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CP

CANADIAN PACIFIC KANSAS CITY LTD/CN (CP)·Q3 2025 Earnings Summary

Executive Summary

  • Modest top-line and EPS miss vs S&P Global consensus in USD, but solid operating execution: revenue grew 3% YoY to C$3.661B and core adjusted diluted EPS rose 11% YoY to C$1.10; operating ratio improved 260 bps YoY to 63.5% (core adjusted OR 60.7%) . Versus consensus, USD revenue and EPS both missed slightly: revenue -0.3% and EPS -0.7% (see Estimates Context).*
  • Mix-led growth in grain (+5%), intermodal (+7%), automotive (+3%) and potash (+16%) offset softer ECP (-2%); volume (RTMs) +5% and safety improved; sequential casualty expense rose C$39M, a ~C$0.03 EPS headwind .
  • Management reaffirmed full-year 2025 core adjusted EPS growth of 10–14% (vs 2024), targets ~24.5% core tax rate for Q4 and FY, and ~C$2.9B 2025 capex; Q4 OR “~sub-57” is the stretch target depending on mark-to-market .
  • Strategic catalysts: accelerating Mexico–U.S. corridor and the CSX partnership via the Meridian Speedway (Atlanta–Dallas ~30 hours by early 2026), and aggressive capital returns (34.1M shares repurchased YTD; Q3 buyback C$1.892B) .

What Went Well and What Went Wrong

What Went Well

  • Pricing and mix execution with broad-based volume strength: RTMs +5% and freight revenue +4% YoY; grain, potash, intermodal and automotive all positive; CEO: “profitable, sustainable growth… while navigating challenging macroeconomic conditions” .
  • Operating and safety metrics improved: core adjusted OR 60.7% (↓220 bps YoY), velocity +1%, terminal dwell -2%; FRA accident frequency improved to 1.15 (from 1.43) and injuries to 0.92 (from 0.95) .
  • Strategic network wins and partnerships: new Americold facility in Kansas City, strong domestic intermodal (+13% volumes), and growing CSX southeast connectivity; CMO: “record” auto franchise resilience despite supply challenges .

What Went Wrong

  • Small miss vs consensus in USD (revenue and EPS) compounded by a C$39M sequential rise in casualty expense (~C$0.03 EPS headwind) .*
  • Tariff and trade frictions: PNW soybean tariffs pressured export flows; refined fuels into Mexico faced customs challenges; forest products and ECP saw softer base demand .
  • Mix diluted yield metrics: cents per RTM -1% on bulk and international intermodal strength and longer length-of-haul traffic .

Financial Results

Headline metrics (CAD) vs prior periods

MetricQ3 2024Q1 2025Q2 2025Q3 2025
Revenue (C$B)3.549 3.795 3.699 3.661
Diluted EPS (C$)0.90 0.97 1.33 1.01
Core Adjusted Diluted EPS (C$)0.99 1.06 1.12 1.10
Operating Ratio (%)66.1 65.3 63.7 63.5
Core Adjusted OR (%)62.9 62.5 60.7 60.7

Q3 2025 vs S&P Global consensus (USD) — reported vs estimates

Metric (USD)ConsensusActualSurprise
Revenue (USD)$2,637.03M*$2,628.35M*-0.3%*
Primary EPS (USD)$0.7950*$0.7897*-0.7%*

Values retrieved from S&P Global.*

Note: Consensus/actual above are in USD as provided by S&P Global. Company reports in CAD; S&P Global also supplies USD actuals for apples-to-apples comparison.*

Segment revenue breakdown (CAD)

Line of BusinessQ3 2024 (C$M)Q3 2025 (C$M)
Grain668 702
Coal248 255
Potash144 167
Fertilizers & sulphur91 102
Forest products198 193
Energy, chemicals & plastics712 701
Metals, minerals & consumer products443 458
Automotive333 343
Intermodal624 668
Total Freight Revenues3,461 3,589
Non-freight88 72
Total Revenues3,549 3,661

KPIs and operations

KPIQ3 2024Q3 2025
RTMs (millions)51,520 54,200
Average train speed (mph)18.8 19.0
Average terminal dwell (hours)10.3 10.1
FRA personal injury frequency0.95 0.92
FRA train accidents per million train-miles1.43 1.15
Average fuel price (US$/gal)3.19 2.94

