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CP

CANADIAN PACIFIC KANSAS CITY LTD/CN (CP)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 delivered revenue of $3.699B CAD, diluted EPS of $1.33 CAD, and core adjusted diluted EPS of $1.12 CAD, with OR improving 110 bps YoY to 63.7% and core adjusted OR to 60.7% .
  • Versus consensus, EPS ($0.821 USD) and revenue ($2.712B USD) were modest misses, while EBITDA ($1.439B USD) beat; management cited systems integration in the southern U.S. as a temporary headwind of ~$0.03–$0.04 EPS* .
  • Guidance maintained: mid‑single‑digit 2025 volume growth, sub‑60% full‑year OR, and ~24.5% core adjusted effective tax rate; dividend declared at $0.228 per share .
  • Catalysts: ongoing ramp of Gemini alliance and MMX domestic intermodal (+40% YoY), the new Southeast Mexico Express corridor with CSX, and active regulatory posture amid the proposed UP‑NS combination, creating potential competitive concessions and partnership opportunities .

What Went Well and What Went Wrong

  • What Went Well

    • Continued operating momentum with record volumes and revenue; freight revenue +3% on RTMs +7% and core adjusted OR down 110 bps YoY. “Our exceptional team of railroaders again delivered strong operating and financial results” — Keith Creel .
    • Intermodal strength: International intermodal volumes +28% on Gemini; domestic MMX volumes +40% YoY (+20% QoQ) with Schneider partnership; auto parts and Americold reefer lanes ramping in H2 .
    • Bulk franchise robust: Grain revenue +11% on +13% volumes (record Q2); coal +8%; automotive revenue supported by footprint and closed‑loop solution .

  • What Went Wrong

    • Southern U.S. systems integration caused dwell/efficiency issues and ~$0.03–$0.04 EPS headwind; dwell peaked in early June before recovering; equipment rents up from dwell .
    • Tariff/macro headwinds: Cross‑border steel effectively shut at 50% tariff; mix pressure from strong bulk/intermodal, lower fuel surcharge, and removal of Canadian carbon tax reduced yields .
    • Safety: FRA train accident frequency increased vs prior year (0.97 vs 0.70), though personal injury frequency improved; management cited weather-related incidents .

Financial Results

MetricQ4 2024Q1 2025Q2 2025
Revenue ($CAD Billions)$3.874 $3.795 $3.699
Diluted EPS ($CAD)$1.28 $0.97 $1.33
Core Adjusted Diluted EPS ($CAD)$1.29 $1.06 $1.12
Operating Ratio (%)59.7% 65.3% 63.7%
Core Adjusted Operating Ratio (%)57.1% 62.5% 60.7%
Consensus vs Actual (USD) — Q2 2025EstimateActual
Primary EPS ($USD)0.832*0.821*
Revenue ($USD Billions)2.794*2.712*
EBITDA ($USD Billions)1.421*1.439*

Values retrieved from S&P Global.

Segment Freight Revenue ($CAD Millions)Q4 2024Q1 2025Q2 2025
Grain949 788 743
Coal250 257 256
Energy, Chemicals & Plastics742 758 712
Metals, Minerals & Consumer Products430 448 444
Automotive324 315 330
Intermodal632 674 684
Total Freight Revenues3,801 3,727 3,629
KPIsQ4 2024Q1 2025Q2 2025
RTMs (Millions)55,970 53,724 55,529
Avg Terminal Dwell (Hours)10.2 10.3 10.2
Avg Train Speed (mph)18.7 19.1 19.3
FRA Injuries per 200k hrs0.84 0.98 0.77
FRA Accidents per mm train‑miles1.03 0.38 0.97

Non‑GAAP adjustments materially impacted GAAP EPS: the $333M gain on sale of the Panama Canal Railway equity investment added ~$0.30 to diluted EPS, while KCS purchase accounting reduced EPS by ~$0.07 in Q2 2025 .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Core Adjusted Diluted EPS Growth (%)FY 2025+12–18% (Jan 29) +10–14% (Apr 30) Lowered
Volume (RTMs)FY 2025Mid‑single‑digit (Jan 29) Mid‑single‑digit (reiterated) Maintained
Operating RatioFY 2025Not specifiedSub‑60% full‑year OR (Q&A) New qualitative target
Core Adjusted Effective Tax RateFY 2025~24.5% (Jan 29) ~24.5% (reiterated) Maintained
CapexFY 2025~$2.9B (Jan 29) ~$2.9B (context maintained) Maintained
DividendQuarterly$0.19 (Q4 2024 declared) $0.228 (Jul 30 declared) Raised earlier; current declared

