Canadian Pacific Kansas City Q1 2025 Earnings Report

Canadian Pacific Kansas City EPS Results

• Actual EPS: $0.74
• Consensus EPS: $0.74
• Beat/Miss: Met Expectations
• One Year Ago EPS: $0.93

Canadian Pacific Kansas City Revenue Results

• Actual Revenue: $2.66 billion
• Expected Revenue: $2.56 billion
• Beat/Miss: Beat by +$102.11 million
• YoY Revenue Growth: +8.00%

Canadian Pacific Kansas City Announcement Details

• Quarter: Q1 2025
• Date: 4/30/2025
• Time: After Market Closes
• Conference Call Date: Wednesday, April 30, 2025
• Conference Call Time: 4:30PM ET

Canadian 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. Canadian Pacific Kansas City Limited was incorporated in 1881 and is headquartered in Calgary, Canada.

Canadian Pacific Kansas City Q1 2025 Earnings Call Transcript

Key Takeaways

• CPKC delivered a strong Q1 with revenue up 8% to $3.8 billion, volume growth of 4%, an operating ratio of 62.5% and 14% earnings growth, all alongside record improvements in safety metrics.
• Despite macro and trade-policy uncertainty and a stronger Canadian dollar, management updated guidance but expects mid-single-digit RTM growth and a full-year operating ratio below 60%.
• Bulk commodity performance remained robust—grain revenues +43%, potash +108%, coal +21%—while merchandise highlights included a record LPG quarter, automotive revenues +18% on 24% volume growth, and intermodal volumes +4% (MMX +42%).
• CPKC is leveraging its three-nation land bridge to capture new Canada-Mexico trade flows, working with both governments and the FRA on regulatory changes to cut redundant tests, boost safety and improve service.
• Capital allocation priorities include divesting its non-core PCRC stake, generating $466 million of free cash flow in Q1, launching a 4% share buyback (20% completed) and raising the quarterly dividend by 20%.

Presentation

[Operator]

Good afternoon, everyone. My name is Beau, and I will be your conference operator today. At this time, I would like to welcome everyone to CPKC's First Quarter twenty twenty five Conference Call. The slides accompanying today's call are available at investor.cpkcr.com. All lines have been placed on mute to prevent any background noise.

[Operator]

After the speakers' remarks, there will be a question and answer session. I would now like to introduce Mr. Chris De Bruin, Vice President, Capital Markets, to begin the conference call. Please go ahead, sir.

[Chris de Bruyn, Vice President Capital Markets & Treasurer at Canadian Pacific Kansas City]

Thank you, Bo. 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 two, in the press release and in the MD and A filed with Canadian and U.

[Chris de Bruyn, Vice President Capital Markets & Treasurer at Canadian Pacific Kansas City]

S. Regulators. This presentation also contains non GAAP measures outlined on Slide three. With me here today is Keith Creel, our President and Chief Executive Officer Nadim Vellani, 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 and A.

[Chris de Bruyn, Vice President Capital Markets & Treasurer at Canadian Pacific Kansas City]

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 Chief Executive Officer at Canadian Pacific Kansas City]

Thanks, Chris. It's certainly great to be here with everyone today.

[Keith Creel, President and Chief Executive Officer at Canadian Pacific Kansas City]

First order of business, I'd be remiss not to pay tribute and express my appreciation to the 20,000 strong team of railroaders we have spread across three nations that I get the privilege to serve with on a daily basis that actually produce these results, results that certainly demonstrate industry best performance. First quarter, the team delivered revenue of $3,800,000,000 which is up 8%. The revenue growth was driven by volume growth of 4% and operating ratio of 62.5, which is 150 basis point improvement and industry best earnings growth of 14%, producing 1.06 of earnings. Finally, most importantly, a record performance from a safety perspective, driving tremendous improvement on both train accidents as well as personal injuries. We're undoubtedly off to a strong start in 2025, and we're experiencing a strong start to the second quarter as well.

[Keith Creel, President and Chief Executive Officer at Canadian Pacific Kansas City]

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 to and responsible to adjust our guidance at this time. That said, I firmly believe as a leader, it's our responsibility to drive positive results with those things that we can control. We're not paid to make excuses. Crisis creates opportunities, and that's how we're approaching this uncertainty around tariffs and trade policies.

[Keith Creel, President and Chief Executive Officer at Canadian Pacific Kansas City]

Our base business remains strong. It's reflected in the results in the quarter and our volumes year to date driven by strength in our grain portfolio, coal, potash, intermodal, including a record quarter on our Midwest, Mexico Express as well as a new partnership with Gemini. The uncertainty that's created by these shifting trade policies on a positive side is also accelerating opportunities that we always eventually felt would develop when we combine these two companies. This unparalleled three nation network is uniquely built for times like this. We stepped into this trade storm that we're facing to become market makers.

[Keith Creel, President and Chief Executive Officer at Canadian Pacific Kansas City]

We're seeing opportunities with new trade flows between Canada and Mexico. We've got increased refined fuels, LPGs, plastics, grains that our customers in Canada are sending south as they look to diversify their end markets. Our network connects to those new end markets that land bridge to Mexico uniquely. The ability to move more appliances coming north, furniture, food products, finished vehicles and auto parts from Mexico to Canada as well. CPKC uniquely serves as a land bridge between Canada and Mexico.

[Keith Creel, President and Chief Executive Officer at Canadian Pacific Kansas City]

We're working closely with our customers in creating these industry unique positive outcomes. But it's not just at the customer level that we're driving these results. Our teams are working closely with the government in Canada, at the federal provincial level as well as the government in Mexico regarding policies that could further incentivize growing Canada to Mexico trade volumes. 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. Now let's talk more on The U.

[Keith Creel, President and Chief Executive Officer at Canadian Pacific Kansas City]

S. Front. With the FRA, another very encouraging area of opportunity, positive developments and opportunities that we've been actively working on from a regulatory perspective. I'm extremely encouraged by the early discussions with Secretary Duffy and the U. S.

[Keith Creel, President and Chief Executive Officer at Canadian Pacific Kansas City]

Department of Transportation team, especially those in place at the FRA on their willingness to implement process changes and utilization of technology to deliver safer and more reliable outcomes. It makes too much sense not to do these things. Mark will get into the details. They're fact based, data driven results and opportunities that the regulator wants to embrace for best outcomes from a safety perspective as well as from a service perspective. This is all, again, refreshing change in my mind, common sense, best sense, value creating change.

[Keith Creel, President and Chief Executive Officer at Canadian Pacific Kansas City]

In line with other value creation opportunities that we realized in the quarter, the PCRC, the Panama Canal Railway, as you've seen earlier in the month, after careful evaluation, we made the decision to divest our 50% stake in the railroad. The sale of this noncore asset to a key strategic partner, a major customer of the PCRC, allows us to focus on our core business and generates additional capital that we deploy to create value for our shareholders elsewhere in our three nation network. With shareholder returns, another area of strength, last month having delivered on our commitment to repay debt and reduce our leverage following the merger, we announced a new 4% share buyback program. And just yesterday, we announced a 20% increase on our quarterly dividend. I'm very pleased with this company to be in a position of strength again to begin returning cash to shareholders, particularly in this volatile market.

[Keith Creel, President and Chief Executive Officer at Canadian Pacific Kansas City]

So in closing, let me say this. The short term uncertainties undoubtedly from the macro to trade policies. That said, this network is performing extremely well, and volumes continue to be strong. We've continued the momentum we carried from 2024 to the first four months of twenty twenty five, just as we told you we would do. We have the opportunity, the network and the team to drive a differentiated outcome, and that's exactly what we will do.

