe, as I said, you'll continue to see us As strategically volume to our 180, 181, we'll continue to ramp up some more ECP Synergy wins and share wins that will all help sort of carry the day to get us to that low mid single digits for our Q4. Speaker 200:46:15I'd say the last bit of color I would add to that is don't underestimate the power Our revenue in our team generation with the pent up demand that we have in Mexico, that's obviously been subdued because of the Lack of capacity and the operational challenges as we continue to free that railroad up. In fact, I think right now we're at an all time high GTM, RTM level in the Mexico franchise, there are no shortage of demand. So the automotive market, the metals market, Those are 2 key economic drivers and demand drivers that the more capacity we free up, the more that we get Speaker 800:46:48to move. Appreciate the color. Thanks. Operator00:46:54Our next question comes from Walter Spracklin, RBC. Speaker 800:46:59Thanks very much, operator. Good afternoon, everyone. So I wanted to actually come back to John on the West Coast port volumes and the strike that you had Alluded to there and the strike occurred in July and you cleared out your Backlog pretty quickly, but the volume declines have continued quite substantially here into August And now September, and I'm just wondering if you're concerned at all that given some of this is discretionary into Vancouver and certainly you saw the Fine. It doesn't take you up in Prince Rupert very strongly. This discretionary aspect of these volumes going to Chicago, have they Found another route. Speaker 800:47:44Are you concerned that that's going to be a while to come back? Do you have any view on how long it comes back? And is Mexico enough of an offset? I know when you look at those port volumes, they're off the charts for Mexico, which is great into September. And is that enough to Offset if there is some more, let's call it, structural impact from this strike that happens in Vancouver, Can you entirely offset that by Mexico or is it just not big enough to offset that kind of decline if Speaker 200:48:14it were to continue? Speaker 400:48:17Yes. So maybe to answer that question first, Walter, I think that's a fair call out. No. I mean, we expect growth At Lazaro, and I said, I'm excited about the future of what we can do at that port, but it's Speaker 500:48:30going to take some time Speaker 400:48:32To ramp that up. So that is not a one for 1 by any means. I do believe structurally there's In somewhat of a change on the West Coast ports. By far and you just look at our train links and where Our volume import volume is going. It's all domestic Canada. Speaker 400:48:54And we've got very little volume going into the I think it will be a function of 2 things. 1 is how quickly this market actually does rebound. I just had My team visiting all the steam ship carriers over in Asia and also in Europe, and they didn't paint a very bright picture. Certainly, it's going to be through 2024 as we see that ramp up. And then we'll have to watch. Speaker 400:49:27Certainly, there's a reason why Vancouver and Prince Rupert and that had success. We have port fluidity. We have some economic advantages. As things tighten back up and As the volume improves in LA, Long Beach, that is really what will be the tell on if you see that freight moves Back up there. But in the meantime, I can tell you we're focused on the business that we're handling within domestic Canada and we are laser focused on how we grow this and leverage that pork with a ton of capacity Don Lazaro, and again, it won't be a one for one offset, but I'm confident we will grow domestically into Mexico and also into that Texas market. Speaker 200:50:17I think a very encouraging comment about the Port Olaza, we just had a trade mission actually the governor Mitchell can Came up and met with John and myself and the team 2 weeks ago in Kansas City. So that's a local government, the state governor that is motivated For economic growth, he understands the potential that Lazaro has. And I can tell you this, historically, KCS had challenges. I think structurally perhaps they didn't go deep into the U. S. Speaker 200:50:46And have an opportunity to provide Competitive interline rates to a West Coast alternative, that's not the case now, we do. And I think the other challenge was the reliability Of the gateway, there was a lot of issues with teacher strikes, with blockades. I can tell you that Governor was proud to tell us the day he met with us 2 weeks ago. That was day 702. He is committed to keeping that track open. Speaker 200:51:12He is committed to growth over that port. And not just that port, there are many other products Once you create the ecosystem and the transportation, the reliable trains back and forth to take products that are grown in that state that are consumed in the Midwest and consumed in parts of Canada that this new reefer ecosystem we're creating Can benefit from and serve. So more to come on that. Again, does it ever replace all of it? No, but it's certainly a unique growth opportunity For us coming from Mexico both on a domestic move as well as leveraging the international opportunity. Speaker 500:51:49Appreciate that color Keith and John. Thank you. Operator00:51:53Our next question comes from Ken Hoexter, Bank of America. Speaker 700:51:58Hey, great. Good afternoon, Keith and team. So if I think, Nadeem, just a quick numbers question and a long term question. Just the $51,000,000 Is there a reason why you didn't take that out of them? I mean, you took $1,000,000 here and there and $22,000,000 numbers. Speaker 700:52:12Just want to understand why that was Left in if it was a historical thing. And then long term, you kind of it's kind of a tale of 2 cities here. On the, I guess, prepared remarks, it was a bit more sanguine about the economy and it was maybe even more negative than what we heard from your Canadian peer or the Eastern rail that we just heard from. But now you're talking about And it seems like a much more upbeat, I don't know, Q and A. It's just a very different position. Speaker 700:52:37I just want And the message that you're trying to send here in terms of the outlook because Nadeem talking about sub-sixty or into the upper 50s on the Just maybe delve into the thoughts there. Speaker 600:52:51Yes. I mean, we answer them like we see them. Ken, you've known us For a long time and that's the visibility we have on near term and what we expect for 2024. So That's our honest and transparent answers of what we think we can deliver and what we hold each other accountable for. So I'll leave it at that. Speaker 600:53:14I mean, I There is pause for concern with the macro environment. We're not of the view that it's a Robust economy by any stretch, but we think that what we can control, we're focused on controlling and we'll deliver. And the visibility that we have on the top line, as John mentioned, in the near term over the RTM of, Call it 3% to 5%, I think is genuine. Why we didn't To strip out the insurance, we had I think a $40,000,000 increase in casualty made up of a bunch of one time items through the year, dollars 20,000,000 jury settlements and such Same reason, I guess, we didn't strip out when we had about $150,000,000 impact from the flooding and costs associated in 2021. Speaker 200:54:11So we're just being Speaker 600:54:11consistent with how we In 2021, so we're just being consistent with how we approach that would be how we thought about that insurance recovery. Speaker 700:54:23Great. And if I can Speaker 500:54:24just squeeze in a follow-up. Speaker 700:54:26I guess you were just talking about Mexico. You sent a team of 50 or 200 down there. I guess, Keith, is there any update on that? Have you changed any operations around? Speaker 200:54:37Yes, of Of course, we have. We've tweaked and adjusted. But yes, we initially started, Ken, with 50, 52 officers that were down there around the clock. It It was a group of every discipline within the company from engineering to operating to IT to customer service To kind of be scramble the egg for the lack of a better term, we were locked up, we were congested. So we debottlenecked. Speaker 200:55:01We've now shifted from A response phase to an enhance and build phase, we made structural changes from a leadership standpoint. John Orr, who led the team, is now focused day to day. He's Responsible for all of Mexican operations and actually up to Beaumont, which is the crude change point with the Tex Mex to take the train south through Houston, that's a natural break. And then of course, Mark has everything north of there. So structurally, we've got a very focused team. Speaker 200:55:27He's continuing to develop talent. We've got the place running smoothly again. We're making progress with labor, which is very encouraging. It's not the kind of progress that creates Monumental quantum change like we've experienced in other parts of our network in our history, but I'll tell you To make the change that we're talking about relative to what's been changed in the past is a testament to the understanding and commitment of the union leadership. I met Personally, with the President of the Union, explained our journey, explained our opportunity and how we could uniquely partner With our employees, his members and I can tell you he and our members are excited and energized by it. Speaker 200:56:09So there's structural change, there's progress that's ongoing And what I would say is expect it to continue. Speaker 700:56:16Thanks for the time. Appreciate it. Operator00:56:20Our next question comes from Brian Ossenbeck, JPMorgan. Speaker 700:56:28Hey, good afternoon. Thanks for taking the question. So just wanted to ask maybe John about the closed loop automotive Potential, it looks like you've been making some significant progress more