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024 & Q1 2025)Current Period (Q2 2025)Trend
Tariffs/Macro2025 guidance lowered due to trade/tariff uncertainty Mix and tariff headwinds persist (steel shut; carbon tax removal; lower fuel surcharge) Ongoing headwind
Intermodal/GeminiInternational intermodal strong into H2; pipeline robust Gemini ramp (+28% vols), MMX +40% YoY; Americold and auto parts lanes ramping Accelerating growth
Operations/IntegrationStrong OR improvement in Q4 2024 Southern U.S. systems integration milestone; dwell peaked then recovered; EPS headwind $0.03–$0.04 Recovery underway
Regulatory/Industry2025 multi‑year guidance reaffirmed Active stance on proposed UP‑NS; focus on enhanced competition and possible concessions (e.g., Houston access) Heightened engagement
SafetyLeading train accident frequency in 2024 FRA injuries improved; accidents increased due to weather Mixed

Management Commentary

  • Keith Creel: “Our exceptional team of railroaders again delivered strong operating and financial results… we remain confident in our ability to deliver on our full‑year guidance” .
  • Nadeem Velani (CFO): Systems integration impacted earnings by ~$0.03–$0.04 EPS; expect sequential OR improvement in Q3 and strongest OR in Q4; reiterates ~24.5% core adjusted ETR .
  • John Brooks (CMO): “Freight revenue growth of 3% on a 7% increase in RTMs… renewal pricing in excess of our long‑term outlook of 3–4%, though yields were impacted by lower fuel surcharge, Canadian carbon tax removal, and negative mix” .
  • Mark Redd (COO): Dwell in legacy KCSR peaked in early June, improving 42% over two months; car miles per car day +38% with service largely back to pre‑cutover levels .

Q&A Highlights

  • Industry consolidation: Management expects the STB to require “enhanced competition,” sees potential concessions (e.g., Houston, Kansas City/St. Louis access), and is actively engaged; also pursuing alliances that can deliver single‑line‑like benefits .
  • OR trajectory: Sequential improvement expected in Q3 with step‑up in Q4; sub‑60% full‑year OR reiterated .
  • Systems integration impact: ~$30–$40M revenue impact and carryover limited into July; network starting Q3 “pretty fresh” .
  • Tariffs/mix: Steel flows curtailed; automotive choppy but supported by CPKC service; international volatility expected to continue, with Gemini offsetting .
  • Intermodal/MMX: MMX +40% YoY and +20% QoQ; pressure for second train as lanes ramp .

Estimates Context

  • Q2 2025 vs consensus: EPS ($0.821 USD) slightly below ($0.832 USD), revenue ($2.712B USD) below ($2.794B USD), and EBITDA ($1.439B USD) above ($1.421B USD)*.
  • FY 2025 EPS consensus at $3.317 USD*, with 24 EPS and 21 revenue estimates contributing; target price consensus ~$85.93 USD*.

Values retrieved from S&P Global.

Key Takeaways for Investors

  • Mixed quarter vs Street: margin and EBITDA resilience amid modest EPS/revenue misses; integration headwinds appear transitory with recovery into Q3/Q4 .
  • Intermodal-led growth is durable: Gemini/Schneider/MMX momentum plus Americold ramp position H2 favorably despite tariff/mix pressure .
  • Bulk tailwinds: Strong grain outlook (70–75MM mt Canada) and robust coal provide volume support into H2 .
  • Regulatory setup could create upside: If UP‑NS advances, concessions opening key gateways would be positive for CPKC’s three‑nation reach .
  • Capital and shareholder returns: ~$2.9B 2025 capex maintained; active NCIB with 16.4M shares repurchased through Q2 and quarterly dividend $0.228 .
  • Watch KPIs: Dwell/velocity normalization, OR progression toward sub‑60%, and intermodal bookings through Gemini/Lázaro/St. John .
  • Narrative: Service recovery plus strategic partnerships underpin H2 execution; headline risk from tariffs and industry consolidation remains but management’s posture is proactive .