[Keith Creel, President and Chief Executive Officer at Canadian Pacific Kansas City]

So with that said, I'm going turn it over to Mark to speak a bit to the operation, John provide some color on the markets, Nadeem on the numbers, and then we'll open it up for questions. Over to you, Mark.

[Mark Redd, Executive VP & COO at Canadian Pacific Kansas City]

Okay. Thank you, Keith, and good afternoon. The operating team did deliver another strong, strong performance for the quarter, demonstrating why they are the best in the business. Their focus on safely delivering our precision scheduled service model is delivering exceptional results even during some of the challenging winter operating conditions throughout most of February. Dealing with three consecutive weeks of extreme cold is no easy feat, and I'm particularly proud of how quickly our network bounced back to produce a record March.

[Mark Redd, Executive VP & COO at Canadian Pacific Kansas City]

We have carried this momentum also into second quarter. I think about the results. We continue to drive strong year over year operating improvements. Our train weight and length improved 54%. Our locomotive productivity improved percent.

[Mark Redd, Executive VP & COO at Canadian Pacific Kansas City]

Fuel efficiency was flat despite the challenging winter. We delivered on strong demand. And in March, we delivered the strongest daily GTMs in our combined company history. We met demand safely, efficiently in part of by leveraging our prior investments in locomotive interoperability, allowing us to send power from the southern portion of the network to the Western portion of Canada, where we saw a significant surge in GTMs. Our resilient network is well positioned to maintain this momentum, quickly adapt to changes in the operating environment as needed.

[Mark Redd, Executive VP & COO at Canadian Pacific Kansas City]

If I look at safety, the FRE personal injuries were 0.98, which is 14% better year over year improvement. Our FRE train accident at a record 0.38, that's 58% improvement year over year and noted a record performance as a combined company. And although we never stopped striving to do better, I'm extremely proud of the team for their commitment to our home safe culture. If I look at the labor update, just turning to labor, I'm pleased on the progress we have made in this space. Recently, we announced four year agreements ratified by both Unifor, MWED and USW in Canada representing our mechanical, engineering and clerical forces.

[Mark Redd, Executive VP & COO at Canadian Pacific Kansas City]

We're also working closely with the unions in The U. S. To expand our hourly agreements. These hourly agreements will support some of the redefined crew districts that we are in the process of implementing. As we evaluate traffic flows across this new network, combining crew districts in certain areas will allow us to run extended runs, further improve cycle times and deliver more resilient service to our customers.

[Mark Redd, Executive VP & COO at Canadian Pacific Kansas City]

As Keith noted and very proud, we are working closely with the FRA on a number of initiatives that will enhance safety and generate operational improvements, including removing redundant air test at The U. S.-Mexican border, also securing the final waiver approval to optimize where we change bad orders bad order wheels on our network, driving yard efficiencies and also reducing dwell at key locations like Kansas City and Laredo Exploring our Coldwell technology that will that when implemented in Canada or when we did implement in Canada, we've identified 30% more defects than the standard tests. And the ability to better utilize our broken rail detection in dark territories, since we began this in 2021, we've detected 150 instances of broken rail preventing numerous derailments. I'm extremely encouraged by the F rail and their willingness to explore the process and technology improvements, which will lead to improved safety outcomes and enhanced service. As I look at the balance of 2025, our capital plan is built to support safe, efficient, sustainable growth through pinpointed investments.

[Mark Redd, Executive VP & COO at Canadian Pacific Kansas City]

We have capital investments coming online this year, including merger sidings and CPC that we spoke about, along with targeted investments in Mexico and Kansas City area to improve fluidity through those key corridors. We're also beginning to take on delivery of the new Tier four locomotives in the coming week that will support our growth and improve reliability and fuel efficiency for our fleet. We will continue to make targeted safety investments across the network, including high pass detectors and broken rail detectors, which are improving safety and generating material expense savings. So in closing, we have a lot of momentum operationally. This network is built to drive growth with the team to execute it.

[Mark Redd, Executive VP & COO at Canadian Pacific Kansas City]

The operating team and commercial team are closely aligned and work with each other on our customers to adapt quickly to changes in demand and traffic flows. And with that, I'll pass it over to John.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

All right. Thank you, Mark, and good afternoon, everyone. I'm extremely pleased with the record volumes and revenue, continued strong pricing and unique value for our customers that we delivered this quarter. This performance is unique, particularly impressive as you think about the weather impact from February along with the macro and tariff policy uncertainty. Q2 is off to a strong start, as Keith said, and our network is performing quite well.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

And although we continue to face this uncertainty, the team is laser focused on what we can control and I'm confident in our ability to deliver disciplined growth to this network. Now looking at our Q1 results. This quarter, we delivered freight revenue growth of 9% on a 4% increase in RTMs. Sense per RTM was up 5% with strong pricing and FX partially offset by fuel and mix. Now taking a closer look at our first quarter performance, I'll speak on FX adjusted results.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

Starting with our bulk business, grain revenues were up 43% volume growth, a record Q1 performance. Canadian grain volumes were up 12% driven by increased grain to Vancouver and Mexico as export demand remains steady and we drive unique growth from our synergies. Now looking forward, our comps remain favorable through the first half of the year. The VRCPI was recently reported at 3.1% and our outlook for further synergies remain strong. Moving to U.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

S. Grain, volumes were down 5% over prior year as we saw reduced volumes of U. S. Grain exports. However, our U.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

S. Grain franchise remains well positioned with available grain stocks. And as we look ahead, we expect steady volumes across multiple outlets including to the P And W, Canada, Eastern U. S. And down to Mexico.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

We also had a record Q1 in potash with revenues up 108% volume growth. With positive demand fundamentals and Canpotex fully committed at strong levels through the first half of the year, we continue to expect another strong year of potash growth in 2025. And to finish out bulk, we closed the quarter with coal revenue up 21% on 10% volume growth. Strength was driven by higher Canadian met coal as we moved more volume to Vancouver and Thunder Bay driven by inventory drawdowns resulting from the prior labor strikes and weather impacts. Now moving to our merchandise business segment.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

Energy, chemicals and plastics revenue grew 3% on flat volumes. Our base ECP franchise continues to deliver volume growth across multiple commodities from synergies, self help, market share gains, and they were offset this quarter though by lower crude volumes. We had strong growth from refined fuel shipments and plastics from both The U. S. Gulf Coast and Canada into Mexico.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

We also posted an all time record LPG performance in the quarter as our network is efficiently connecting Canadian production with destinations in The U. S. And Mexico. Looking ahead, we have a very positive outlook for this business segment with opportunities across multiple commodities, improving crude fundamentals and new opportunities for trade directly between Mexico and Canada. Forest Products revenues were up 2% on 4% volume growth.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

We continue to drive synergies and extended length of haul in this space despite uncertain markets in a softer base demand. Volume this quarter did benefit from higher wood pulp and paperboard driven by synergies and a new contract that we secured last fall. Metals, Minerals and Consumer Products revenue was down 1% on flat volumes. A softer demand environment coupled with supply chain shifts impacted the volumes in the quarter. These declines were partially offset by higher volumes of frac sand and aggregates.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

Looking forward, we see lower cross border steel demand resulting from the tariffs. However, we expect to see partial offsets from growth at two new aggregate transload terminals along with the development of direct steel moves that our network can facilitate between Canada and Mexico. Moving on to the automotive area, revenues were up 18% on 24% volume growth. We posted another record quarter as this continues to be an area of unique growth for CPKC driven by our advantaged footprint, servicing production plants and auto compounds across North America along with our closed loop service solution. While evolving trade policy has resulted in choppy volumes, our long term outlook remains strong and we're staying close with our customers to drive growth in this business segment.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