recently. I don't think we heard an update on it this call, but just if you can go back to that, are you close to the Ordering the cars, what's been the to get the guaranteed car supply, what's been the uptake in the interest level from some of the OEMs? Obviously, some Noise with UAW right now, but is that something we could see perhaps coming forward in 2024? Speaker 700:56:58Thank you. Speaker 400:56:58Yes, Brian, it's been strong. Maybe as far as an update, we've got construction underway in the Dallas market for auto compound there. We expect to see that up and active and frankly sold out by mid next year. So quite excited about that. I said the closed loop we've got currently receiving new buy levels Right now, I think we'll receive upwards of 1200 or so over the coming months to really We targeted at that closed loop model. Speaker 400:57:35So we've got some good early wins there And I expect you to see that being fully deployed as we move into the start of 2024. Speaker 700:57:49Thanks, John. Operator00:57:54Our next question comes from Ben Nolan, Stifel. Yes, thanks. I appreciate you Speaker 400:57:59guys doing that. John, I remember as it relates to potash, I remember a couple of years ago or Last year maybe you mentioned that there might be some opportunities to move potash to the Gulf Coast. Just given everything that's gone on in Portland. Is that something that's materializing or is there an opportunity to maybe do that? Yes. Speaker 400:58:21Ben, I think right now Given everything that's gone on, there's a little bit of pause in terms of that. I don't think anything's changed in terms of We believe the opportunity to create sort of what I would consider a true third outlet for export potash out of Canada, Whether it's K Plus Ups, Canpotex, Future BHP, I think we continue to see that It's a long term opportunity in terms of timing on that. It's probably pushed out a little bit further than When we were thinking about it about a year ago when I spoke about it. Speaker 700:59:00All right. Appreciate it. Thanks. Speaker 400:59:01Thanks, Ben. Operator00:59:05Our next question comes from Justin Long, Stephens. Speaker 100:59:10Thanks. I was wondering if you could provide an update around your expectations for the level of inflation that you're seeing in the business this year and How that compares to your early expectation for inflation as we move into 2024? And when you think about that Speaker 600:59:35Sure. I'll take that, Justin. So we've seen all in inflation closer to that 7% level. And as you know, I mean, it's been pretty apparent. A lot of that has been on the labor side, so the biggest cost buckets. Speaker 600:59:51We have seen also up north the impact of some of the work rest rule changes that have also impacted Comp and benefits. So overall, inflation has been a challenge. It's been a headwind, Much higher than we anticipated at the beginning of the year. And it's partly the reason I think that margins have been where they are. I would say that we expect in 2024 that to moderate. Speaker 601:00:20I think as some of the rate hikes And some of the action by the Fed and Bank of Canada kind of moderate. I think we should start seeing that settle. I think we should start seeing even some of the recent inflation Numbers have moderated. So, I think we'll be closer to call it a 4% level rather than that 7 And I think that's what gives me confidence in our ability to price above inflation. We're still getting Strong pricing, John and his team have done an excellent job. Speaker 601:00:55It's just it's been a high bar this year in particular just because of the call it Onetime nature of some of the labor increases. Speaker 101:01:06Got it. Thank you. Justin. Operator01:01:12Our next question comes from Benoit Poirier, Desjardins Capital Markets. Speaker 101:01:18Yes. Thank you very much. Good afternoon, gentlemen. Keith, you provide great color about the opportunities and John about If we look at the Port of Montreal, there is an upcoming labor agreement with the dock workers. So I'm just wondering if you're having Discussion with shippers about some potential cargo diversion and whether the port of St. Speaker 101:01:51John could get some volume uptick. And with respect to contract expansion, we've seen some announcements lately. I know it's a very long term opportunity, which is Having some challenges, but how do you see the potential opportunities for CPKC longer term? Thank you. Speaker 401:02:13Kevin, I would say yes. Again, I had the team just recently Overseas meeting with all the various ocean lines and certainly Montreal and I don't know it seems like annual trouble But now we've got a ready made option with a lot of capacity and new equipment and an eager partner in DP World To get after it. So I do believe those Backstops in terms of if freight does need to move out of Port of Montreal, St. John presents us now a great opportunity to move that freight. In terms of time to occur, as of right now, it's not a facility or port that we will be looking to serve. Speaker 401:03:15Now who knows those discussions and Renewing of access to that port is ongoing, but frankly our efforts are focused on continuing Service Port of Montreal and grow St. John, it's absolutely growing. Speaker 101:03:33Okay. Thank you very much, gentlemen. Speaker 701:03:36Thanks, Benoit. Operator01:03:39Our final question comes from David Vernon, Bernstein. Speaker 101:03:44Hey, good afternoon guys and Thanks for hosting Speaker 701:03:47the call. I wanted to dig in a Speaker 101:03:48little bit to the headcount commentary. Sequentially, it looked like we had headcount growth and Nadeem, I think you mentioned we're going to be coming down in headcount. Can you help us understand kind of what we should be expecting in sort of Q4 for cost per employee and where the heads are shifting and what's driving sort of the shift? Is this in the transportation function? Is this overhead functions? Speaker 101:04:04Is this just moving jobs up and down? Speaker 601:04:14Fair question. So we had anticipated this for some time. I'd kind of pointed to Q4 as a opportunity to see That inflection, we've been ahead of the curve in terms of hiring and training, just given The challenges I think the economy has seen in terms of getting qualified employees and servicing customer, That doesn't change, but as you see attrition work through Our industry and work through our system and as volumes don't materialize the same way that you can expect, Grain, for example, we know that it's going to be a less robust next year than this year. You can make a call in terms of what you do from a Hiring and training. And so there's some seasonality as well as I mentioned earlier in terms of headcount. Speaker 601:05:08And then when you think about The opportunity as far as synergies, we were going to have some natural opportunities as far as headcount on the synergy side. And then as you get operating leverage, so as you turn to being able to run longer trains, more density and so 4th, you need less employees per GTM and for the volumes you're moving. So it's a combination of all those factors That's going to drive a bit of a reduction in headcount sequentially. And as far as comp per employee, Somewhat dependent on stock based comp now. That's been a bit of a tailwind near term. Speaker 601:05:54Who knows where that's going to end End of the year, but kind of mid single digits is probably a fair estimate as we stand here today. Speaker 101:06:03All right. Thanks very much for the added color guys. Speaker 601:06:05Thanks, David. Speaker 201:06:08We have reached a Speaker 701:06:09lot of Operator01:06:09time for Q and A. Yes, sir. Speaker 601:06:10I'd like to Speaker 501:06:11turn the call back over to you. Speaker 201:06:12Okay. Thank you, operator. Well, listen, thanks The progress that we're making both integrating and executing, we're realist, we're not immune to the macro challenges that we're all facing With this economy that I can tell you we're focused on controlling what we can control. And that's to operate safely always efficiently and continue to sell to What is a very unique 3 nation network that we've created that's allowing us to grow in a unique way at a micro level, Be it share shift, be it customer solutions with new markets, be it take trucks off the road in spite of the micro environment. And when the macro comes back and turns favorable, Now I'll get to Sadi. Speaker 201:06:59So we look forward to sharing our 4th quarter results next time we talk in January. Thank you. Operator01:07:08This concludes today's conference call.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallCanadian Pacific Kansas City Q3 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckInterim report Canadian Pacific Kansas City Earnings HeadlinesCanadian Pacific Kansas City (CP) Projected to Post Earnings on WednesdayApril 28 at 1:21 AM | americanbankingnews.comCanadian Pacific Kansas City Limited (CP): Among The Best Railroad Stocks To Buy According To BillionairesApril 27 at 6:55 AM | insidermonkey.comThe most powerful man in D.C.Is there anybody more powerful than Donald Trump right now? In a single tariff announcement, he wiped out nearly $5 trillion in wealth from the S&P 500 and $6.4 trillion from the Dow Jones… Not to mention the countless trillions of dollars lost in every market around the world… leaving the major political powers scrambling in fear of Trump’s next move.April 28, 2025 | Porter & Company (Ad)Canadian Pacific: 2025 EPS To Grow Double Digits Regardless Of Potential Tariff OutcomesApril 25 at 12:00 PM | seekingalpha.comRaymond James Has Pessimistic Outlook of CP Q3 EarningsApril 25 at 3:11 AM | americanbankingnews.comRoom to Grow: CPKC designates nine Site Ready industrial development locationsApril 24, 2025 | prnewswire.comSee More Canadian Pacific Kansas City Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Canadian Pacific Kansas City? