Canadian Pacific Kansas City Reaffirms Growth Outlook, Targets $1.5B in Merger Synergies

Key Points

• CPKC reaffirmed its full-year outlook for mid-single-digit revenue ton-mile growth and low-double-digit earnings growth, with RTMs up about 4% year to date and nearly 7% quarter to date.
• The railroad expects to exit the year with approximately CAD 1.5 billion in merger-related revenue synergies, driven by growing U.S.-Mexico trade, cross-border intermodal, grain and cold-storage services.
• CPKC lowered its 2025 capital-spending guidance by about 15% to roughly CAD 2.6 billion, a level management believes can improve free-cash-flow conversion while supporting share repurchases and dividends.

Canadian Pacific Kansas City NYSE: CP President and CEO Keith Creel said the railroad remains positioned to meet its full-year growth and earnings outlook despite a challenging freight environment, trade uncertainty and commodity-specific headwinds.

Speaking at the 14th Annual Laguna Conference, Creel said CPKC had targeted mid-single-digit revenue ton-mile, or RTM, growth for the year, supporting low-double-digit earnings growth. RTMs were up about 4% year to date and were approaching 7% quarter to date, he said, citing continued strength in grain and intermodal traffic as well as moderating coal-related headwinds.

“Operationally, the railroad is running extremely well,” Creel said. Excluding coal, he said year-to-date RTM growth would have been approximately 6%.

Trade Outlook and Network Advantages

Creel said uncertainty surrounding tariffs and trade arrangements has limited some of the investment benefits that typically accompany greater policy certainty. However, he said manufacturing investment, data-center development and trade activity continue across the U.S., Canada and Mexico.

He said a resolution to the U.S.-Mexico-Canada Agreement review process could provide further support, though he was more confident about the U.S.-Mexico relationship than the timing of a broader resolution involving Canada.

Creel also pointed to potential Canadian tax, labor and infrastructure reforms as developments that could improve the country’s competitiveness and support freight volumes. He said investments in ports, rail infrastructure and other trade-enabling assets could benefit CPKC because its network connects Canada, the U.S. and Mexico.

On nearshoring and manufacturing shifts, Creel said recently announced production changes appear favorable to CPKC’s network. While some original equipment manufacturers may move production from Mexico to the U.S., he said the company’s served facilities are expected to see increased production in certain cases.

CPKC’s grain business has also become more resilient through network expansion and diversification, according to Creel. He said the railroad has increased train lengths, expanded elevator capacity and benefited from additional export capacity on Canada’s West Coast. The company can also move Canadian grain into Mexico and U.S. Midwest products into Canada when conditions warrant, he said.

Merger Synergies and Cross-Border Growth

Creel said the company is ahead of where it expected to be following the CPKC combination, despite what he described as a multiyear freight recession. While crude-oil opportunities have not developed as anticipated, transborder trade between the U.S. and Mexico has exceeded expectations, he said.

Creel said Canada-Mexico land-bridge revenue has grown from roughly CAD 100 million when the railroads were combined to more than CAD 600 million, with a goal of reaching CAD 1 billion. CPKC expects to exit the year with approximately CAD 1.5 billion in revenue synergies, he said.

The company is expanding its cross-border offerings through intermodal, grain and cold-storage traffic. Creel said regulatory changes now allow CPKC to use its Kansas City transload facility for dry goods including pepperoni, popcorn and dog food, in addition to refrigerated products. He also said additional Mexican facilities are in development near the Toluca and Mexico City markets and south of Monterrey.

Criticism of Proposed Rail Consolidation

Creel strongly criticized the proposed Union Pacific and Norfolk Southern transaction, arguing that the potential competitive harms and industry concentration outweigh the benefits of single-line service. He said any approval could require substantial concessions and could trigger further consolidation in an industry that has shrunk from roughly 30 railroads three decades ago to six today.

Creel said CPKC does not seek a merger, but added that the company could pursue commercial agreements with other railroads if the proposed transaction moves forward. He said the company’s single-line network across all three North American countries provides a differentiated competitive position.

Capital, Labor and Technology

Vice President of Capital Markets, Tax and Treasury Chris de Bruyn said CPKC reduced its capital-spending guidance by approximately 15% this year to about CAD 2.6 billion. He expects annual capital expenditures of CAD 2.6 billion to CAD 2.8 billion to be sustainable over the next several years following major investments in the Laredo bridge, Chicago terminal redesign, centralized traffic control and sidings.

De Bruyn said the spending profile should support improved free-cash-flow conversion. After funding business investment, the company plans to return capital through a mix of share repurchases and dividends, he said.

Creel said higher fuel prices will create a near-term headwind, although the company’s fuel-recovery mechanisms should help offset the effect in the fourth quarter. De Bruyn said about 60% of CPKC’s fuel-surcharge program operates on a one-month lag, with the remainder on a two-month lag.

On technology, Creel said CPKC is applying artificial intelligence to contract management, safety, track reliability and locomotive reliability. The railroad is also working with the Federal Railroad Administration on a potential U.S. pilot involving inspection technology already used in Canada. Creel said the company is taking a measured approach to AI deployment, seeking to prove concepts before scaling them.

About Canadian Pacific Kansas City (NYSE:CP)

Canadian Pacific Kansas City Limited NYSE: CP is a North American transportation company that operates the Canadian Pacific Kansas City (CPKC) railway. Headquartered in Calgary, Alberta, the company provides rail transportation and logistics services for freight customers across Canada, the United States and Mexico.

CPKC transports a broad range of commodities and products, including grain and fertilizers, coal, energy and chemicals, forest products, metals and minerals, automotive goods, industrial and consumer products, and intermodal freight.

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