On the intermodal side, revenue and volumes were up 4%. Starting with domestic intermodal, we delivered solid performance this quarter with volumes up 8%. We are seeing steady volumes with our Canadian retail customers and strong momentum on our MMX 100 eightyone 81 service as customers continue to take advantage of the fastest, most efficient cross border rail solution between The U. S, Mexico and Canada. Our volumes on this service were up 42% in Q1 and March was our highest volume month on record.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

Now looking ahead, we have good line of sight to domestic intermodal growth as our business with Schneider National continues to outperform and Americold's cold storage warehouse located co located in Kansas City starts ramping up mid year. Volumes were flat in the quarter. We saw higher volumes through the Port Of St. John and Lazaro, primarily with half ag Lloyd as Gemini vessels started to ramp up in March. However, some of that growth was offset by lower volumes through Vancouver and Montreal.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

Looking forward, we continue to see a lot of opportunity in this space as the Gemini Alliance increasingly utilizes CPKC served ports, which you are now seeing in our volumes quarter to date. While the Transpacific market is experiencing volatility as a result of tariffs, our diverse port access across North America and reliable service proposition positions us well as trade policy evolves. To close, while the macro and trade policy remains uncertain, we continue to be confident in the unique growth opportunities this franchise has coupled with strong fundamentals in our bulk business and disciplined pricing. I'm extremely encouraged by this network's resiliency and this team's ability to develop and convert new markets and I remain confident in our volume outlook for the year. So with that, I'll now pass it over to Nadim.

[Nadeem Velani, Executive VP & CFO at Canadian Pacific Kansas City]

Great. Thanks, John, and good afternoon. Turning to our first quarter results on Slide 12. CPKC's reported operating ratio was 65.3% and the core adjusted operating ratio came in at 62.5%, a 150 basis point improvement over prior year. Diluted earnings per share was $0.97 and core adjusted diluted earnings per share was $1.06 up 14% versus last year.

[Nadeem Velani, Executive VP & CFO at Canadian Pacific Kansas City]

Taking a closer look at our expenses on Slide 13, I will speak to the year over year variances on an FX adjusted basis. Comp and benefits expense was $682,000,000 or $677,000,000 adjusted for acquisition costs. The year over year decline was driven by lower stock based compensation and efficiency gains from improved train weights and lower crew costs, partially offset by inflation and volume driven increases from higher GTMs. As we look to the rest of the year, we expect our average headcount to be roughly flat, driving labor productivity gains against mid single digit volume growth. Fuel expense was $481,000,000 up 3% year over year.

[Nadeem Velani, Executive VP & CFO at Canadian Pacific Kansas City]

The increase was driven by 3% higher GTMs, partially offset by lower price and continued improved efficiency. The change in fuel prices was a $22,000,000 or 20 basis point headwind to the quarter. Materials expense was $123,000,000 adjusted for acquisition costs. The year over year increase was driven primarily by the long term parts agreement that was put in place last year, driving higher materials expense with favorable offset within TS and O for net savings in the quarter. We also saw higher maintenance expense this quarter driven by unfavorable weather conditions.

[Nadeem Velani, Executive VP & CFO at Canadian Pacific Kansas City]

Equipment rents were $99,000,000 up 14% year over year. The increase was driven by higher volume as we continue to extend length of haul, particularly for our automotive business, along with reduced efficiency from weather impacts in the quarter. Depreciation and amortization expense was up 4%, resulting from a higher asset base. Purchased services and other expense was $573,000,000 adjusted for acquisition costs and purchase accounting, down 1% year over year. The year over year decline was driven by savings from the long term parts agreement, which I mentioned earlier, along with lower casualty expense.

[Nadeem Velani, Executive VP & CFO at Canadian Pacific Kansas City]

These savings were partially offset by the impact of lapping a $31.34000000 one time non competition waiver received last year. Despite the impact of weather this quarter, we continue to drive efficiency and cost synergy gains. These gains along with lower inflation are driving the of Moving below the line on Slide 14, other expense was $7,000,000 in Q1 in the quarter. Other components of net periodic benefit recovery was $2,000,000 reflecting primarily the lower discount rate compared to 2024. Net interest expense was $216,000,000 or $211,000,000 excluding the of purchase accounting.

[Nadeem Velani, Executive VP & CFO at Canadian Pacific Kansas City]

The year over year increase was driven by higher short term debt balances and new long term debt issued in the quarter along with FX impacts. Income tax expense was $292,000,000 or $322,000,000 adjusted for significant items and purchase accounting. For 2025, we continue to expect CPKC's core adjusted effective tax rate to be approximately 24.5%. Now turning to Slide 15 and cash flow. Q1 cash provided by operating activities increased 14% to approximately $1,200,000,000 We continued our strong level of investment in the network with CapEx spend of $711,000,000 in the quarter.

[Nadeem Velani, Executive VP & CFO at Canadian Pacific Kansas City]

Cash flow remained strong as we delivered $466,000,000 in adjusted free cash for the quarter. We resumed shareholder returns for the first time since the merger. In late February, aligned with our principles of disciplined and opportunistic shareholder returns, we announced a new 4% share repurchase program. This was an acceleration from our original plan in order to take advantage of volatility in the market. In the first month of the program, we repurchased 3,500,000.0 shares or approximately 9%.

[Nadeem Velani, Executive VP & CFO at Canadian Pacific Kansas City]

In line with our strategy of a balanced approach to shareholder returns, as Keith mentioned, yesterday, we announced a 20% increase to our quarterly dividend. This dividend will continue to be an important avenue to return cash to shareholders, and we intend to gradually increase it over time towards a payout ratio of 20% to 30%. Now looking at our guidance update. In January, we gave a wider guidance range acknowledging macro uncertainty, and we committed to updating that outlook as we learn more. Four months into the year, we are tracking right on plan with volumes up mid single digits.

[Nadeem Velani, Executive VP & CFO at Canadian Pacific Kansas City]

The updated guidance reflects our current view of the impacts from trade policies on certain areas of our business as well as the impact from a stronger Canadian dollar, which at current levels would present a two percent a two point headwind to the guidance we issued in January. Taking a step back and review the quarter, Mark and his team have the network running extremely well. John and his team are driving industry leading growth, and we are still tracking the mid single digit volume growth for the year. We continue to deliver discipline on price and cost control and we have resumed returning cash to shareholders. While much remains uncertain, the team continues to deliver strong results and we're very well positioned for another year of double digit earnings growth.

[Nadeem Velani, Executive VP & CFO at Canadian Pacific Kansas City]

With that, Keith, I'll turn it over back to you.

[Keith Creel, President and Chief Executive Officer at Canadian Pacific Kansas City]

Okay. Thanks, gentlemen. Operator, let's open it up for questions.

[Operator]

Certainly, Mr. Creel. Thank you very much. We go first this afternoon to Scott Group of Wolfe Research.

[Scott Group, MD & Senior Analyst at Wolfe Research]

Hey, thanks. Afternoon. So John, I wanted to start with you. There's seemingly this big sort of import cliff coming into The U. S.

[Scott Group, MD & Senior Analyst at Wolfe Research]

I'm wondering, we seeing are we expecting to see the same thing into Canadian ports and Mexican ports? And just how you think about the impact of that? And maybe this is silly, but do you think there's opportunities for Canadian ports to be gaining share from U. S. Ports maybe as a workaround with tariffs?

