Canadian Pacific Kansas City NYSE: CP reported second-quarter 2026 results marked by higher freight volumes, revenue growth and double-digit adjusted earnings growth, supported by grain, automotive and cross-border traffic gains across its Canada-U.S.-Mexico network.
President and Chief Executive Officer Keith Creel said the railroad recorded 4% volume growth, 13% revenue growth, a 61.6% core adjusted operating ratio and core adjusted diluted earnings per share of $1.27, up 13% from a year earlier. He said the company established quarterly volume records in grain, energy, chemicals, plastics and automotive.
“With each passing quarter, that vision is becoming a reality,” Creel said of the combination of Canadian Pacific and Kansas City Southern, which created the only single-line rail network serving Canada, the U.S. and Mexico.
Financial performance and capital allocation
Executive Vice President and Chief Financial Officer Nadeem Velani said reported operating ratio was 64.6%, while the core adjusted operating ratio increased 90 basis points year over year to 61.6%. Reported diluted EPS was $1.15, and core adjusted diluted EPS was $1.27.
Velani cited higher stock-based compensation, wage inflation, volume-related costs and casualty costs as expense pressures during the quarter. Fuel expense rose 49% from a year earlier, primarily reflecting a 52% increase in on-highway diesel prices and higher volume, partly offset by a 4% improvement in fuel efficiency.
Equipment rents declined 6% on improved asset utilization, network velocity and cycle times. Velani said higher casualty costs and stock-based compensation represented a 4% impact to EPS and a roughly 120-basis-point headwind to operating ratio, while year-over-year fuel-price changes created a 130-basis-point operating-ratio headwind.
Year-to-date operating cash flow increased 8%, while adjusted free cash flow rose 25% to $1.3 billion. Capital expenditures totaled $1.4 billion through the first half, and CPKC maintained its full-year capital spending target of $2.65 billion, down 15% from the prior year. The company returned $2.4 billion to shareholders in the first half through share repurchases and dividends.
Velani said CPKC expects a full-year core adjusted effective tax rate of approximately 24.75%. He also said the company expects sequential improvement in revenue per ton-mile and greater volume acceleration in the second half, with lower casualty costs than in the first half potentially supporting earnings and operating-ratio improvement.
Commercial results led by grain and automotive
Executive Vice President and Chief Marketing Officer John Brooks said second-quarter freight revenue excluding fuel reached a quarterly record, while gross ton-miles reached an all-time high. Revenue per ton-mile rose 9%, aided by higher fuel surcharge revenue, pricing strength and moderating mix headwinds.
On an FX-adjusted basis, grain revenue rose 24% on 19% volume growth, with Canadian grain volumes up 24% and U.S. grain volumes up 14%. Brooks attributed the increase to a record harvest, demand into Mexico and Pacific Northwest markets. He said the company expects supply and demand to remain solid through the third quarter, while its fourth-quarter grain outlook uses a three- to five-year average assumption.
- Potash revenue increased 10% despite a 2% volume decline tied to port maintenance and lower mine production.
- Coal revenue fell 18% as volume declined 29%, reflecting production challenges at customer mines. Brooks said coal is expected to remain a headwind in the second half, though shipment levels have improved.
- Energy, Chemicals and Plastics revenue increased 8% on 6% volume growth, led by higher crude shipments.
- Metals, Minerals and Consumer Products revenue rose 16% on 7% volume growth, helped by stronger steel and aggregate traffic.
- Automotive revenue increased 19% on 8% volume growth, reaching another quarterly record on new business wins and longer-haul traffic.
- Intermodal revenue rose 11% on flat total volumes. Domestic intermodal volume increased 3%, while international volume declined 2% against strong prior-year comparisons.
Brooks said the Southeast Mexico Express service with CSX saw volumes increase more than 30% from the first quarter. He said both the Southeast Mexico Express and Mexico Midwest Express services are positioned to benefit from truck-to-rail conversion opportunities associated with higher fuel prices, tighter regulatory enforcement and reduced trucking capacity.
Network performance, capacity and growth outlook
Executive Vice President and Chief Operating Officer Mark Redd said CPKC set second-quarter records for train speed, dwell, locomotive productivity and fuel efficiency. He said integration of the company’s U.S. and Canadian operating systems has improved real-time network visibility and coordination.
Redd said personal injury frequency and train accidents both increased from a year earlier, though the company reported an FRA train accident rate of 1.0 and personal injury frequency of 0.96. He said CPKC is taking action to address the trends.
The railroad has received all 70 Wabtec locomotives scheduled for delivery in 2026 and expects to begin receiving Progress Rail locomotives in the second half. Rail and tie replacement work is progressing ahead of schedule in Western Canada, Redd said, with installation productivity up 18% for rail and 59% for ties year over year.
Management said capacity should not constrain growth. Creel said the company made significant investments required under its merger application and is positioned for expansion with relatively low incremental costs, principally additional headcount. Velani said CPKC can accommodate anticipated growth within a capital spending envelope of roughly CAD 2.6 billion to CAD 2.7 billion.
Brooks said CPKC expects mid-single-digit volume growth for 2026 and sees a path toward $1.4 billion to $1.5 billion in merger synergies by year-end. He said land-bridge business between Canada and Mexico is expected to reach approximately $600 million this year, with 60% to 65% tied to Western Canada and Mexico, and management sees a longer-term path toward $1 billion.
Creel addresses industry consolidation
During the question-and-answer session, Creel strongly criticized proposed railroad consolidation involving Union Pacific and Norfolk Southern, as well as agreements between Union Pacific and Canadian National. He said CPKC believes its own merger added transportation options without removing existing competitive choices, while arguing that further consolidation could reduce options for shippers.
Creel said CPKC would not “sit still” if further consolidation occurs and could pursue commercial arrangements with other railroads. However, he said the company’s preferred outcome would be no additional merger activity. He added that CPKC is focused on executing its growth plan amid what management characterized as improving freight demand conditions entering the second half of 2026.
About Canadian Pacific Kansas City (NYSE:CP)
Canadian Pacific Kansas City (CPKC) is a North American Class I freight railroad formed through the combination of Canadian Pacific Railway and Kansas City Southern. The merged company operates an integrated rail network that spans Canada, the United States and Mexico, providing a single-line rail connection across all three countries. This transborder footprint is intended to streamline cross-border freight flows and provide shippers with direct rail access from Canadian and U.S. production centers to Mexican markets and ports.
CPKC's core business is freight transportation and related logistics services.
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