CALGARY, Alberta — Canadian Pacific Kansas City reported higher first-quarter revenue and profits today as it carried more freight, but the railway also reduced its full-year outlook due to lingering uncertainty over tariffs and trade policy.
“We’re undoubtedly off to a strong start in 2025 and we’re experiencing a strong start to the second quarter as well,” CEO Keith Creel told investors and analysts on the railway’s earnings call. “That being said, there’s certainly an undeniable macro-environment uncertainty that exists, trade policy uncertainty, and currency uncertainty. As such, based on what we do know today, we do feel it’s prudent and responsible to adjust our guidance at this time.”
Although CPKC still expects traffic to grow between 4% and 6% this year, the railway now forecasts 10% to 14% earnings growth, down from 12% to 18% in its January outlook.
The railway’s first-quarter operating income increased 15%, to $940 million, as revenue grew 8%, to $2.8 billion. Earnings per share increased 17%, to 70 cents. CPKC’s operating ratio was 65.3%, a 2.1-point improvement.
Volume was up 4% based on revenue ton-miles, or 3% when measured by carloads and intermodal containers. The growth was driven by CPKC’s grain, coal, potash, automotive, and intermodal traffic. Shipments of forest products; energy, chemicals, and plastics; and metals, minerals, and consumer products all declined.
CPKC’s cross-border automotive and steel traffic, as well as soybean exports from the U.S. to China, are the most at risk from ongoing trade disputes, Chief Marketing Officer John Brooks says.
But as tariffs raise trade barriers between the U.S. and its North American neighbors, there are opportunities for CPKC to develop new traffic linking Canada and Mexico.
“We stepped into this trade storm that we’re facing to become market makers. We’re seeing opportunities with new trade flows between Canada and Mexico,” Creel says.
They include sending more Canadian refined fuels, LPG, plastics and grain to Mexico — and handling more shipments of appliances, furniture, food products, finished vehicles, and auto parts from Mexico to Canada.
“CPKC uniquely serves as a land bridge between Canada and Mexico,” Creel says of the network, which was the product of the 2023 merger of Canadian Pacific and Kansas City Southern.
CPKC also is urging the governments of Canada and Mexico to adopt policies that would support growth in trade, such as streamlining some regulations affecting cross-border grain moves. “We’re hearing from both governments a genuine desire to see the Canada-Mexico trade relationship mature and deepen, and we’re playing a major role in supporting that agenda,” Creel says.
A 60-day CPKC sales blitz, involving discussions with 500 customers, drummed up $100 million in new merchandise and energy, chemicals, and plastics business that will move via CPKC’s Canada-Mexico land bridge across the U.S., Brooks says.
Creel says he had discussions with the CEO of a Canadian retailer about how to replace products imported from the U.S. Many of the products, Creel says, were actually produced in Mexico and trucked across the U.S. border for processing or packaging before being trucked to Canada.
“When you’re a railroad that can uniquely connect the origin and destination, and the middleman is redundant or not necessary … that creates opportunities,” Creel says.
Meanwhile, CPKC’s cross-border Mexico Midwest Express intermodal service, which links Chicago with points in Mexico, continues to grow. Volume was up 42% for the quarter. More growth is on the way thanks to Schneider’s first moves of auto parts.
For the quarter, CPKC’s key operational and safety metrics all improved.
Creel is putting lipstick on a pig. Industry and retail started building inventories last fall, knowing what was coming. Of course all the class 1s benefitted. If tariffs remain in place, a very deep recession is coming. It the dear leader backs down, a recession still comes because of inventories and supply chain disruptions.
The pocket stuffing executives will sill have 8 figure paydays. Failing upwards works!
Gregg, when do you declare it a good thing? You have referenced Creel and the merger as bad news since Day 1. What standard has to be in place before you are convinced it works? Just curious what you are comparing it too.
John, a “good thing” would be an industry using free cash flow for capacity additions, not wasting it on share buybacks (which were illegal manipulation until Reagan). For 20 years more has been spent on buybacks and dividends than CapEx. Most CapEx is for replacement, not capacity. The class 1s have systematically stripped assets to the bone, fired a third of the workforce and abandoned huge market segments and have stagnant growth while trucking has steady growth (well documented by Bill Stephens here). Class 1s operate as monopolies for many customers and service lanes and engage in price gouging above inflation. All of them have regular service quality meltdowns because there is no resilience allowed under PSR.
Customers, public and environment suffers because of this bald faced greed. This isn’t success; it only “works” for grossly overpaid executives like Creel and their Wall Street masters.
@Gregg: I do agree on the stock repurchase “greed” that is going on and how it drains away capital for more important investments. In fact I found that CPKC starting February 2025 will begin a quarterly SRP as reported here:
“(RTTNews) – Canadian Pacific Kansas City (CPKC) announced that the Toronto Stock Exchange has approved its plan to repurchase up to 37.35 million common shares, representing approximately 4% of its outstanding shares as of February 18, 2025. The normal course issuer bid (NCIB) will commence on March 3, 2025, and run through March 2, 2026.
CEO Keith Creel stated that, after strengthening its balance sheet following the merger of Canadian Pacific and Kansas City Southern, CPKC is confident in reinstating its share buyback program, leveraging strong cash flow and growth opportunities.
The repurchases may be conducted through the TSX, the NYSE, or other permitted channels, including open market transactions, private agreements, or issuer bid exemptions. Shares will be acquired at market price and immediately canceled. CPKC also plans to implement an automatic purchase plan during blackout periods, allowing its broker to execute transactions based on pre-set parameters.
With 933.7 million shares outstanding as of February 18, 2025, CPKC will adhere to daily repurchase limits set by the TSX and NYSE. The company believes the buyback is a strategic use of funds but does not guarantee the number of shares to be repurchased.”
However, I looked at CPKC analytics and it shows that the repurchase percentage in the past 5 years to be -7.60%. This means they have issued more shares in the past 5 years than they have repurchased. CPKC is ranked in the bottom 30% of companies with repurchase plans and given a “worse than market” ranking. This may have been because their balance sheet was in bad shape and they were perserving capital for non stock related activities (like internally financing the KCS merge).
I quote an analytical report on CPKC when it says:
“But as pointed by Warren Buffett, only if a company buys back shares at the prices below the stock’s intrinsic value, it rewards remaining shareholders. If a company buys its overvalued stocks back, it destroys shareholder value”
37.35 million shares at market, $1480 USD/share is roughly $53 trillion.