[Scott Group, MD & Senior Analyst at Wolfe Research]

And then just to like broaden out to the broader like tariff thing, just what you like what percent of your book of business you think is ultimately tariff exposed here? I know there's a bunch, but broadly on tariff.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

Yes. All right, Scott. Let me see if I can work through that a little bit. On the international front, I would say we're very different than I think what The U. S.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

Roads may or I guess may not face here I would say we really haven't seen a whole lot of pull ahead on that front at all as it relates to international. Our volumes are I think uniquely positioned strong right now. And I think you can definitely see it in numbers right now simply on the basis of the partners that we've selected, the growth with Gemini and they're off to a really good start. And I would tell you those volumes both at Port Of St.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

John and at Centrum in Vancouver have been somewhat stronger than we expected. And again, as you know, the majority of our freight over time has somewhat transitioned maybe a little bit more away from cross border U. S. Freight to a higher profile of Canadian destined freight. And I think we're benefiting from that right now.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

And maybe to that point, a very small percent of our book, I'm going to say less than 1% is international freight that would be, let's call it from China destined to The U. S. Through our Canadian port. So I would characterize that as a little risk. And honestly, continue to see strong growth at Lazaro.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

I think I consistently said it last year, was the fastest growing port in North America and frankly the world in many cases. And Lazaro continues to show good growth, not only with our domestic service within in Mexico, but also we've seen a steady growth in some of our cross border business That largely has not been impacted by any tariffs. So I feel really good about what the future holds on our international business right now. Broadly speaking on the tariffs, certainly the automotive area is an area that presents some risk and choppiness that we've been watching.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

The steel tariffs are an area that we're keenly focused on and working with our customers on alternatives. As I look ahead, as we get to new crop in the harvest in The U. S, we'll certainly be watching how our soybean movements progress, export to China and what alternative markets we can develop for that business. And really those are the areas that we're focused on. I think the good news is that as Keith alluded to, really the balance of our book has been quite strong so far year to date.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

I hope I got

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

most of them.

[Scott Group, MD & Senior Analyst at Wolfe Research]

Really helpful.

[Scott Group, MD & Senior Analyst at Wolfe Research]

You got it. Thank you.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

Thanks, Scott.

[Operator]

Thank you. We'll go next now to Walter Spracklin with RBC Capital Markets. Please go ahead.

[Walter Spracklin, Canadian Equity Research Managment and Co-Head of Global Industrials Research at RBC Capital Markets]

Yes. Thanks very much, operator. Good afternoon, everyone. So my question is really on your volume cadence. And John, you mentioned that your second quarter seems to be starting out even stronger than your first and accelerating.

[Walter Spracklin, Canadian Equity Research Managment and Co-Head of Global Industrials Research at RBC Capital Markets]

Mean, week was up almost 20%. And you didn't change your RTM guide as part of the EPS guide. Just wanted to dive in a little bit more as to what really is leading you to an EPS growth reduction while holding your RTMs, which your RTMs are still at mid single digit and if anything accelerating from here. So just curious the logic there in terms of how you map out your guidance by each those inputs.

[Nadeem Velani, Executive VP & CFO at Canadian Pacific Kansas City]

Walter, let me just take that. Just in terms of where the Canadian dollars has really appreciated since the beginning of the year, our initial guidance had a Canadian dollar exchange rate around $1.42 1 point 4 3 dollars level. I look today, we're closer to $1.37 1 point 3 8 dollars So that in and of itself has an EPS impact of about two percentage points. So if you look at the low end of guidance, we went from 12% down to 10% and that's really the big driver of that really around we still anticipate that mid single digit RTM growth as I mentioned. So that's a big driver.

[Walter Spracklin, Canadian Equity Research Managment and Co-Head of Global Industrials Research at RBC Capital Markets]

Appreciate that color.

[Walter Spracklin, Canadian Equity Research Managment and Co-Head of Global Industrials Research at RBC Capital Markets]

Thanks, Nadeem.

[Nadeem Velani, Executive VP & CFO at Canadian Pacific Kansas City]

Thanks, Walter.

[Operator]

Thank you. Your next question comes from Chris Wetherbee of Wells Fargo. Please go ahead.

[Chris Wetherbee, Senior Analyst at Wells Fargo]

Yes. Thanks. Good afternoon. Maybe just to follow-up on that. So I guess the low end kind of moves with FX.

[Chris Wetherbee, Senior Analyst at Wells Fargo]

Should we assume that the high end kind of ticks down a little bit more maybe on the lower end of mid single digit RTMs? And then I guess maybe if I broaden out the question a little bit for 25, how do you think about the OR in that context? Maybe you want to answer on 2Q or give some thoughts around the full year, whatever is helpful.

[Nadeem Velani, Executive VP & CFO at Canadian Pacific Kansas City]

Yes. I'd say, Chris, I think that's fair in terms of when we factor in some of the tariff impact and policy changes that could have an impact on the top end of volume. So maybe it's not 6%, maybe it's closer to 5% and that type of level. As far as OR, you should see sequential improvement from the 62.5%. Of course, Q1 has a typically much higher OR than the rest of the year, and I expect that to continue to improve over the course of the year.

[Nadeem Velani, Executive VP & CFO at Canadian Pacific Kansas City]

Traditionally, we've seen 200 to two fifty basis points of improvement in the OR, I don't see why not, especially in this kind of volume environment where we're seeing such a strong start to the quarter. And we've got some pretty easy comps into May for the year. I fully expect us to be able to deliver sub-sixty OR for the year. And I don't see why we can't do that. You've got fuel prices as fuel surcharge coming off that's supportive to the OR kind of neutral from operating income, but still helpful with the OR.

[Nadeem Velani, Executive VP & CFO at Canadian Pacific Kansas City]

At the end of the day, we're running extremely well. This network, Mark and team have it humming. And so from an efficiency point of view, I think operationally, we're going to see some benefits there. We don't anticipate the labor disruptions that impacted our ports and international volumes last year that impacted our network when we had some of those stop and starts last August. So I think the impact that we had on casualty a year ago was become a big tailwind to the OR.

[Nadeem Velani, Executive VP & CFO at Canadian Pacific Kansas City]

So I'm quite bullish about our ability to get back sub-sixty and leverage this great volume that we've got to start the year.

[Chris Wetherbee, Senior Analyst at Wells Fargo]

That's great. Thank you very much. Appreciate it.

[Nadeem Velani, Executive VP & CFO at Canadian Pacific Kansas City]

Thanks, Chris.

[Operator]

We'll go next now to Brian Ossenbeck of JPMorgan. Please go ahead.

[Brian Ossenbeck, MD - Senior Analyst, Transportation at JP Morgan]

Good afternoon. Thanks for taking the questions. John, maybe for you. I think you mentioned that the cross border really hadn't So I just wanted to see if you could impact that a little bit more.

[Brian Ossenbeck, MD - Senior Analyst, Transportation at JP Morgan]

Obviously, the 01/1980, '1 hundred '80 '1 seems to be a big driver there. But I would have thought with maybe some network issues with your peer in the East that might have been slowed down, especially with the auto headlines as well. So thoughts there would be appreciated. And then just Nadeem, if you can talk about how we should expect the pace of the buyback to ramp up from here, off to a pretty strong start in the first quarter? Thank you.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

Yes, Ryan. So maybe a couple of things there. So certainly as some of these tariff noise rolled on and off specific to, let's say, autos at the April, there's no doubt we saw some choppiness in some of those cross border flows coming out of Mexico onto our network. Now I can tell you that has progressively smoothed out through the month. And as of the last couple of days, I think all of our production facilities are up and running and shipping automobiles.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

So I feel good on that. The domestic product that you're talking about, the MMX, those volumes have just continued to be growing and strong. Schneider, I'm excited to say that we've just launched this week over 200 new shipments specific to auto parts in conjunction with Schneider on our network. It's brand new business that we're bringing on and it's really our first foray into a major way of moving that business. So I'm quite pleased with that.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

And frankly, we're still kind of just in the early innings of growth with CSX as we work on that product to the Southeast. Other areas, we've probably seen a little bit of cross border impact specific to some of our steel business that moves out of Mexico into The U. S. But that being said, we've also seen some new opportunities materialize in which we're actually shipping some steel products out of Mexico up into Canada and into some other markets. There certainly is some impact there.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

But the team is not resting. As Keith said, it's an all out blitz literally to do everything we can to make our own luck as all this uncertainty sort of unfolds on the tariff front.