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Canadian Pacific Kansas City and other key companies, straight to your email. Email Address About Canadian Pacific Kansas CityCanadian Pacific Kansas City (NYSE:CP), together with its subsidiaries, owns and operates a transcontinental freight railway in Canada, the United States, and Mexico. The company transports bulk commodities, including grain, coal, potash, fertilizers, and sulphur; merchandise freight, such as forest products, energy, chemicals and plastics, metals, minerals, consumer products, and automotive; and intermodal traffic comprising retail goods in overseas containers. It also provides rail and intermodal transportation services over a network of approximately 20,000 miles serving business centres. The company was formerly known as Canadian Pacific Railway Limited and changed its name to Canadian Pacific Kansas City Limited in April 2023. 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There are 11 speakers on the call. Operator00:00:00Afternoon. My name is Travis, and I will be your conference operator today. At this time, I would like to welcome everyone to CPKC's Third Quarter 2023 Conference Call. The slides accompanying today's call are available at investor. Cpkcr.com. Operator00:00:15All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. I would now like to introduce Chris De Bruin, Vice President, Capital Markets to begin the conference. Please go ahead, sir. Speaker 100:00:37Thank you, Travis. 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 and A filed with Canadian and U. Speaker 100:00:58S. Regulators. This presentation also contains non GAAP measures outlined on Slide 3. Please note, in addition to our regular quarterly financials, there is supplemental Q3 combined revenue and operating performance data available at investor. Cpkcr.com, which some of today's discussion will focus on. Speaker 100:01:17With me here today is Keith Creel, President and Chief Executive Officer Nadim Bilani, our Executive Vice President and Chief Financial Officer John Brooks, our Executive Vice President and Chief Marketing Officer and Mark Reddy, our Executive Vice President and Chief Operating Officer. The formal remarks will be followed by Q and A. In the interest of time, we'd appreciate if you limit your questions to 1. It is now my pleasure to introduce our President and CEO, Mr. Keith Creel. Speaker 200:01:43Thanks, Chris. Let me start by thanking the CPKC family of 20,000 railroaders across our 3 great nations. We've been hard at work providing service for our customers. The effort and the passion they demonstrated Each day as we integrate and execute is truly commendable. So let's take a look at the results for the quarter. Speaker 200:02:02The 2nd quarter reduced revenues of 3,300,000,000 On volumes that were down 3% versus last year with an operating ratio of 61.7 and core EPS of $0.92 So no doubt a challenging quarter as we dealt with the softer demand environment and supply chain impacts from the strike at the Port of Vancouver. I will let John talk more As you've seen in the press release, given a more challenging environment, further stressed by the labor strike, we're adjusting our 'twenty three guidance accordingly. Certainly not the outcome we had planned, but it's the prudent thing to do at this point. That said, it's not the challenges that define us, but rather how we respond. And I'm very Proud of how this team, our collective CPKC family is responding to the challenges. Speaker 200:02:46Let's say a few things about the Mexico task force. That's an excellent case in point to how we respond in the task force. You'll recall back in our Q2 call, we talked about an enhanced focus on operations in Mexico. Shortly after that, we deployed A task force to Mexico that was led by John Orr. John, who many of you are familiar with, has a lot of experience in Mexico from his previous role as EVP Office of KCS and KCSM, and I can tell you this effort was monumental. Speaker 200:03:14It brought together railroaders from every part of the organization, Nearly 100 employees across information services, network services, marketing, engineering, mechanical and many others came together To support John and the task force objectives and we're seeing the results from that effort. You can see noticeable progress across all the operating metrics, Train speed improvements, terminal dwell reduction, car miles per car day improving, locomotive productivity, improving and ultimately the most important part of the service experience for the customer. And this transformation is ongoing and the investment in people, process, infrastructure and technology in our Mexican operations as well as our U. S. And Canadian operations as a continual journey. Speaker 200:03:58On the safety front, we've continued to rise to the challenge From a safety perspective, Mark will speak to some of this in more detail in a moment. But I can tell on a combined basis, we've seen year to date improvement in FRA personal injuries of 12%, The FRE train accident frequency of 37%, which is a tremendous result that I want to commend the entire team on as we continue To lead the industry in this space, safety is a never ending journey and it continues and will always be our number one priority. Few comments on the integration. On the integration front, integrating these two companies, obviously, is a challenge in and of itself, particularly so in today's world With an industry with a history of merger related service challenges, we certainly not been perfect. There are opportunities to improve that that we're mining every day 20 fourseven. Speaker 200:04:46The teams from the legacy CP and legacy KCS have embraced the challenge. They've united working together to produce a unique outcome that will benefit our customers, Our communities and each other. Couple of points on the MNBR, while we continue to make progress integrating these 2 railroads, we also continue to progress The MNBR transaction that we announced in June, pleased to announce that we filed our application for the deal with the SVB on October 6. So in closing, we're a little over 6 months in this combination into our forever story. There's no doubt there's a few Near term challenges from a softer demand environment regardless of the differentiated growth opportunities we've laid out and guided to remain unchanged. Speaker 200:05:32We're successfully integrating this network. We maintained our commitments to our customers, to the regulators and we're seeing momentum in our operating performance. So with that said, I'm going to hand it over to Mark to speak to the operations before John brings some colors on the markets and Nadine elaborates on the numbers. Speaker 300:05:49Thank you, Keith, and good afternoon. I'd like to start by thanking the CPKC operating professionals for their tireless work and dedication to safety and operational Excellent. The 1st 6 months of the merger has been both exciting and challenging. This team is up to the task and they're delivering on their mandate So if we look at safety for the quarter, I'm pleased to report that we continue to build on industry leading record. Our Our Q3 FRE reportable injuries improved by 35% to a 0.97%. Speaker 300:06:25Our train accident has reported Improvement 9% to 1.3%. As I discussed on last quarter, stakeholder engagement is a core pillar of our safety performance. We regularly engage our employees, our union leadership, our regulators to collaborate safety best efforts Since day 1, we have held 2 safety walkabouts for CPKC leadership and partners Directly engage with the field employees across the property. Our safety walkabouts are key to a strong consistent safety culture. Now turning to the operating performance, I'll speak on the metrics from a comparison to CPKC with a combined It's a combination that occurred in 2022. Speaker 300:07:10Locomotive productivity improved 4% versus Q3 last year. Average train speed and length declined 2% and 1%, respectively. And average train weight was down 2%. As we focus and remain on our aligning operating practices across our network, we feel very good about the progress that we have made in the 1st 6 months. We're optimizing our train consists to improve locomotive productivity and fuel efficiency. Speaker 300:07:36To that, fuel efficiency improves sequentially Q2 to Q3, I expect that to continue in the area for opportunity as we look forward. So if we look at where we sit today, Network wide dwell has improved 13% since the beginning of the Q3. We have further to go, but the metrics across the board locomotive productivity, Carmiles, Percarde and Duval are all moving in the right direction. We feel confident that these gains are sustainable. If we look at our capital projects for the year, our construction in the 2nd span of the Laredo bridge is 35% complete. Speaker 300:08:12We remain on target operationally, should be in by the end of 2024. If we look at our $275 merger capital A commitment we've made, we have put in service 2 of the 5 sidings. We look for the next 3 sidings to be within service within 3 months. And as we in closing, when we look at the early stages of the journey as a combined company, I'm very confident in the actions in the Taking the development of the network and alignment operations, this story will continue to have continuous improvement And my team will be laser focused on delivering strong results. With that, I'll turn it over to John. Speaker 400:08:51All right. Thank you, Mark, and good afternoon, everyone. So as Keith said, we're over just over a half a year in CPKC and I want to say that I'm excited as ever about the unique opportunities that this franchise has to offer our customers. While it's certainly been a more challenging