Q3 2024 Summary
Published Feb 4, 2025, 11:28 PM UTC- Strong growth prospects in bulk commodities, including grain, potash, and coal, are expected to drive revenue growth. The company anticipates record demand for coal and potash in Q4 and into 2025, supported by strong Canadian grain production and increased shipments to Mexico.
- Expansion and maturation of the MMX (Mexico Midwest Express) service is leading to increased volumes and offers significant growth opportunities. The service is progressing naturally, with recent tests resulting in new business, and a strong pipeline of opportunities in dry van, auto parts, and refrigerated products.
- Strategic capacity investments, such as the completion of the second span of the Laredo bridge by the end of the year, will double capacity at a key cross-border point, facilitating increased traffic flow and supporting growth in cross-border shipments.
- Increased operational costs negatively impacted Q3 results: The net impact of the work stoppage and higher casualties, along with higher stock-based compensation, combined for a 300 basis points or $0.11 year-over-year headwind to the Q3 operating ratio and EPS, respectively. This indicates rising costs that could pressure future earnings.
- Weakness in certain market segments due to soft macro environment: The company reported that Forest Products revenues and volumes were both down 1%, and Metals, Minerals, and Consumer Products revenue was down 3% with an 8% volume decline, both impacted by a soft macro environment. This suggests challenges in key business areas that may continue to drag on overall performance.
- Competitive pressures from trucking overcapacity affecting intermodal growth: In the Domestic Intermodal segment, volumes were down 7%, impacted by lower short-haul business in Mexico and customers shifting some business to truck during the work stoppage. Additionally, the company faces challenges due to "the sort of trucking challenge in the headwinds of all the capacity... that now has been a little bit of a surprise and more of a challenge than I anticipated." This indicates that overcapacity in trucking is creating competitive pressures that may hinder growth in intermodal volumes. ,
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Revenue Growth | Q3 2024 | High single-digit revenue growth is expected over a multiyear period | Approximately 6.3% YoY (from 3,339M in Q3 2023To 3,549M in Q3 2024) | Missed |
EPS Growth (YoY) | Q3 2024 | Double-digit EPS growth is anticipated over a multiyear period | 8% YoY increase as reported (core adjusted combined diluted EPS was $0.99) | Missed |
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Operating Ratio Improvement
Q: Can you specify the fourth-quarter OR improvement potential?
A: We expect a 500 basis point sequential improvement in the operating ratio in Q4. This follows unique Q3 items, including a labor disruption impacting OR by 100 basis points and a $60 million derailment expense. With these not recurring and strong grain and bulk outlook, we see opportunity for operating leverage. -
Volume Growth and Synergies
Q: Are you rethinking synergy targets amid strong volume growth?
A: Despite a weak macro environment, our bulk franchise is strong with a robust Canadian grain crop and strong U.S. crops. Potash demand is at record levels, and Domestic Intermodal growth is up 27% year-to-date. We're comfortable with around 4% RTM growth year-to-date and see demand improving. While not giving specific guidance for 2025, we believe the future is bright. -
Multi-Year Outlook and Buyback
Q: Any updates on next year's growth expectations and buyback?
A: We're holding to our multi-year outlook of high single-digit revenue growth and double-digit EPS growth, with CapEx around $2.6 to $2.8 billion. We expect to reinstitute a share buyback program next year, providing additional benefit. -
Gemini Alliance Impact
Q: What does the Gemini alliance mean for your network in 2025?
A: We're excited about the Gemini opportunity, partnering with Hapag-Lloyd and others. Investments at Lazaro port, where volumes are up 32% year-to-date, and Port Saint John, expanding capacity to 800,000 TEU, present tremendous growth opportunities. We feel good about achieving our $800 million synergy exit run rate for '24 and see no reason why synergy growth won't continue in 2025. -
Growth Markets for 2025
Q: Which markets will drive growth in 2025?
A: We see opportunities in International Intermodal, including Gemini and other players, leveraging our diversity across Vancouver, Saint John, and Lazaro. The MMX service has a strong pipeline, particularly in dry van, auto parts, and refrigerated products. The Americold facility, opening mid-'25, will help create a differentiated product targeting truck volumes. We're also expanding in carload business, Texas markets, fuel terminals, and aggregates. -
Tariffs and Cross-Border Trade
Q: How might potential tariffs affect cross-border trade?
A: It's a wait and see situation. We're encouraged by Mexico's commitment to grow commerce and support North America. We'll navigate any tariffs with our customers and stay active with governments in the U.S., Mexico, and Canada. -
Mexican Legislation Risks
Q: Is Mexican railroad reform a risk to CP?
A: We're encouraged by developments. The new president has reinforced previous mandates and is committed to freight and environmental goals. We believe being part of the solution in a country focused on growth puts us in a good spot. -
Pricing and Competitive Pressures
Q: Why is there pressure in auto and intermodal yields?
A: The increase in length of haul—up 17% in automotive and 20% in intermodal—impacts revenue per RTM. Overall, we're achieving pricing north of 5%, but intermodal faces pressure due to trucking capacity and lower spot rates. -
Laredo Bridge and Competitor Issues
Q: Can you gain share due to competitor issues and Laredo bridge?
A: We've seen opportunities migrate to our network. The second Laredo bridge will double capacity, enhancing world-class fluidity and allowing us to grow with certainty. -
North-South Grain Progress
Q: How is progress on the North-South grain corridor?
A: We're ahead of pace. We're just scratching the surface in providing optionality for grain companies to sell into new markets. We're excited about the prospects in 2025. -
Customer Shift to MMX Service
Q: Is customer adoption of MMX improving?
A: Yes, it's a natural maturation. After successful trials, we won significant new business. Despite trucking challenges, we're optimistic about growth. -
Recovering RTM Lost to Labor Issues
Q: Can you recover RTM lost due to labor issues?
A: The 3% RTM impact from the strike was mainly in bulk business that will roll forward. We've seen an uplift in volumes and expect to close the year strong.