[Nadeem Velani, Executive VP & CFO at Canadian Pacific Kansas City]

Brian, just on the buyback. So you'll see the filings. I mean, we've been quite aggressive. I think as of yesterday, we bought back 20% of the program, the 4,000,004 percent share buyback for the year. So 20% of that program is complete.

[Nadeem Velani, Executive VP & CFO at Canadian Pacific Kansas City]

You should expect us to finish it by completing about 10% of the capacity per month. We've been quite aggressive given the pullback, given the compression in multiples and given the fact that we're trading at a discount compared to where we should be trading. And so we're going to be aggressive up to the point that we see the stock price getting closer to our intrinsic value. So you should expect this program to be complete by the end of the year.

[Brian Ossenbeck, MD - Senior Analyst, Transportation at JP Morgan]

Okay. Helpful. Thank you.

[Nadeem Velani, Executive VP & CFO at Canadian Pacific Kansas City]

Thanks, Brian.

[Operator]

And your next question will come from Fadi Chamoun of BMO Capital Markets. Please go ahead.

[Fadi Chamoun, Transportation Analyst at BMO Capital Markets]

Thank you. I want to circle back on the volume framework, maybe

[Fadi Chamoun, Transportation Analyst at BMO Capital Markets]

a little

[Fadi Chamoun, Transportation Analyst at BMO Capital Markets]

bit more medium term. When this network was put together, the biggest kind of addressable market opportunity felt like being, you know, U. S.-Mexico driven and various end markets. And a lot of these end markets feel like they're under attack a little bit with these trade policy, whether it's autos or steel and other things like do you I mean, from your comment, it doesn't feel like your outlook is dampened by any of these things. I just wanted to get some additional framework from you.

[Fadi Chamoun, Transportation Analyst at BMO Capital Markets]

Where do you see the opportunity potentially if these end markets kind of do come under attack and ultimately end up being more punitive from a growth perspective?

[Keith Creel, President and Chief Executive Officer at Canadian Pacific Kansas City]

Fadi, I'll let John provide a little color, but I'll just say at a high level, listen, if these end markets are impacted, that's our job then to shift and create solutions. And when I talk about market makers and I talk about land bridge, if we lose a little bit because of the impact of tariffs on autos or tariffs on steel, number one, we don't think it's going to be material. This thing started to settle out. It's doing exactly what we thought it would do. And the automotive manufacturers are back online.

[Keith Creel, President and Chief Executive Officer at Canadian Pacific Kansas City]

Just making those shifts overnight are impossible to do. There's still demand in The U. S. For vehicles, and these OEMs are producing them. That said, this crisis that's been created with the uncertainty in Canada and Mexico and lessening their dependence upon U.

[Keith Creel, President and Chief Executive Officer at Canadian Pacific Kansas City]

S. Markets has created opportunities. Making these numbers that offset some of those headwinds, just over the last month, John could give you more color and names if necessary, but there's over $100,000,000 of new revenue that this crisis has created that originates in Alberta that goes to Mexico. So you start thinking about the puts and the takes. And this again, this network is uniquely enabled to be able to do that.

[Keith Creel, President and Chief Executive Officer at Canadian Pacific Kansas City]

So if we lose here, we're going to gain there. And it's our job to go out and convert those opportunities. And that's exactly the expectation that John and his team have, and that's exactly what they're doing.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

Fady, I think you know from our team, we're focused on what we can control. And frankly, not that we're not keenly watching the tariff suit evolve and understanding those impacts, but we are laser focused on the task at hand. And to Keith's point, that's sales blitzes. That's getting our we just finished the sixty day sales blitz, where we met with over 500 customers. We believe we've developed $100,000,000 of new wins simply in that effort that will onboard mostly in the merchandise and ECT spaces.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

To Keith's point, we've seen good momentum, largely I would say again in the energy space, but really across all commodities to figure out how we enhance this land bridge and connect Mexico in Canada. But it doesn't stop there. It's dusting off the conversion files that we talked about back at IR Day. And there's still $100,000,000 that I've targeted to my team there that is three to two and four to two routes that we can convert and provide a better product for our customer. So when I guess you put all that together, combined with the resiliency of our bulk franchise, which again, I think if you look back to recession and pandemic time, that bulk franchise has stood up against a lot of uncertainty.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

And we feel really good about the demand in coal potash in both U. S. And Canadian grain. I fully expect we're going to outperform on our synergies this year. Just I'll bring you back.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

I think we can grow by $300,000,000 in run rate on synergies in 2025. And I have no reason to believe we can't do that and potentially even outperform that. And I can assure you we're going to continue to be and we have been super disciplined on our pricing. The pricing model is held in really strong and super proud of the team and we're going to keep the foot we're going keep it in Throttle eight on the pricing front as we look forward.

[Keith Creel, President and Chief Executive Officer at Canadian Pacific Kansas City]

Fady, I've got a I'm going to give you a case in point. This is a fellow Canadian. I'm going to give you a Canadian success story that this crisis has created. So just last week, I was in Toronto, and I was having a conversation with a CEO, fellow CEO of a very large Canadian retailer about opportunities, about diversifying markets, about imports, about exports that might not involve The United States if that's not the desired market or the warranted market to go to. And the question about how many things are on Canadian shelves that Canadian consumers purchase that yesterday originated in The United States, but where do they truly originate from?

[Keith Creel, President and Chief Executive Officer at Canadian Pacific Kansas City]

Where are they produced? And if you really get into the detail and you're motivated to create solutions for the customer, you lead them to information that, quite frankly, you see that a lot of these products, in this case, are produced in Mexico. Then they're trucked to The United States to be packaged and labeled and warehoused and then trucked out of The United States to go across the border to the Canadian shale. So is that good for the environment? I'd say no.

[Keith Creel, President and Chief Executive Officer at Canadian Pacific Kansas City]

Is that good for cost control and for optimizing a supply chain? I'd say that's not best in class. But when you're a railroad that can uniquely connect the origin and the destination and the middleman is redundant or not necessary and inefficient. And in some cases, they don't want you to be there. That creates opportunity.

[Keith Creel, President and Chief Executive Officer at Canadian Pacific Kansas City]

So those discussions are being had. They're being had with people that have interested and motivated minds. And for us to be able to help create some of those wins, it's just all accretive to our ability that this unique combination has created, again, creating a solution that, quite frankly, before was never possible to create that kind of solution. That's the power of this network.

[Fadi Chamoun, Transportation Analyst at BMO Capital Markets]

That's great. Appreciate the detailed answer. Thanks.

[Operator]

Thank you. Your next question will come from Ravi Shanker of Morgan Stanley. Please go ahead.

[Ravi Shankar, Analyst at Morgan Stanley]

Great. Good afternoon everyone. Just a follow-up on the point of controlling the controllables here. What is the plan if there is a prolonged cliff in incoming port volumes? Is there a pandemic playbook you can dust off on costs?

[Ravi Shankar, Analyst at Morgan Stanley]

Anything you can do with labor flexibility? Or is it just a wait and see approach?

[Keith Creel, President and Chief Executive Officer at Canadian Pacific Kansas City]

No, it's never going to be a wait and see. We're always paying attention to that, Ravi. And I can tell you I've been doing this for three decades now, and I've been a PSR leader in this industry for two decades. And I've been through several recessions, up cycles, down cycles. We have metrics in our company.

