Canadian Pacific Kansas Q2 2026 Earnings Call: Complete Transcript

Canadian Pacific Kansas (NYSE: CP ) held its second-quarter earnings conference call on Wednesday. Below is the complete transcript from the call. This content is powered APIs. 27, up 13% from the previous year.

, and Mexico, with new records in grain, energy, and chemical volumes, and expanded services such as the Southeast Mexico Express and Mexico Midwest Express. Management remains optimistic about future growth, citing a robust commercial pipeline and strategic investments in locomotive fleet modernization and infrastructure improvements, despite macroeconomic uncertainties. Operational highlights include improved train speed, terminal fluidity, and locomotive productivity, although safety metrics showed an increase in accidents and injuries.

The company maintains a strong financial position, with expectations for continued double-digit earnings growth in 2026 and strategic capital allocations supporting long-term shareholder value. Full Transcript Leo, Operator Good afternoon. My name is Leo, and I will be your conference operator today. At this time I would like to welcome everyone to CPKC's second quarter 2026 conference call.

com. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question, simply press star, then the number one on your telephone keypad.

If you would like to withdraw your question, press star, then the number two. I would now like to introduce Chris Debru, Vice President, Capital Markets, Tax and Treasurer, to begin the conference call. Chris Debru, Vice President, Capital Markets, Tax and Treasurer Thank you, Leo. 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. S. regulators.

This presentation also contains non-GAAP measures as outlined on Slide 3. With me here today is Keith Creel, our President and Chief Executive Officer; Nadeem Velani, our Executive Vice President and Chief Financial Officer; John Brooks, our Executive Vice President and Chief Marketing Officer; and Mark Redd, our Executive Vice President and Chief Operating Officer. The formal remarks will be followed by Q&A. In the interest of time, we would appreciate if you limit your questions to one.

It is now my pleasure to introduce our President and CEO, Mr. Keith Creel. Keith Creel, President and CEO Okay, thanks, Chris. And again, thanks for everyone joining us on the call today.

As I always do, I start by thanking the 20,000-strong team of railroaders we have producing these excellent results. I remain extremely proud to serve with each one of you. So thank you for your efforts and your sacrifices. , and Mexico to the only single-line rail network that uniquely serves all three countries.

We brought these railroads together just over three years ago to create something unique: a network capable of unlocking new supply chains, expanding market access, increasing competition across North America. And we're doing exactly that. With each passing quarter, that vision is becoming a reality. 27, which is an increase of 13%.

Results were driven by a combination of disciplined execution by Mark and the team, strong service performance, and continued growth across many of our key franchises. Operationally, the railroad continues to perform at a very high level. During the quarter we established new records across a number of the key operating metrics, with utilization, train velocity, terminal fluidity all improved year over year, demonstrating the ability to safely and efficiently move more freight across the network while creating additional capacity. For on the growth initiative side, what continues to excite us the most is the opportunities ahead.

The rationale for combining CP and KCS is pretty simple: create the first and only single-line railroad that links Canada, the United States, and Mexico, and leverage the network to generate value for our customers and our shareholders. Today we're seeing the strategy translating to these tangible results. During the quarter we established volume records in grain, energy, chemicals.

We also advanced several important commercial initiatives to reinforce the long-term growth story of our network and franchise: the launch and the momentum behind our enhanced Southeast Mexico Express service, continued growth on the Mexico Midwest Express service, the opening of another Americold facility, this time at the Port of Saint John in Atlantic Canada, and continued increases in traffic flows between Canada and Mexico via the CPKC land bridge that uniquely is enabled by this North American franchise. Perhaps most importantly, as we look forward, our commercial pipeline remains robust.

Customers across multiple sectors continue to look for ways to simplify supply chains, reduce friction at borders, increase resiliency, improve transit performance. CPKC is uniquely positioned to help them achieve those objectives. So in closing, as we enter the second half of the year, we do so from a position of strength. Our network is performing extremely well, our service product is strong, our growth pipeline continues to expand, and while uncertainty remains in parts of the macroeconomic environment, we're encouraged by the improved market conditions across several markets.