quarter than I expected, nothing that we've seen This diminishes any of the exciting growth opportunities that we've guided to over the long term. My team has been hard at work in creating new markets, Capturing new business and I'm extremely proud of what we've accomplished to date despite this challenging economic backdrop. Speaker 400:09:30CPKC's unique footprint and our self help initiatives are differentiators in this marketplace, And we are extremely well positioned as the volume environment rebounds. Speaker 500:09:43Now as I look to Speaker 400:09:44the 3rd quarter results, On a reported basis versus CP standalone in 2022, total revenues were up 44%, while volumes were up 31%. On a combined basis, total revenue was down 4% while volume declined 3% versus pro form a CPKC a year ago. FX was a 3% tailwind, while fuel was a 6% headwind on the quarter. The pricing environment remains strong with inflation Plus renewals across our book of business. Now taking a closer look at our Q3 revenue performance, I'll speak to the FX adjusted results Grain revenues were up 7% on 9% RTM growth. Speaker 400:10:36Canadian grain volumes were up 13% year over year driven by the improved harvest Lapping the drought affected prior year, U. S. Grain volumes were up 6% as this year's harvest has been solid in our service territory And we are benefiting from our expanded destination market reach. We continue to see new and unique grain flows emerge on the CPKP system. Customers are taking advantage of the opportunity to connect grain origination and destination in ways never available to them in the past. Speaker 400:11:10Now looking forward, projections for the current Canadian grain crop harvest has come down since our Q2 call. Our customers are now estimating the crop size to be in the 60,000,000 to 65,000,000 metric ton range. Currently in Canada, We are seeing customer demand to start this crop year at levels below our resource planning, giving us available capacity To offset some of this headwind was shipments of U. S. Grain. Speaker 400:11:39As a reminder, the CPKC combination has further diversified Our grain franchise in the U. S. Grain markets now make up more than half of our grain revenues. On the potash front, Revenues were down 22% on a 28% volume decline. Our potash volumes were impacted in the quarter by the strike at the Port of Vancouver and continued outage of Canpotex Portland Terminal. Speaker 400:12:05To say this has been a challenging supply chain year for our export potash volumes with Canpotex is a true understatement. Now looking ahead, although we do not expect the Portland terminal to come back online before the end of the year, We do have a strong demand outlook for Q4 and we're working hard to maximize our volumes through all available terminals to build some momentum with Canpotex as we close out the year. And to finish out on our bulk business, coal revenue was flat on 7% volume growth With favorable compares in Q4 following last year's outage of Teck's Elkview Mine and higher met coal prices as we sit here today, I see a Strong a very strong growth in coal as we finish out the rest of this year. Now moving on to merchandise, The Energy Chemicals Plastics portfolio saw a 3% decline in revenue and a 5% decline in volumes. Lower volumes were driven by a decrease in crude business as a result of the facility maintenance and less demand in LPG. Speaker 400:13:11However, this was partially offset by growth in our refined fuels, including new business with Shell that began in August and continues to ramp up And plastics growth out of Canada into the U. S. And all the way down into Mexico. Now as we move into the 4th quarter, I expect positive RTM growth in Energy Chemicals Plastics, driven by continued strength in refined fuels as Shell continues to ramp up and we onboard new share wins. Forest Products revenues declined 6% on a 4% decline in volumes. Speaker 400:13:46While we are seeing the impact of a softer economy and slower housing markets, we are very encouraged about the quick development of long haul forest product shipments from Canada down to our southern markets. The combination of our seamless route to market and the development of our transload network We'll position us well to capture synergies in this market as it rebounds. The metals, minerals and consumers products portfolio Was up 2% on a 1% decline in volumes. Performance in this space was mixed as consumer products and frac sand were down, but metals Continued to have a strong performance. We are particularly encouraged by continued growth And CPKC's footprint in Mexico is uniquely positioned to service this growing market. Speaker 400:14:50Automotive revenues continued to be strong, up 21% on 11% volume growth, a record quarter. Demand for finished vehicles remains strong as the auto industry continues to be challenged with high finished vehicle ground counts Seating available supply chain capacity to move these vehicles to market. We are working with many of the OEMs to create unique solutions to improve rail efficiencies that will increase capacity and help clear this inventory. I'll note that as of now, we do not expect the auto strike to materially impact our business as we are focused on servicing the strong demand from production facilities in Canada and in Mexico. And finally, on the intermodal side, revenue was down 19% Higher inventories and competitive over the road rates. Speaker 400:15:51However, we remain extremely encouraged By the uptake of our new 18,181 cross border service, the opportunity in the cross border intermodal space is significant. Our service is consistent and truck like and we are in the earliest stages of developing this premium rail market. Moving over to the international intermodal area, volumes were challenged in the quarter by the Vancouver port strike and Softer demand. Although we are excited as ever about this space and we look to continue to expand our services out of the Port of St. John And to grow Lazydro Cardenas, we expect near term headwinds as ocean carriers continue to blank sailings and right size their capacity in reaction to the strength of softer demand. Speaker 400:16:45In closing, So certainly, while we are not immune to the headwinds impacting the economy and certainly the entire rail and transportation sectors, We remain uniquely positioned to deliver long term differentiated growth. This powerful combined franchise It's creating new opportunities for our customers to grow and our synergy gains and the opportunities ahead of us Continue to exceed our expectations. So with that, I'll now pass it over to Nadim. Speaker 600:17:16All right. Thanks, John, and good afternoon. I would like to first thank the entire CPKC team for its hard work, focus and resilience. This team of railroaders is making history And I'm very pleased with their perseverance and dedication in the face of a more challenging operating and macro environment. Looking at Speaker 700:17:35the quarter, Speaker 600:17:36CPKC's reported operating ratio was 64.9% and the core adjusted combined operating ratio came in at 61.7 percent. Earnings per share was $0.84 and core adjusted combined earnings per share was $0.92 Results this quarter were impacted by the change in fuel price on both revenue and operating expenses. The impact of fuel price was a $95,000,000 headwind to combined operating income. This includes a $72,000,000 unfavorable lag effect on combined fuel revenue. The $95,000,000 impact to combined operating income translated to a 70 basis point and $0.08 headwind to core adjusted combined operating ratio and Based on where fuel prices sit today, we expect the fuel price headwind from Q3 to be a slight tailwind in Q4. Speaker 600:18:31Now taking a closer look at our income statement, reported operating expenses provided on Slide 14 and combined operating expense on Slide 15. Similar to what we shared last quarter, our combined operating expense illustrates the estimated effects Of the acquisition for the Q3 is that the acquisition closed on January 1, 2022. Reported comp and benefits expense was $598,000,000 down 4% on an FX adjusted basis when compared to combined comp and benefits a year ago. Driving the FX adjusted decline was lower current service costs in the DB pension plan resulting from higher discount rates and lower stock based Compensation. That decline was partially offset by wage inflation. Speaker 600:19:18Headcount was down slightly sequentially in Q3. We expect headcount to be down sequentially again in 4Q, which will continue to give us improved operating leverage as volumes accelerate into the end of the year. Fuel expense was down $86,000,000 or 21% on an FX adjusted basis when compared to combined fuel in Q3 20 The decline was primarily driven by a $93,000,000 or 16% decline in combined fuel price along with lower GTMs versus prior year. As I mentioned a moment ago, that reduction in fuel expense due to price is more than offset by $188,000,000 headwind from a decline in combined fuel surcharge revenue. Combined materials expense was down 4% on an FX adjusted basis. Speaker 600:20:07The decline was largely driven by reduced locomotive maintenance material spend. Equipment rents were up $24,000,000 on a combined basis for 34% on an FX adjusted basis. Equipment rents increased due to higher car higher payments resulting from automotive volume growth, Lower use of CPKC intermodal equipment by other roads and increased use of pooled equipment. Combined depreciation expense was up $32,000,000 or an FX adjusted 6%, resulting from a higher asset base. Combined purchase services and other was $506,000,000 or roughly flat year over year on an FX adjusted basis. Speaker 600:20:49A business interruption insurance recovery in the quarter related to 2021 flooding and wildfires in British Columbia offset increased casualty expense