[Keith Creel, President and Chief Executive Officer at Canadian Pacific Kansas City]

We see slippage when it's occurring, and we take action on a daily and on a weekly basis. So if we see we have visibility to this alleged cliff. We see the ships coming. We know two or three weeks ahead of time. We're not going to wait two or three weeks to take action.

[Keith Creel, President and Chief Executive Officer at Canadian Pacific Kansas City]

We're going to start lining up responsible action. We can adjust crew starts. We can adjust fleet sizes. We can adjust yard expenses. We have all kinds of levers that we, quite frankly, have pretty good muscle memory in swing history of pulling and swinging in this railroad in those kind of times.

[Keith Creel, President and Chief Executive Officer at Canadian Pacific Kansas City]

We're going to be the best ship in the storm. There's no doubt about it. I don't think that's going to happen. We're not planning for a recession, but we're always prepared for one.

[Mark Redd, Executive VP & COO at Canadian Pacific Kansas City]

Keith, I would add, I mean, we're two years in this CPKC, and we're experienced enough now on the Southern region that where we can react quite quickly, move power around, crew starts, whatever it is we need to do. Again, I think you said it better, control what we can control, and that's what we will do. It's not enhanced.

[Ravi Shankar, Analyst at Morgan Stanley]

Understood. Thank you.

[Operator]

We'll go next now to Tom Wadewitz of UBS. Please go ahead.

[Tom Wadewitz, Senior Equity Research Analyst at UBS Securities LLC]

Yes. Good afternoon. So I think, Keith and John, you've had some pretty interesting commentary on kind of pivoting to the Canada Mexico opportunity. And you mentioned the $100,000,000 opportunity out of, I guess, Alberta to Mexico. Is there more perspective you can offer?

[Tom Wadewitz, Senior Equity Research Analyst at UBS Securities LLC]

Like if you said not sure the right framework, but just trying to think about the size of that relative to if you said Mexico, Canada relative to the size of your Mexico U. S. Business is I'm assuming it's a lot smaller, but maybe like what the starting point is? And I guess other examples of where you potentially could see growth outside of ECP or just to frame it a little bit more because it seems something new and pretty interesting, but a little hard to get your arms around how to frame it or give it context. Thank you.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

Yes. Tom, it's a good question. And honestly, it's part of this sales blitz we've deployed. It's really been trying to understand that and peg it ourselves. I can tell you between LPG, plastics, fuels and frankly those have been the biggest three so far, The ECP space has led the way.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

Now I'll tell you, I was down in Mexico last week meeting with a number of customers. And certainly some of the steel business down there has been impacted by cross border in that. But getting into a discussion with the CEO of this major steel company and really picking his brain around, well, have you sold into the Canadian market and what products would be conducive. And frankly, maybe not dissimilar to what we stepped into when we took over KCS on the auto front, kind of that crisis and creating something good out of that with our closed loop. We're kind of in the early innings of that in this process.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

And don't to your point, it probably isn't anywhere to the order of magnitude in terms of like Mexico into The U. S. Or Canada into The U. S. But there's certainly an opportunity there.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

And I'll just give you another just example to help frame it up like grain that moves out of The U. S. Today into Mexico does not have to be fumigated. It can move, I'm going to say generally seamlessly into the market. Grain out of Canada is an area where past regulation has required this grain to be fumigated.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

And it also requires some different documentation and policy to move into Canada or into Mexico. And it's not that it's we're not doing it today. We are. But as Keith talked about, these are the things we're working with the governments on both sides of the border to say, how do we foster this in this case, grain trade in a more seamless way that we can certainly enable through our 8,500 foot grain product out of Canada and Mexico. So a lot said there, but and I'll be able to probably hopefully quantify it a lot better as we move down this path.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

But I would say the most important point is we're not resting on our laurels here. We're attacking this opportunity just like we did the autos a year and a half ago. And we're already starting to see some early results.

[Tom Wadewitz, Senior Equity Research Analyst at UBS Securities LLC]

So it sounds like it could broaden out from ECP and maybe steel and grain and could be broader than that, but you just need some kind of time to see how that develops. Is that fair?

[Keith Creel, President and Chief Executive Officer at Canadian Pacific Kansas City]

No, we got to sweat it out. Tom, to John's point talking about grain, speaking to that specifically, we had a move two weeks ago that it was a test move, a new move for us. We got oats that originated in Saskatchewan that went all the way deep into Mexico. It's a 3,000 mile unit train move. That's a pretty exciting thing to think about when you think about the power of that.

[Keith Creel, President and Chief Executive Officer at Canadian Pacific Kansas City]

But again, that fumigation is an impediment. It's additional cost. It's additional time. It affects the assets. It affects the rate we have to charge.

[Keith Creel, President and Chief Executive Officer at Canadian Pacific Kansas City]

It affects the customer service. So why does it need to be there? We've got the minds and the motivation now and the attention of the Mexican government. We've got a great spirit of partnership with the Mexican government. We educate, we communicate, we eliminate those unnecessary barriers, and we incent trade more trade to move between the nations of Canada and Mexico.

[Operator]

Your next question comes from Kevin Chiang of CIBC.

[Kevin Chiang, Director - Institutional Equity Research at CIBC World Markets]

Taking my question. Maybe just on the auto front, it does feel like at least with the U. S. Administration reshoring U. S.

[Kevin Chiang, Director - Institutional Equity Research at CIBC World Markets]

Auto production is certainly key to their industrial policy. And I think over the past few weeks, we continue to hear more D3 OEMs and foreign OEMs talk about increasing U. S. Production. I'd be interested in knowing what discussions you're having with these customers as they look to reshape their supply chain?

[Kevin Chiang, Director - Institutional Equity Research at CIBC World Markets]

And I guess how CPKC can assist with that?

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

Well, maybe a couple of points on that, Kevin. I guess, first of all, as I said at the beginning, we're in a pretty good position on our auto franchise right now. We've got all our production facilities up running and shipping. And I can tell you, for the most part, inventories are fairly low across at least our network and across Canada. So that's been actually pretty supportive of volumes.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

And I do believe the consumer as a whole maybe has been a little more aggressive in looking to buy automobile maybe earlier in this year than maybe they had planned. And that's spurring some demand. I can tell you, I met with a leading automotive shipper here a couple of weeks ago and they got 60,000 unfilled orders in Canada alone. Those are sales made where they're waiting on vehicles to get into marketplace. And that's certainly the area which we do best and we fill.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

The other piece that I would point to is we got 6,000 available acres across this network in three countries that we can develop. And I think you've heard this story in our land value quite a bit over the years on how we've created unique opportunities for our shippers and our customers and co location across our franchise. And certainly that is something that we've been aggressive to get into the marketplace. And frankly, we just published nine site ready locations that we've gone out and we're actively marketing those locations with, well, not only the OEMs and automotive companies, but all sorts of supportive industry that may be looking to do more or build more in The States. So we'll see what that brings.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

But as it stands right now, I fully expect in our automotive franchise to continue to produce at the record rate we've been able to do really last year and through the first quarter.

[Kevin Chiang, Director - Institutional Equity Research at CIBC World Markets]

That's great color. Thank you very much.

[Operator]

We'll go next now to Stephanie Moore with Jefferies. Please go ahead.

[Stephanie Moore, SVP - Equity Research at Jefferies]

Hi, good afternoon. Thank you. One is a quick follow-up question and just your commentary in terms of OR performance for the full year and the second quarter. Did I hear you correctly with the kind of idea that you expect OR to improve as the year progresses? Are you meaning kind of sequentially off of this first quarter level?

[Mark Redd, Executive VP & COO at Canadian Pacific Kansas City]

Yes, absolutely.