It's a growth story: growth in cross-border traffic, growth in these supply chains, growth enabled by a network that is uniquely created in North America by CPKC. We're still in the early chapters of this story, realizing the full potential of this franchise. We've led the industry in revenue and earnings growth the last two years, and we're well positioned to deliver another year of double-digit earnings growth in 2026. So with that said, I'm going to turn it over to Mark to elaborate a bit on operations.

John Brooks will come on the markets, maybe on the numbers, and we look forward to the Q&A session. Mark, over to you. Mark Redd, Executive Vice President and Chief Operating Officer Thank you, Keith, and good afternoon. I want to begin by recognizing our team of railroaders across North America for another outstanding quarter of execution.

The commitment, discipline, and focus enable CPKC to deliver record levels of operating performance while continuing to provide customers with safe and reliable service. In the quarter, we set second-quarter records across a number of key productivity metrics including train speed, dwell, locomotive productivity, and fuel efficiency. These results reflect the strength of our operating model and, most importantly, the dedication of our railroaders as we continue to execute at a very high level every day. S.

and Canadian operating systems, the benefits of that work continue to be realized across the network. Our teams are aligned around common processes, sharing performance measures, and real-time visibility across the network. This is allowing us to identify opportunities quicker, resolve issues faster, and make better decisions as we continue to realize the benefits of the operations as one railroad. Operating performance remains a critical focus area.

S. operating systems allow us to manage train execution across the network with greater precision and consistency than ever before. The result is a more fluid, efficient, and consistent railroad, delivering even stronger service and asset utilization across the three-nation system. Turning to safety, this remains our top priority.

96 for FRA personal injuries. While we are disappointed by these results, we remain fully committed to continuous improvement. Safety is a journey that requires constant diligence, learning, and engagement. We're taking action to address the underlying trends and remain focused on ensuring every employee returns home safe at every shift while continuing to improve the safety of our operations.

Returning to our locomotive fleet, we have now received all 70 Wabtec locomotives scheduled for delivery in 2026. We remain on track to begin receiving Progress Rail locomotives in the second half. Building on the 100 locomotives received from Wabtec last year, we continue to make significant investments in fleet modernization to support the long-term growth and efficiency of our Canadian Pacific Kansas network. These investments are already supporting improved reliability and efficiency across the network, particularly on our transcon operations in Canada where the new units have been deployed.

As additional locomotives enter service, we expect further benefit through improved asset availability, network resilience, and operating performance. Finally, our engineering team has been consistently delivering exceptional productivity. Their work has supported record grain loadings while maintaining strong network performance. Importantly, rail and tie replacement continues to progress ahead of schedule.

Our rail and tie crews have increased year-over-year installation productivity by 18% and 59%, respectively. We fully expect to be off the main line in Western Canada well before the start of the fall harvest season, positioning us to support customer demand during one of the busiest periods of the year. In closing, the railroad continues to perform at an extremely high level. As a note, John and I spent some time on the railroad last week, and we came away pleased with what we accomplished while also identifying the areas of further opportunity.

That's what true PSR looks like. I always remember, A-plus today is B-minus tomorrow, as we continue to drive for continuous improvement. Strong execution by our employees, the benefits of strengthening our integration, disciplined focus on service performance, strategic investments, and continued productivity improvements across the business will position us well in the second half. With that, I'll turn it over to Jeff.

John Brooks, Executive Vice President and Chief Marketing Officer All right, thank you, Mark, and good afternoon. Our second quarter results reflect the strength of CPKC's unique franchise and the benefits of our three-nation network. This quarter is another great example of how we continue to stack up growth from synergies and new business wins. We're realizing strong price for the value of the service and our capacity.

Now, looking at our Q2 results, we delivered Q2 record freight revenues excluding fuel and all-time record GPMs, up 13% and 4% respectively. System RTMs increased 9%, reflecting higher fuel surcharge revenue, sustained pricing strength and moderating mix headwinds. Based on our current outlook for fuel and FX, we expect continued strength in yields in the second half of the year. Moving on to the next slide, and before discussing the lines of business, I'd like to spend a moment on the consistency of our growth.