Looking to 4Q, I still expect PS and O to come in around $530,000,000 to close the year. Moving below the line, other components of net periodic benefit recovery decreased $17,000,000 reflecting higher discount rates compared to 2022 And other expense was up $6,000,000 in the 3rd quarter on a reported basis. Net interest expense was $207,000,000 or 2 0 $2,000,000 on adjusted basis. The decline was driven by a reduced debt balance. On a combined basis, income tax expense was $258,000,000 We now expect the CPKC core adjusted combined effective tax rate to be approximately 25% for the year, a reduction of 50 basis points from the outlook provided in Q2. Speaker 600:21:47Turning to Slide 17, we are generating strong cash flow with cash Provided by operating activities of $10,27,000,000 in Q3. Our first call on capital remains the business and growth. And in the quarter, we reinvested over $700,000,000 in line with our expectation to invest times on our path back to our target leverage of 2.5 times. In review of the quarter, despite challenges, John's teams Continued to bring on synergies and our operations are gaining momentum, especially in Mexico. We remain well positioned to deliver on our long term guidance And I am extremely confident in this team's ability to execute. Speaker 600:22:45I'm excited about what this franchise can deliver and I look forward to sharing our success with you going forward. In fact, Keith, let me turn things over to you. Speaker 200:22:53Okay. Thank you, gentlemen. Let's go and open it up to questions. Operator00:23:02Thank Our first question comes from Chris Wetherbee, Citi. Speaker 700:23:21Hey, thanks. Good afternoon, guys. I guess you just mentioned that you've been able to capture some of the synergies from the deal. So maybe If you could help us sort of understand what you think from a synergy perspective you'll be able to realize here in 2023? And then I guess, what it will take to maybe reaccelerate earnings growth back towards some of the longer term targets that you have? Speaker 700:23:41Is it simply just getting into a better macro environment? Or are there some incremental cost actions or others that you can take sort of early in 2024 to kind of reaccelerate the earnings growth profile? Speaker 400:23:55Well, maybe I'll start, Chris, on the synergy piece. This is John. So as I said, I'm really pleased. Despite the challenges we're facing, certainly in the macro and all the geopolitical things going on that we're all facing, The team has been laser focused on the synergies and certainly delivering on a lot of things we laid At Investor Day, I think we said at Investor Day, we saw an immediate run rate of 240,000,000 Sort of annualized, I can tell you, I know we pushed that to $350,000,000 that we talked about at some conferences and I'm Comfortable in telling you that we're beyond that now. I'm not going to peg quite a number for you at This time, but I'm quite comfortable we're going to end up north of a number like that. Speaker 400:24:50So I'm quite pleased. And I'll tell you, There's a number of contracts and opportunities that We're ready to go, but we'll start up in 2024, but that will continue to add to that story. Speaker 200:25:08Chris, I'll just add a little color on the cost side. We're ahead of our target on the cost side as well. If we talk about Accelerating what I expect to see in 2024 as we debottleneck and continue to improve upon even numbers that Mexico was experiencing Back to November of last year, that momentum will continue. We've got the investments we've made this year And the physical infrastructure that's tied to the merger application, I think we've got 5 sidings that are fewer online now, 2 more come on Within about a month and then we've got one more to close the year out. So we'll get the benefit of that in 2024. Speaker 200:25:47So what I expect is the railroad to continue To incrementally improve from a fluidity standpoint, the locomotive productivity standpoint and ultimately you put those 2 together, You're going to turn your assets faster, we'll have better car productivity, car miles per car day and you'll see operating expense tied to the synergies between these two networks Accelerate a bit from the run rate that we've been after the last 6 months. And again, I'll finish where I started. We're exceeding our expectations. There's some puts and takes to that, but As far as where we thought we would be or where we should be to realize the synergies that we committed to on the cost side, we're in a good spot getting better every day. Speaker 600:26:26And Chris, I'd just add, running a fluid network, which we're seeing clearly today is going to help us on the operating cost side, ex synergies. We had talked about finishing the year with a lower labor headcount number and that's certainly going to be the case. I think we'll have incrementally sequentially about a 1,000 person reduction in headcount and that's just attributed to timing of some of the work projects and also Just your normal seasonality. So you're going to see us see the benefits of operating leverage. We do expect To see growth in this quarter from a volume standpoint, so that operating leverage is going to naturally provide us some the ability to take our costs down, improve our margins. Speaker 600:27:11And I fully expect and I'm sure we're going to get this question, so might as well hit it now. I fully expect the sub-sixty OR in this quarter. Speaker 700:27:21That's very helpful. Appreciate the time. Thank you. Operator00:27:25Our next question comes from Scott Group, Wolfe Research. Speaker 700:27:31Hey, thanks. Good afternoon. So, Nadim, you got me on the OR question already, so I won't ask it again. How are you thinking about Good question, Travis. No, I'm Speaker 800:27:41kidding. Go ahead, Scott. Sorry. Speaker 700:27:44How are you thinking about RTM growth in the quarter and then I know it's early, but when I think back to the Analyst Day, you talked about High single digit revenue growth, mid teens kind of earnings growth. Do you have visibility to getting Those kinds of growth rates in 2024, is it just too early to tell at this point? Speaker 200:28:06Yes, let me take the RTM piece. So we're slightly positive now for the quarter, Scott. We continue to expect to ramp up in November, December and I fully expect a quarter probably mid single 4% to 5 percent part time growth versus last year? Speaker 600:28:22Yes. And Scott, I mean, when we gave our guidance, I guess, 3 or 4 months ago now, We had talked about a 5 year plan. Nothing's changed on that front when you look at it from a long term perspective. We didn't expect it to just be Without some level of cycle in during that timeframe and so we're seeing that macro challenge now. I think we'll see a bit of a softer grain crop in Canada next year. Speaker 600:28:51I mean, we've diversified our franchise, as John pointed out. We're not as reliant on Canadian grain, but it's going to affect us probably Q2 of 2024. That being said, I fully expect When we give guidance in January, consistent with what we've described in June that we're going to have double digit EPS growth In our sites, we always said that over that 4 or 5 year period of guidance that we're going to ramp up the synergies And in the outer years, you're going to be at stronger levels, not only because of the ramp up in synergies, but also the benefit of some The ability to buy back shares and lower the share count and what that provides from EPS accretion. So from our perspective, as Operator00:29:48Our next question comes from Brandon Oglenski, Barclays. Speaker 100:29:53Hey, good evening. Thanks for taking the question. John, I think On the last earnings call here, we were talking about incremental business wins that had you guys pretty relatively bullish on the volume outlook in your network Is that still coming through the way you thought back then? And can Operator00:30:10you talk some of those specific opportunities that we should Speaker 100:30:12be looking for coming online in the near term? Speaker 400:30:16Yes, Brandon. So certainly we've seen we talked about the winning in the ECP area with We have definitely seen that volume ramp up and that frankly has caused the ECP area to inflect Positive. I'll tell you that that's an area where I continue to see ramp up. There's 2 or 3 recent contract renewals in that area That I feel really good about the share growth that CPKC and the team has delivered in that area. So I think you'll continue to see upside In that space, I said we're just getting started on that 180 and 181 train pair north south. Speaker 400:30:59There is a number of pieces of business that you should expect to see start up on that train pair. Chicago, Kansas City, down to and into Mexico and at Laredo, we're projecting nearly, I'm going to say 10% growth in our reefer business this year in a year where much of intermodal is down. That's been an area of growth and it's going to be an area of growth you're going to see to continue to come on to that north south train pair. And then maybe last, I'll leave you with this. As you look across all the North American ports, I'm quite pleased with where Lazaro Cardenas sits today. Speaker 400:31:43It's got we're seeing importexport Growth of about 26% at that terminal and you think about LA Long Beach minus 20%, Rupert minus 30 East Coast ports minus certainly double digits. Lazaro has seen growth and I'm not suggesting we got a long ways to go and a lot of work to do in a challenged international area, But we are making some headway. We're doing a lot of ease of business thing. We're working with Half Egg. I don't know if you saw, but ZEM recently announced a new port of call into Lazaro that's going to start up November 9 for not only domestic Mexico, but For also shipments into the U. Speaker 400:32:31S. So that's