[Stephanie Moore, SVP - Equity Research at Jefferies]

Okay. Got it. Thank you. And then second, more of a big picture question here. As you've had whether it was your sales blitz or just continuing to have conversations with customers, have you particularly those customers in Mexico or with businesses in and out of Mexico, have you seen any kind of increase in activity of maybe production move to Mexico or plans to move to Mexico just given the disruptions or potential disruption in trade lanes from other parts of the world and maybe viewing Mexico as a viable alternative from a manufacturing standpoint?

[Stephanie Moore, SVP - Equity Research at Jefferies]

Thanks.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

Well, you know what the industrial development pipeline on our network in Mexico, it was really strong. A number of projects underway, under development, under construction. I wouldn't characterize, Stephanie, that maybe we're seeing a glut of new. We've certainly seen some pause, but I would say the majority are continuing to push forward, which is something we've watched really close given some of this uncertainty of those projects would be shelved or changed or sort of the boardrooms were thinking differently around those investments. And we really haven't seen that at all on a grand scale.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

So I continue to believe that our Mexican territory is ripe for development, and we're going to continue to certainly push that narrative.

[Stephanie Moore, SVP - Equity Research at Jefferies]

Thank you. Appreciate it.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

Yes.

[Operator]

Thank you. We'll go next now to Jonathan Chappell of Evercore ISI. Please go ahead.

[Jonathan Chappell, Senior Managing Director at Evercore ISI]

Thank you and good afternoon. John, I feel like if we didn't have the crisis to talk about, there might be a little bit more focus on Gemini. I know you're super excited about it late last year and you mentioned it a couple of times this morning or this afternoon. Is there any way to put numbers around what the Gemini potential is given your positioning with the two partners there, whether it's in units or revenue? And has that changed at all over the, call it, twelve to twenty four month period just given some of the uncertainty that's emerged since that partnership started?

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

John, my enthusiasm around it is not weighing one bit. Actually, there it started off, I would say, even faster than we anticipated. DP World is doing a tremendous job with Gemini at Centerm. We are attempt to quantify it a little bit for you, but we're moving quickly towards two trains a day. That's the pressure I'm wanting to put on Mark and the team in Vancouver to get to two trains a day launched out of 10 term.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

And the majority of tied to Gemini. They've done a great job at Port Of St. John. Maersk has moved their service. Now it's part of Gemini out of Halifax down to that port.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

So we're super pleased with that. Maybe the one area that we'll watch is Lazaro. We have a lot of opportunity between Mariskind and Hapag focused on cross border into The U. S. I would say the momentum hasn't slowed on that.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

Certainly a portion of that was tied to imports through Mexico from China. So we're watching that and how that may change or not. But honestly, don't really feel that that's going to be a needle mover at the end of the day. But needless to say, no, I continue to be super excited about what Gemini brings to this network.

[Jonathan Chappell, Senior Managing Director at Evercore ISI]

Thanks, John.

[Operator]

And your next question will come from Ken Hoexter of Bank of America. Please go ahead.

[Ken Hoexter, Analyst at Bank of America]

Great. Good afternoon. John or I guess, Nadim, you've had a couple of questions in the OR, but I just want to understand that the normal post 1Q to 2Q, you get about two sixty basis points. I think just want to understand your comment there. Can you outpace normal performance given the weather you had?

[Ken Hoexter, Analyst at Bank of America]

Or were you saying the weather wasn't too difficult that it's just going to be a normal path? And then my question, John, on pricing. You haven't really gotten a lot You mentioned pricing real quick, but revenue priority have really accelerated, I guess, on coal, grain, potash, ECP. Any thoughts you want to talk about seeing some of the accelerating strength in some of those commodities?

[Nadeem Velani, Executive VP & CFO at Canadian Pacific Kansas City]

Ken, I think that 200 basis to two fifty basis points a realistic expectation. Obviously, there's areas where we can't control like stock based comp. If that becomes a tailwind, it could be bigger than that. So I'm optimistic it won't, but that I think the $200.02 50,000,000 is

[Nadeem Velani, Executive VP & CFO at Canadian Pacific Kansas City]

fair.

[Ken Hoexter, Analyst at Bank of America]

Thanks.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

And Ken, a few comments on pricing. Continue to tell you that this team is the best in the industry in pricing to the value of our servicing capacity. And I think that's what we've continued to see.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

Our renewals are on the very top end, 4% to 5% plus. I'm quite pleased with that. I can tell you in this quarter, we've repriced two existing legacy KCS contracts that were out there. There wasn't much left to reprice, and we got through those this quarter in a positive way. So I feel good about that.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

There's I think we guided in IR day back then at pricing at 3% to 4%. My expectation is to exceed that. And as I said earlier, VR CPI came in today at 3.1% for 25%, twenty six % crop year. So we're pleased with where that landed. So again, we'll keep it on throttle 8% as it relates to pricing.

[Operator]

And your next question will come from Steve Hansen of Raymond James. Please go ahead.

[Steve Hansen, Managing Director & Equity Analyst at Raymond James Financial]

Yes. Thanks, guys. Excuse me. Keith, I was pretty taken by your upbeat commentary about the FRA discussions pertaining to technology deployment and I guess some potential benefits to safety and service. Is there a way to frame the time frame around that deployment and what you think it could ultimately mean to the efficiency and safety?

[Keith Creel, President and Chief Executive Officer at Canadian Pacific Kansas City]

Very short term, the changes that Mark spoke to on bad orders with our grain fleet, there's an optimal design that we've implemented since spending and investing some money in IFG, which is our terminal there in Kansas City that allows specifically the legacy KCS gray network to benefit from and takes cars that would have been shuffled up to Kanoke Yard to be bad order repaired and then shuffled back down to be in train. So we're going to get some relief with a waiver that allows us to take them out and train at Laredo as well as at IFG, which optimize that supply chain, and that's imminent.

[Mark Redd, Executive VP & COO at Canadian Pacific Kansas City]

Yes. That's within the days. We'll have it soon. I've already spoke about it this morning.

[Keith Creel, President and Chief Executive Officer at Canadian Pacific Kansas City]

And then part two on the redundant air brake test that Mark spoke of, we expect that in the near term as well.

[Mark Redd, Executive VP & COO at Canadian Pacific Kansas City]

Yes. So we've had FRA on property for the past two weeks in Laredo, seeing very good signs, a good job on our staff down there showing them what we do, how we do it. And we believe within the coming months,

[Mark Redd, Executive VP & COO at Canadian Pacific Kansas City]

we'll have

[Mark Redd, Executive VP & COO at Canadian Pacific Kansas City]

some really good dialogue back and forth. I know I spent some time in Washington just like you did and good dialogue with FRA, good dialogue with kind of what they see with data, how we can use that data to better a lot of different things that were taken away over the past years.

[Steve Hansen, Managing Director & Equity Analyst at Raymond James Financial]

That's great to hear. Appreciate the color.

[Operator]

And we'll next now to Brandon Oglenski of Barclays. Please go ahead.

[Brandon Oglenski, Director & Senior Equity Analyst at Barclays]

Hey, good afternoon, everyone. Thanks for taking the question. Mark, I guess following up on that, I know you spoke to the FRA as well in your prepared remarks, but I think you mentioned something along the lines of getting your labor agreements in place is helping the network actually run better. Or maybe I misheard you on that, but I guess what's the plan this year just looking at from an operational perspective combating inflation and getting the efficiency up even further?

[Mark Redd, Executive VP & COO at Canadian Pacific Kansas City]

Yes. So a couple of things. First, I would say every year, we have GM meetings where we look at taking cost out. We do that first regardless of what increase that we have as far as cost of living for unions, we look at that first fifty million dollars sixty million dollars of Howard, upward of $70,000,000 that we take out just cost alone. And then for the stability that we have spoke about is the three unions that we've already signed up this year at 3%.