Reflecting on Q2 since 2023, we've delivered 17% RPM growth, or 22% excluding fuel. This performance, despite a challenging macro backdrop, is a result of laser-focused commercial strength of our service product, network efficiency and the capacity we can offer into the marketplace. Now taking a closer look at our second quarter revenue performance, I'll speak to FX-adjusted results. Starting with Bulk, Q2 was another record quarter for grain in revenue, RTMs and carloads, with revenue increasing 24% on 19% volume growth.

Canadian grain volumes increased 24%, driven by record harvest and continued growth in markets such as Mexico. S. grain volumes increased 14%, also driven by strong demand into Mexico and to the PNW markets. Looking ahead, we remain optimistic that both supply and demand will remain solid through Q3, and although it's still early to tell, the new crop across our network is off to a pretty good start.

Potash revenues were up 10% on a 2% decline in volume, reflecting the impact of port maintenance and lower mine production. Looking ahead, while we continue to expect impacts from port maintenance, export demand fundamentals remain healthy, and we are working closely with our customers in this space to maximize our potash volumes into the second half of the year. To round out Bulk, coal revenue declined 18% on a 29% reduction in volumes, reducing our total RTM growth by approximately 3% on the quarter. This decline is driven by ongoing production-related challenges as our customer mines impacted shipments throughout the quarter.

While run rates have stabilized and the shipment levels are improving, we expect coal to continue to be a headwind in the second half of the year. Moving on to Merchandise, Energy, Chemicals and Plastics revenue increased 8% on 6% volume growth. The volume growth was driven primarily by higher VRU and conventional crude shipments, partially offset by lower fuel oil shipments into Mexico. Looking ahead, we expect continued growth in ECP driven by improved market fundamentals and new business wins.

Forest products revenue increased 2% on 2% lower volumes. S. markets, highlighting our unique ability to connect supply and demand across North America. In fact, despite higher interest rates and lower housing starts, June marked a record month for lumber synergy shipments across our network.

Metals, Minerals and Consumer Products revenue increased 16% on 7% volume growth. Growth was driven by improving steel volumes across both domestic and land bridge lanes, along with continued strength in aggregate shipments supported by new construction activity in the southern part of our network. Moving on to Automotive, revenue increased 19% on 8% volume growth, representing another record quarter. Growth was driven by new business wins and extended length of haul to be a compelling example of the value of our three-nation network.

Closing with our intermodal franchise, revenue increased 11% on flat volumes. Domestic intermodal volumes increased 3% in the quarter. We are encouraged by the early success of our SMSMX service with CSX. With volumes increasing more than 30% from Q1, we are seeing signs of improving truck-to-rail conversion opportunities supported by higher fuel prices, tighter regulatory enforcement and reduced trucking capacity.

Both our MMX and FMX services are well positioned to capitalize on these favorable market dynamics. International volumes declined 2% as we lap strong pull-ahead on prior-year comparisons. Looking ahead, we expect to return to growth in International, supported by our strong service products from the Port of Vancouver and as we execute specific growth initiatives at the Port of St. John and also Lázaro Cárdenas.

So in summary, the pipeline of unique growth opportunities is strong, and we continue to capture pricing momentum across our book of business. With improvements in the freight demand trends, continued synergy realization and a growing pipeline of new business wins, I remain very confident in our ability to deliver mid single digit volume growth in 2026. With that, I'll pass it over to Nadeem Velani. Nadeem Velani, Executive Vice President and Chief Financial Officer All right, thanks, John, and good afternoon.

We delivered another quarter of strong volume growth, disciplined execution and effective cost control. These results underscore the strength of our franchise and our ability to translate our unique opportunity into earnings and cash flow growth. We continue to realize merger synergies, while Mark and his team are delivering excellent operating performance and customer service. I'm very pleased with the underlying performance of the business and the momentum we are carrying into the second half of the year.

6%. 6%, up 90 basis points from last year. 27, up 13% versus last year. Taking a closer look at our expenses on Slide 16, I will speak to the year-over-year variances on an FX-adjusted basis.

Core adjusted comp and benefits expense was 702 million. The year-over-year increase was driven by higher stock-based compensation, wage inflation and volume-related costs. These were partially offset by ongoing productivity gains, improving train weights and continued operating efficiency improvements. Looking ahead, we expect to continue generating strong labor productivity in the second half of the year, with modest headcount growth supporting accelerating volume growth.

Fuel expense was up 49% year over year.