another area that I just think you're going to see us continue To position ourselves well and when things rebound, we're going to be in a really good spot there. Speaker 500:32:45Thanks, John. Yes. Operator00:32:50Our next question comes from Fadi Chamoun, BMO. Speaker 500:32:56Thank you. Good evening. John, I'm not sure if you're willing to take a stab at like this 350,000,000 What would that number you hope to look like kind of a year from now, given the pipeline of all these A turnarib that you seem to have your eyes on. And just a follow-up on some of the cost commentary. And Nadeem, You had a 10% decline in your ex fuel costs kind of Q4 Q3 versus Q2 on flat volume, which is impressive obviously. Speaker 500:33:30But Was there any unique items in there or I mean you're calling headcount going down again going into Q4, like is this a new level that we get to improve from? Or are there some unique items maybe in the Q2 I mean, in the Q3 that we should take into account. Speaker 600:33:52No, this is a new base. Now we're going to Some volume growth in Q4, so you're going to have some volume expansion related to volume ramp up. We did have an insurance recovery in purchase services. Now we also had higher casualties. So the net of 2 was a small benefit in purchase Services and other, and that's why I mentioned that we'll ramp that up a little bit from 506 closer to 530. Speaker 600:34:20But Certainly, we expect labor costs come down as the headcount comes down And we don't backfill, attrition does its job on that front. Speaker 400:34:35And Patty, I'll just say that I continue to see us exceeding in our revenue synergy area. And I would say, you know what, we At our Investor Day, we guided to sort of our what our multiyear plan expectations would be annually. We're right on pace for that Or even again some upside as I look to that. Speaker 500:35:00Okay, great. Thanks. Operator00:35:04Our next question comes from Steve Hansen, Raymond James. Speaker 100:35:09Yes. Good afternoon, guys. Speaker 700:35:10Thanks for the John, question for you perhaps. The disruptions and constraints facing potash have been significant thus far as you've described. You've now got some constraints in the eastern direction with the Seaway as well. I mean, do you want to maybe just give us a sense for how the potash volume outlook looks through the next quarter or Speaker 400:35:32Yes. Thanks, Steve. So Epotaxis has a pretty good sales book on for Q4. It's just their ability to execute. Without the Portland terminal, which is a significant workhorse for them and a good route for us, it's been horribly challenging. Speaker 400:35:54So I'm optimistic that we're going to sequentially improve. The numbers are so low, we better sequentially improve as we move through Q4 in potash and we'll get that terminal back up at the end of the year. And as I said, I'm hoping we gain some momentum in November December and really hit the ground running as you look to 2024. I know Canpotex Has ambitious plans to sort of gain back the market share that they've lost in over 2023 into 2024 As a result of a number of these challenges they faced. Speaker 700:36:33That's great for you, Tim. Operator00:36:37Our next question comes from Tom Wadewitz, Speaker 700:36:40UBS. Speaker 900:36:44Yes. Good afternoon. So I think I've had a couple of questions on 2024. I want to kind of circle back to that a little bit. I think the broader theme for transports has been Somewhat weaker freight markets, lowering of expectations for 2024, just to reflect Kind of lower momentum. Speaker 900:37:04I think you have a lot of puts and takes, right? Like clearly the conversation on potash, you would think that's easy Comps in 'twenty four, but I know you got Canadian grain down a little bit. So maybe just at a high level as you go into 'twenty four, do you view that as kind of a Low base or easy comps, so you can have kind of stronger growth than normal and that maybe gets you up towards where the Street is with 20% earnings growth? Or do you think that it's like, hey, well, let's be a little careful because there is enough weakness that's kind of Macro weakness in the markets that we ought to be a little bit careful on expectations. Thank you. Speaker 500:37:42Tom, I'll make a couple Speaker 400:37:43of comments and then Maybe you want to make a comment or 2, but look, I got bit in 2023. I thought I was had easy comps For potash coming into 2023 and, well, frankly, the numbers were I saw 10% growth in potash and we're at a 10% decline in potash. So fool me once, but we're going to be a little more cautious on that front. Again, in that area, I expect to be We're going to move a lot of Canadian grain, U. S. Speaker 400:38:17Grain over the next Couple of quarters here and we'll watch what materializes, Speaker 500:38:25Tom, as we Speaker 400:38:26move into Q2 and beyond with this crop. That's certainly more challenged in the southern part of Canada. And maybe my last comment is, overall, I feel Hopefully good about the synergies and that ramp up as we look to next year. I do believe this pricing environment Continues to be favorable. As I look to next year, it's all about the macro in the base And how the intermodal business and some of these very heavy consumer driven areas rebound or not. Speaker 400:39:02And we're just going to be very prudent about how we look at those volumes into 2024. Speaker 600:39:08Yes. And Tom, not to get into Too much detail. I mean, it is still October here, about 2024. But I think just fundamentally, you should think about it in The usual way of how we've been successful in the past, which is some volume growth, pricing. We've been hurt by inflation. Speaker 600:39:30It's been a, call it, a significant impact, I think, in transportation in general in 2023. But I think the ability to price above inflation comes back in 2024, which will be positive and accretive. I think currency is going to be Could be supportive as well. And so you factor that in and you can get to that kind of mid to high single The revenue number, and then I think the more important thing is the operating leverage. As this network It starts humming as we start to continue to invest the capacity sidings that Keith mentioned and Mark mentioned, you get the benefits of running A better network as a whole, you get the benefits of some of the synergies, both on the top line and on the operating costs. Speaker 600:40:19I think it Formally, it's a pretty decent EPS growth number. So I'm not backing off. We're not backing off what we think we can achieve. Sure, there's going to be some challenges on the macro side that we're fully aware of and we'll get into that in January and Have a better view of that. But as we stand here now, I don't think we're changing the kind of the earnings model of how We've been successful in the past both at CP and at KCS. Speaker 900:40:50Okay, great. Thank you. Speaker 600:40:52Thanks, Scott. Operator00:40:55Our next question comes from Jon Chappell, Evercore ISI. Speaker 400:41:00Thank you and good afternoon. John or Nadim, about 6 months in, where do you think you stand on the unique pricing true up opportunities that you had across the entire Is that something that's easier to do once you've integrated for a full year when you have more of a demand tailwind at your back? Or was that something where you can enact pretty quickly and we should Start to see the benefit of that as soon as the Q4. Yes. I would say we John, we've attacked that pretty aggressively. Speaker 400:41:28I feel Good. In terms of where we are, we're still discovering things and I don't know maybe we're in the Mid innings of that story as a whole, I can tell you, I think you'll start to see some of Those benefits become probably Q1 of next year, but we still have a number of areas of opportunity that we're going to work over the next certainly this quarter and into Q1. And I do believe that that's given us that does give us a little bit of tailwind as you think about Some of our pricing and since for RTM as you look to 2024. Yes, that makes sense. Thank you. Operator00:42:20Our next question comes from Cherilyn Radbourne, TD Cowen. Speaker 1000:42:26Thanks very Good afternoon. As everyone is aware, the industry is facing a softer freight demand environment. And so I'd be curious whether There are any capital projects that you would contemplate accelerating to take advantage of lower network activity levels and better condition the company for synergy Capture once we get into an eventual recovery scenario. Speaker 200:42:55Sheryl, I would say that from a sourcing standpoint, maybe materials, we'll look at that. But as far as actually executing Capital projects uniquely in this industry, we've got a pretty full plate across our network in line with the commitments we made to the SCB, the Laredo Bridge, The expansion at Bensenville, the sidings, so for us to have too much of an aggressive appetite, I don't think would be the right thing to do because we certainly don't want I don't think that's a cycle we want to get into. So we'll be opportunistic on material purchase perhaps, So still perhaps maybe look at locomotives. We are looking at our locomotive fleet and developing overall long term strategy relative To our demands, our unique industry demands for the business growth as well as some of our ESG objectives and commitments. So those 2 together may give us some chances but to leverage, but again, I think they'll be opportunistic and not anything large scale. Speaker 200:43:56Yes, it's helping Speaker 600:43:57some of our to your point the overall capital efficiency on what we can get done in terms of the fundamentals of changing ties and putting ballast and getting Access to the network. So that's where we're seeing the benefit overall, Cherilyn. Speaker 1000:44:12Thank you for the time. Speaker 600:44:13Thanks. Thank