[Mark Redd, Executive VP & COO at Canadian Pacific Kansas City]

That'd be a four year deal. We're on the cuffs of finishing up TCRC and the RTCs, which is the dispatchers that will be coming up in the coming weeks, will go to coming out of mediation on that and should have that finished up in arbitration here soon. Now when we turn to The U. S. Side, we are still looking at our hourly agreements.

[Mark Redd, Executive VP & COO at Canadian Pacific Kansas City]

We can have hourly agreements across a couple of the southern region, meaning the former Minsal, KCS, some of the Alamed territory just takes you back some of the operating agreements they've had in place. So looking at doing some of those hourly agreements down there. Some of that you can change some of the crew base around. You can also run longer in some areas, which we have implemented toward the New Orleans route. So certainly, every opportunity we can take now, we're taken.

[Mark Redd, Executive VP & COO at Canadian Pacific Kansas City]

Then once we get new agreements in place, we can build upon that. And I would even say just from the Mexico perspective, we can continue to work with the unions in Mexico to do more. I know it's steady state, and we work with them every month and every year to do those agreements, but it's certainly making progress for sure.

[Operator]

And

[Operator]

your next question will come from Ari Rosa of Citigroup. Please go ahead.

[Ari Rosa, Analyst at Citigroup]

Great. Thanks. Good afternoon. So going back to the regulatory discussion, maybe you could talk about what are some of the other areas that you're pursuing and just how impactful you think they could be in terms of the cost savings opportunity or the efficiency opportunity that's gained from that? Thank you.

[Mark Redd, Executive VP & COO at Canadian Pacific Kansas City]

Yes. So the Codewheel technology is something we've had in place for years in Canada. And partly what that does for you is increases cycles of turns on trains, meaning the equipment of grain hoppers, if it's coal, whatever the cycle may be, includes locomotives. So I can do more with less because I'm spinning the asset so much faster. And if you talk about what we can control, that's what we can control.

[Mark Redd, Executive VP & COO at Canadian Pacific Kansas City]

So when I do the inspections of that, I can certainly pinpoint mechanical work whenever I do have to stop the train to do the inspection. I can understand what I can do at once, not just several inspection. So working with the FRE, if we can get that in place with The U. S. Operations, we can certainly do that toward the PNW.

[Mark Redd, Executive VP & COO at Canadian Pacific Kansas City]

We can certainly do that down toward Mexico. And again, it's a one stop shop with inspections. There's lots of money to be had in that. I don't want to quantify it until we can see exactly what we can do with that yet. But again, there's many more opportunities from a safety perspective, from hot box detectors that we talked about, just inspections of the portals that we have where we can do more work and inspect cars and see more defects than we do today from the human eye.

[Mark Redd, Executive VP & COO at Canadian Pacific Kansas City]

And certainly from a technology perspective, that is much better. Not saying it will get away from human eye, we'll always do that work. But I guarantee you, we'll have a safer railroad because of it.

[Operator]

We'll go next now to Benoit Poirier of Desjardins Securities.

[Benoit Poirier, VP & Industrial Products analyst at Desjardins Securities]

Yes. Thank you very much and thanks for taking my question. John, with respect to the China vessel surcharge, I was wondering if you have seen potential, any new calls into your ports as customer try to diversify away from U. S. Ports?

[Benoit Poirier, VP & Industrial Products analyst at Desjardins Securities]

And talking about port movement with respect to St. Momentum with the Southeast Asia improvement at the Red Sea Canal and the have you seen any increased dialogue to ramp up at a faster pace the operation John or through the Eastern Ports? Thank you.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

Yes. Benoit, we've got pretty good momentum at St. John. Again, I feel really good with the ramp up of Gemini there, but our existing business with the other steam ship lines has been growing also. And frankly, we just turned on a number of additional gensets in that marketplace that's going to provide export opportunities, frankly, of products that maybe traditionally were coming out of The U.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

S, frozen products coming out of The U. S. That now we're working with Canadian producers of similar products for export. And a lot of that's going to be pointed at St. John for us.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

So I overall feel ongoing positivity around the whole St. John opportunity and on the backs of the growth we already have at that location.

[Mark Redd, Executive VP & COO at Canadian Pacific Kansas City]

You get good upside on capacity as well. I mean there's plenty of room out there since they've moved industry.

[Benoit Poirier, VP & Industrial Products analyst at Desjardins Securities]

With respect to the China vessel surcharge whether you see more increased dialogue for people wanting to go to Canada instead?

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

Know what, I would say pretty minimal at this point. I think overall there's a fair amount of relief on sort of the changes that were implemented versus what that could have been initially when it was talked about. So I think the steamship lines will adjust their fleets appropriately ultimately for The U. S. Ports.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

I'm not sure that it's going to impact us a whole lot one way or the other, whether you think about Mexico and Canada. We are looking at a few opportunities down in the Texas area with some existing business and what alternatives, if in fact some of these applications may apply to that business. But again, these aren't huge opportunities. But certainly, it's a wait and see, and we'll understand it more as it progresses as we get closer and closer to October.

[Fadi Chamoun, Transportation Analyst at BMO Capital Markets]

Okay. Many thanks.

[John Brooks, Executive VP & Chief Marketing Officer at Canadian Pacific Kansas City]

Okay. Thank you.

[Operator]

Thank you. And we have reached our allotted time for Q and A. I would now like to turn the call back over to Mr. Keith Creel.

[Keith Creel, President and Chief Executive Officer at Canadian Pacific Kansas City]

Thank you. Well, listen, thank you for your time this afternoon. I hope you walk away with a bit of color. Certainly, in spite of the winter, in spite of the many uncertainties that we're all facing, we produced a very strong first quarter. We're set up well to produce a strong year in 2025.

[Keith Creel, President and Chief Executive Officer at Canadian Pacific Kansas City]

This unique three nation network is built for times like this. We're going to create solutions, not excuses, that will lead the industry unique growth outcomes and value for our shareholders, not just in 2025 but beyond. Thank you, and we look forward to sharing our second quarter results.

[Operator]

Thank you. Ladies and gentlemen, that will conclude today's CPKC's first quarter twenty twenty five call. Again, thanks so much for joining us everyone. We wish you all a great remainder of your day. Goodbye.

Participants

Executives

• Chris de Bruyn, Vice President Capital Markets & Treasurer
• Keith Creel, President and Chief Executive Officer
• Mark Redd, Executive VP & COO
• John Brooks, Executive VP & Chief Marketing Officer
• Nadeem Velani, Executive VP & CFO

Analysts

• Scott Group, MD & Senior Analyst at Wolfe Research
• Walter Spracklin, Canadian Equity Research Managment and Co-Head of Global Industrials Research at RBC Capital Markets
• Chris Wetherbee, Senior Analyst at Wells Fargo
• Brian Ossenbeck, MD - Senior Analyst, Transportation at JP Morgan
• Fadi Chamoun, Transportation Analyst at BMO Capital Markets
• Ravi Shankar, Analyst at Morgan Stanley
• Tom Wadewitz, Senior Equity Research Analyst at UBS Securities LLC
• Kevin Chiang, Director - Institutional Equity Research at CIBC World Markets
• Stephanie Moore, SVP - Equity Research at Jefferies
• Jonathan Chappell, Senior Managing Director at Evercore ISI
• Ken Hoexter, Analyst at Bank of America
• Steve Hansen, Managing Director & Equity Analyst at Raymond James Financial
• Brandon Oglenski, Director & Senior Equity Analyst at Barclays
• Ari Rosa, Analyst at Citigroup
• Benoit Poirier, VP & Industrial Products analyst at Desjardins Securities