CALGARY, Alberta — Canadian Pacific Kansas City (NASDAQ: CP) reported higher fourth-quarter profits and revenue as the railway’s merger-related synergies accelerated.
“Despite a number of challenges, we delivered on the guidance that we set out at the start of the year, to produce double-digit earnings growth. And we did it safely,” CEO Keith Creel told investors and analysts on the railway’s earnings call Wednesday.
Despite economic uncertainties and the Trump administration’s threat of imposing 25% tariffs on goods imported from Canada and Mexico, CPKC expects revenue ton-miles to grow between 4% and 6% this year, which will help generate earnings growth of 12% to 18%.
With the only rail network linking Canada, Mexico and the U.S., CPKC is the Class I railroad that’s most dependent on North American trade.
“We’ve entered into 2025 with a tremendous amount of momentum that we fully expect to build on as we move throughout the year,” Creel said. “The long-term fundamentals of the North American economy and trade between the three countries this network uniquely connects remain unchanged.”
The bottom line, he says, is that no one knows what impact tariffs and trade negotiations may have on the U.S., Canada and Mexico — and what risk they pose to CPKC, which was created to tap trade growth through a CA$31 billion ($21.5 billion) merger in 2023.
But the three countries’ economies and supply chains remain inextricably linked.
Auto manufacturing is but one example, Creel says. Engines and transmissions made in the U.S. are shipped to assembly plants in Mexico, which then sends finished vehicles to U.S. dealers.
“The fact is we’ve got 75% of production capacity in the U.S. and 25% that’s got to come from somewhere else based on what we consume on an annual basis,” he said. “So that type of interdependence, that type of need, is woven into this economy.”
Plus, concerns about supply chain security are driving increased nearshoring of manufacturing, Creel says. “Trade between these three nations has never been, in my assessment, more critical,” he said.
Chief Marketing Officer John Brooks says there wasn’t much change in supply chains after tariffs were raised during the first Trump administration.
“The reality was that these supply chains are very complex. It’s commodity by commodity, it’s lane by lane, it’s customer by customer,” Brooks said. “And ultimately what happens, and I think what we saw, is there wasn’t a lot of change. It’s hard to change these complexities overnight.”
CPKC continues to invest in cross-border capacity in anticipation of ongoing traffic growth, Chief Operating Officer Mark Redd says.
Eight new passing sidings, along with segments of centralized traffic control (CTC), entered service in the U.S. last year, while capacity projects reduced bottlenecks in Mexico. “These investments are paying off,” Redd said.
The Patrick J. Ottensmeyer International Bridge over the Rio Grande at Laredo, Texas, opened last month and has more than doubled CPKC’s capacity at the busiest rail gateway to Mexico.
“The increased capacity is allowing my team to optimize border crossings and improve the efficiency at the border,” Redd said.
CPKC will continue to add passing sidings and CTC this year on its north-south spine linking the Midwest and Mexico.
“Our timing to in-service these investments is aligned closely with our growth outlook, ensuring that our network performance … and our volume growth are in lockstep,” Redd says.
CPKC also will take delivery of 100 new Tier 4 locomotives this year — the largest locomotive order in years. Officials did not mention the builder. Last year Wabtec disclosed that it had received a $600 million, multiyear order for Tier 4 locomotives but did not name the railroad. [See “Wabtec earnings surge …,” Trains News Wire, July 24, 2024.] CPKC continues to upgrade former Kansas City Southern locomotives so that they can lead trains in Canada, which will improve operational flexibility.
For the quarter, CPKC’s volume was up 2% on a revenue ton-miles basis, or down 4% when measured by carloads and containers. For the year, RTMs grew 3%, while carloads and containers were down 4%.
Brooks outlined a number of merger-related synergies that have driven growth on CPKC. Among them:
- The railway is sending more Canadian grain to markets south of Kansas City, Missouri, including Mexico.
- Automotive had a record year, with volume up 23% in the fourth quarter alone thanks in part to the new CPKC Dallas-area auto terminal in Wylie, Texas, and its closed-loop movement of auto racks between automakers’ assembly plants in Canada, the U.S. and Mexico.
- There has been cross-border intermodal growth with its flagship Mexico Midwest Express service linking Chicago with points in Mexico, plus the new interline service with CSX between the Southeast and Mexico via interchange on the former Meridian & Bigbee short line in Alabama.
- Forest products shipments from Canada to the Dallas-Fort Worth market grew despite overall softness in housing construction.
- New aggregates and aluminum facilities on CPKC in the Southeast and Mexico.
For the fourth quarter, CPKC’s operating income increased 8%, to CA$1.5 billion, as revenue grew 2%, to CA$3.87 billion. Earnings per share, adjusted for the impact of one-time items, increased 9%, to CA$1.29.
The quarterly operating ratio improved 2.1 points, to 59.7%.
For the full year, CPKC’s operating income grew 18%, to CA$5.1 billion, as revenue grew 16%, to CA$14.5 billion. Earnings per share increased 11% on an adjusted basis.
Full-year operating ratio was 64.4%, a 0.6-point improvement over 2023.
CPKC again led the industry with the lowest train accident rate in 2024, while its personal injury rate improved by 17% for the year.
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