you. Operator00:44:17Our next question comes from Konark Gupta, Scotia Capital. Speaker 800:44:22Thanks for Just on the Q4, John, I wanted to figure out mid single digit RTM growth. Currently, you are down about Maybe flat to down in the 1st 3 weeks of October. Coal, potash are doing fine, they're easy comps, but I think intermodal and green are still a bit soft here. Do you expect some sort of rebound in green intermodal as you head into November, December? And Any new contracts you can point to which might start later this month? Speaker 400:44:55Yes. So as I sit here today, actually We're slightly positive from an RTM perspective in October. I do expect acceleration as we move into November December. I think the grain outlook, Not only Canadian grain, but also our U. S. Speaker 400:45:17Grain franchise looks positive. As I said, Frankly, the potash area couldn't have been more troubling and I'm optimistic we're going to gain some rhythm to close out the year With Potash, again, we're just really ramping. Met coal prices are high. Tech has really strong Demand, we're lapping that outage. So we've got pretty strong growth in not only our net coal, but also some of our Thermal coal in the U. Speaker 400:45:51S. And I do believe, as I said, you'll continue to see us As strategically volume to our 180, 181, we'll continue to ramp up some more ECP Synergy wins and share wins that will all help sort of carry the day to get us to that low mid single digits for our Q4. Speaker 200:46:15I'd say the last bit of color I would add to that is don't underestimate the power Our revenue in our team generation with the pent up demand that we have in Mexico, that's obviously been subdued because of the Lack of capacity and the operational challenges as we continue to free that railroad up. In fact, I think right now we're at an all time high GTM, RTM level in the Mexico franchise, there are no shortage of demand. So the automotive market, the metals market, Those are 2 key economic drivers and demand drivers that the more capacity we free up, the more that we get Speaker 800:46:48to move. Appreciate the color. Thanks. Operator00:46:54Our next question comes from Walter Spracklin, RBC. Speaker 800:46:59Thanks very much, operator. Good afternoon, everyone. So I wanted to actually come back to John on the West Coast port volumes and the strike that you had Alluded to there and the strike occurred in July and you cleared out your Backlog pretty quickly, but the volume declines have continued quite substantially here into August And now September, and I'm just wondering if you're concerned at all that given some of this is discretionary into Vancouver and certainly you saw the Fine. It doesn't take you up in Prince Rupert very strongly. This discretionary aspect of these volumes going to Chicago, have they Found another route. Speaker 800:47:44Are you concerned that that's going to be a while to come back? Do you have any view on how long it comes back? And is Mexico enough of an offset? I know when you look at those port volumes, they're off the charts for Mexico, which is great into September. And is that enough to Offset if there is some more, let's call it, structural impact from this strike that happens in Vancouver, Can you entirely offset that by Mexico or is it just not big enough to offset that kind of decline if Speaker 200:48:14it were to continue? Speaker 400:48:17Yes. So maybe to answer that question first, Walter, I think that's a fair call out. No. I mean, we expect growth At Lazaro, and I said, I'm excited about the future of what we can do at that port, but it's Speaker 500:48:30going to take some time Speaker 400:48:32To ramp that up. So that is not a one for 1 by any means. I do believe structurally there's In somewhat of a change on the West Coast ports. By far and you just look at our train links and where Our volume import volume is going. It's all domestic Canada. Speaker 400:48:54And we've got very little volume going into the I think it will be a function of 2 things. 1 is how quickly this market actually does rebound. I just had My team visiting all the steam ship carriers over in Asia and also in Europe, and they didn't paint a very bright picture. Certainly, it's going to be through 2024 as we see that ramp up. And then we'll have to watch. Speaker 400:49:27Certainly, there's a reason why Vancouver and Prince Rupert and that had success. We have port fluidity. We have some economic advantages. As things tighten back up and As the volume improves in LA, Long Beach, that is really what will be the tell on if you see that freight moves Back up there. But in the meantime, I can tell you we're focused on the business that we're handling within domestic Canada and we are laser focused on how we grow this and leverage that pork with a ton of capacity Don Lazaro, and again, it won't be a one for one offset, but I'm confident we will grow domestically into Mexico and also into that Texas market. Speaker 200:50:17I think a very encouraging comment about the Port Olaza, we just had a trade mission actually the governor Mitchell can Came up and met with John and myself and the team 2 weeks ago in Kansas City. So that's a local government, the state governor that is motivated For economic growth, he understands the potential that Lazaro has. And I can tell you this, historically, KCS had challenges. I think structurally perhaps they didn't go deep into the U. S. Speaker 200:50:46And have an opportunity to provide Competitive interline rates to a West Coast alternative, that's not the case now, we do. And I think the other challenge was the reliability Of the gateway, there was a lot of issues with teacher strikes, with blockades. I can tell you that Governor was proud to tell us the day he met with us 2 weeks ago. That was day 702. He is committed to keeping that track open. Speaker 200:51:12He is committed to growth over that port. And not just that port, there are many other products Once you create the ecosystem and the transportation, the reliable trains back and forth to take products that are grown in that state that are consumed in the Midwest and consumed in parts of Canada that this new reefer ecosystem we're creating Can benefit from and serve. So more to come on that. Again, does it ever replace all of it? No, but it's certainly a unique growth opportunity For us coming from Mexico both on a domestic move as well as leveraging the international opportunity. Speaker 500:51:49Appreciate that color Keith and John. Thank you. Operator00:51:53Our next question comes from Ken Hoexter, Bank of America. Speaker 700:51:58Hey, great. Good afternoon, Keith and team. So if I think, Nadeem, just a quick numbers question and a long term question. Just the $51,000,000 Is there a reason why you didn't take that out of them? I mean, you took $1,000,000 here and there and $22,000,000 numbers. Speaker 700:52:12Just want to understand why that was Left in if it was a historical thing. And then long term, you kind of it's kind of a tale of 2 cities here. On the, I guess, prepared remarks, it was a bit more sanguine about the economy and it was maybe even more negative than what we heard from your Canadian peer or the Eastern rail that we just heard from. But now you're talking about And it seems like a much more upbeat, I don't know, Q and A. It's just a very different position. Speaker 700:52:37I just want And the message that you're trying to send here in terms of the outlook because Nadeem talking about sub-sixty or into the upper 50s on the Just maybe delve into the thoughts there. Speaker 600:52:51Yes. I mean, we answer them like we see them. Ken, you've known us For a long time and that's the visibility we have on near term and what we expect for 2024. So That's our honest and transparent answers of what we think we can deliver and what we hold each other accountable for. So I'll leave it at that. Speaker 600:53:14I mean, I There is pause for concern with the macro environment. We're not of the view that it's a Robust economy by any stretch, but we think that what we can control, we're focused on controlling and we'll deliver. And the visibility that we have on the top line, as John mentioned, in the near term over the RTM of, Call it 3% to 5%, I think is genuine. Why we didn't To strip out the insurance, we had I think a $40,000,000 increase in casualty made up of a bunch of one time items through the year, dollars 20,000,000 jury settlements and such Same reason, I guess, we didn't strip out when we had about $150,000,000 impact from the flooding and costs associated in 2021. Speaker 200:54:11So we're just being Speaker 600:54:11consistent with how we In 2021, so we're just being consistent with how we approach that would be how we thought about that insurance recovery. Speaker 700:54:23Great. And if I can Speaker 500:54:24just squeeze in a follow-up. Speaker 700:54:26I guess you were just talking about Mexico. You sent a team of 50 or 200 down there. I guess, Keith, is there any update on that? Have you changed any operations around? Speaker 200:54:37Yes, of Of course, we have. We've tweaked and adjusted. But yes, we initially started, Ken, with 50, 52 officers that were down there around the clock. It It was a group of every discipline within the company from engineering to operating to IT to customer service To kind of be scramble the egg for the lack of a better term, we were locked up, we were congested. So we debottlenecked. Speaker 200:55:01We've now shifted from A response phase to an enhance and build phase, we made structural changes from a leadership standpoint. John Orr, who led the team, is now focused day to day. He's Responsible for all of Mexican operations and actually up to Beaumont, which is the crude change point with the Tex Mex to take the train south through Houston, that's a natural break. And then of course, Mark has everything north of there. So structurally, we've got a very focused team. Speaker 200:55:27He's continuing to develop talent. We've got the place running smoothly again. We're making progress with labor, which is very encouraging. It's not the kind of progress that creates Monumental quantum change like we've experienced in other parts of our network in our history, but I'll tell you To make the change that we're talking about relative to what's been changed in the past is a testament to the understanding and commitment of the union leadership. I met Personally, with the President of the Union, explained our journey, explained our opportunity and how we could uniquely partner With our employees, his members and I can tell you he and our members are excited and energized by it. Speaker 200:56:09So there's structural change, there's progress that's ongoing And what I would say is expect it to continue. Speaker 700:56:16Thanks for the time. Appreciate it. Operator00:56:20Our next question comes from Brian Ossenbeck, JPMorgan. Speaker 700:56:28Hey, good afternoon. Thanks for taking the question. So just wanted to ask maybe John about the closed loop automotive Potential, it looks like you've been making some significant progress more recently. I don't think we heard an update on it this call, but just if you can go back to that, are you close to the Ordering the cars, what's been the to get the guaranteed car supply, what's been the uptake in the interest level from some of the OEMs? Obviously, some Noise with UAW right now, but is that something we could see perhaps coming forward in 2024? Speaker 700:56:58Thank you. Speaker 400:56:58Yes, Brian, it's been strong. Maybe as far as an update, we've got construction underway in the Dallas market for auto compound there. We expect to see that up and active and frankly sold out by mid next year. So quite excited about that. I said the closed loop we've got currently receiving new buy levels Right now, I think we'll receive upwards of 1200 or so over the coming months to really We targeted at that closed loop model. Speaker 400:57:35So we've got some good early wins there And I expect you to see that being fully deployed as we move into the start of 2024. Speaker 700:57:49Thanks, John. Operator00:57:54Our next question comes from Ben Nolan, Stifel. Yes, thanks. I appreciate you Speaker 400:57:59guys doing that. John, I remember as it relates to potash, I remember a couple of years ago or Last year maybe you mentioned that there might be some opportunities to move potash to the Gulf Coast. Just given everything that's gone on in Portland. Is that something that's materializing or is there an opportunity to maybe do that? Yes. Speaker 400:58:21Ben, I think right now Given everything that's gone on, there's a little bit of pause in terms of that. I don't think anything's changed in terms of We believe the opportunity to create sort of what I would consider a true third outlet for export potash out of Canada, Whether it's K Plus Ups, Canpotex, Future BHP, I think we continue to see that It's a long term opportunity in terms of timing on that. It's probably pushed out a little bit further than When we were thinking about it about a year ago when I spoke about it. Speaker 700:59:00All right. Appreciate it. Thanks. Speaker 400:59:01Thanks, Ben. Operator00:59:05Our next question comes from Justin Long, Stephens. Speaker 100:59:10Thanks. I was wondering if you could provide an update around your expectations for the level of inflation that you're seeing in the business this year and How that compares to your early expectation for inflation as we move into 2024? And when you think about that Speaker 600:59:35Sure. I'll take that, Justin. So we've seen all in inflation closer to that 7% level. And as you know, I mean, it's been pretty apparent. A lot of that has been on the labor side, so the biggest cost buckets. Speaker 600:59:51We have seen also up north the impact of some of the work rest rule changes that have also impacted Comp and benefits. So overall, inflation has been a challenge. It's been a headwind, Much higher than we anticipated at the beginning of the year. And it's partly the reason I think that margins have been where they are. I would say that we expect in 2024 that to moderate. Speaker 601:00:20I think as some of the rate hikes And some of the action by the Fed and Bank of Canada kind of moderate. I think we should start seeing that settle. I think we should start seeing even some of the recent inflation Numbers have moderated. So, I think we'll be closer to call it a 4% level rather than that 7 And I think that's what gives me confidence in our ability to price above inflation. We're still getting Strong pricing, John and his team have done an excellent job. Speaker 601:00:55It's just it's been a high bar this year in particular just because of the call it Onetime nature of some of the labor increases. Speaker 101:01:06Got it. Thank you. Justin. Operator01:01:12Our next question comes from Benoit Poirier, Desjardins Capital Markets. Speaker 101:01:18Yes. Thank you very much. Good afternoon, gentlemen. Keith, you provide great color about the opportunities and John about If we look at the Port of Montreal, there is an upcoming labor agreement with the dock workers. So I'm just wondering if you're having Discussion with shippers about some potential cargo diversion and whether the port of St. Speaker 101:01:51John could get some volume uptick. And with respect to contract expansion, we've seen some announcements lately. I know it's a very long term opportunity, which is Having some challenges, but how do you see the potential opportunities for CPKC longer term? Thank you. Speaker 401:02:13Kevin, I would say yes. Again, I had the team just recently Overseas meeting with all the various ocean lines and certainly Montreal and I don't know it seems like annual trouble But now we've got a ready made option with a lot of capacity and new equipment and an eager partner in DP World To get after it. So I do believe those Backstops in terms of if freight does need to move out of Port of Montreal, St. John presents us now a great opportunity to move that freight. In terms of time to occur, as of right now, it's not a facility or port that we will be looking to serve. Speaker 401:03:15Now who knows those discussions and Renewing of access to that port is ongoing, but frankly our efforts are focused on continuing Service Port of Montreal and grow St. John, it's absolutely growing. Speaker 101:03:33Okay. Thank you very much, gentlemen. Speaker 701:03:36Thanks, Benoit. Operator01:03:39Our final question comes from David Vernon, Bernstein. Speaker 101:03:44Hey, good afternoon guys and Thanks for hosting Speaker 701:03:47the call. I wanted to dig in a Speaker 101:03:48little bit to the headcount commentary. Sequentially, it looked like we had headcount growth and Nadeem, I think you mentioned we're going to be coming down in headcount. Can you help us understand kind of what we should be expecting in sort of Q4 for cost per employee and where the heads are shifting and what's driving sort of the shift? Is this in the transportation function? Is this overhead functions? Speaker 101:04:04Is this just moving jobs up and down? Speaker 601:04:14Fair question. So we had anticipated this for some time. I'd kind of pointed to Q4 as a opportunity to see That inflection, we've been ahead of the curve in terms of hiring and training, just given The challenges I think the economy has seen in terms of getting qualified employees and servicing customer, That doesn't change, but as you see attrition work through Our industry and work through our system and as volumes don't materialize the same way that you can expect, Grain, for example, we know that it's going to be a less robust next year than this year. You can make a call in terms of what you do from a Hiring and training. And so there's some seasonality as well as I mentioned earlier in terms of headcount. Speaker 601:05:08And then when you think about The opportunity as far as synergies, we were going to have some natural opportunities as far as headcount on the synergy side. And then as you get operating leverage, so as you turn to being able to run longer trains, more density and so 4th, you need less employees per GTM and for the volumes you're moving. So it's a combination of all those factors That's going to drive a bit of a reduction in headcount sequentially. And as far as comp per employee, Somewhat dependent on stock based comp now. That's been a bit of a tailwind near term. Speaker 601:05:54Who knows where that's going to end End of the year, but kind of mid single digits is probably a fair estimate as we stand here today. Speaker 101:06:03All right. Thanks very much for the added color guys. Speaker 601:06:05Thanks, David. Speaker 201:06:08We have reached a Speaker 701:06:09lot of Operator01:06:09time for Q and A. Yes, sir. Speaker 601:06:10I'd like to Speaker 501:06:11turn the call back over to you. Speaker 201:06:12Okay. Thank you, operator. Well, listen, thanks The progress that we're making both integrating and executing, we're realist, we're not immune to the macro challenges that we're all facing With this economy that I can tell you we're focused on controlling what we can control. And that's to operate safely always efficiently and continue to sell to What is a very unique 3 nation network that we've created that's allowing us to grow in a unique way at a micro level, Be it share shift, be it customer solutions with new markets, be it take trucks off the road in spite of the micro environment. And when the macro comes back and turns favorable, Now I'll get to Sadi. Speaker 201:06:59So we look forward to sharing our 4th quarter results next time we talk in January. Thank you. Operator01:07:08This concludes today's conference call.Read morePowered by