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Core adjusted diluted EPS growth vs 2024FY 202510–14% (updated at Q1) Reaffirmed 10–14% Maintained
Core adjusted effective tax rateQ4 & FY 2025~24.5% (implied from prior outlook/ETR commentary) ~24.5% for Q4 and full year Maintained
Capital expendituresFY 2025~C$2.9B (January outlook) ~C$2.9B reiterated Maintained
Operating ratioQ4 2025N/AAim for ~sub-57% depending on mark-to-market New color
RTM growth assumptionFY 2025Mid-single-digit RTM growth assumption (Q1 outlook) Continues to target mid-single-digit volumes exiting year (qualitative) Maintained (qual.)
DividendNext paymentC$0.228/sh declared; payable Jan 26, 2026 ——

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2 2025)Current Period (Q3 2025)Trend
Guidance and macro/trade policyQ1: Lowered 2025 EPS growth guidance to 10–14% due to tariff/trade uncertainty . Q2: “Strong growth, momentum into H2” .Reaffirms 10–14% EPS growth despite macro; cites strong pipeline .Stable to improving confidence
Technology/integrationQ2: System integration challenges in southern U.S. post-cutover .Integrated operating systems now leveraged for productivity gains; record CP legacy productivity; KCS throughput highs .Improving
Intermodal growthQ2: Schneider ramp; CSX Southeast link; strong domestic & international [26].Domestic +13%, international +10%; Americold K.C. ramp; CSX link continues .Positive
Mexico cross-borderQ2: Building lane density and land-bridge; CSX connectivity [26].Customs headwinds on refined fuels; LPGs rebounding; continued growth into Mexico .Mixed (short-term headwinds, long-term positive)
Bulk (grain, potash, coal)Q1–Q2: Solid bulk; potash export cycles efficient .Grain mixed (PNW soy tariffs headwind, but large N.A. harvest); potash strong; coal +2% .Mixed
PricingQ1–Q2: Above 3–4% long-term renewal target .Pricing above 3–4% continues; CTS/RTM down 1% on mix/length-of-haul .Positive pricing; mix drag
Regulatory/M&A—CEO forcefully critiques proposed UP–NS merger; expects lengthy STB review and potential conditions .Heightened focus

Management Commentary

  • CEO Keith Creel: “CPKC once again created profitable, sustainable growth in the third quarter, while navigating challenging macroeconomic conditions” and remains “confident in our ability to continue delivering on our long-term value proposition” .
  • COO Mark Redd: Post technology cutover, “leveraging the integrated Canadian-U.S. operating systems,” with improved velocity, dwell, train length/weight; deploying Tier 4 locomotives with ~30% fewer service interruptions YoY .
  • CMO John Brooks: Bulk and intermodal strength; addressing soybean tariff impacts, “identifying alternative markets,” and seeing reefer ramp with Americold; domestic intermodal volumes +13% .
  • CFO Nadeem Velani: Core adjusted OR 60.7%; ~C$39M sequential casualty increase (~C$0.03 EPS); expects core adjusted ETR ~24.5% in Q4 and FY; investing ~C$2.9B in 2025; 34M shares repurchased YTD (91% of NCIB) .

Q&A Highlights

  • Industry consolidation (UP–NS): CEO argued approval “is not a layup,” expects rigorous STB review and potential significant conditions; emphasized minimal direct threat to CPKC’s north–south model but cautioned on market power risks and gateway/captive shipper impacts .
  • Meridian Speedway/CSX partnership: Infrastructure at class-4 by Jan 2026, Atlanta–Dallas ~30 hours; near-term dispute with NS framed as running the railroad to designed 8,500’ capacity; additional crew start mid-November; broader opportunities across industrial freight .
  • Outlook path to targets: Easier comps in Nov–Dec; aim for sub-57% Q4 OR; confident in achieving ≥10% EPS growth in 2025 .
  • Segment color: Potash growth to moderate on tougher comps; domestic intermodal strong into Q4; international intermodal steady (muted peak, pull-forward) .
  • Pricing: Renewal pricing “closer to 4%” above inflation; CTS/RTM to turn positive in Q4 as carbon tax effect rolls through .

Estimates Context

  • Q3 2025 (USD): Revenue $2,628.35M vs $2,637.03M cons (–0.3%); Primary EPS $0.7897 vs $0.7950 cons (–0.7%); both slight misses likely influenced by the C$39M sequential casualty expense increase (~C$0.03 CAD EPS) and mix-driven yield dilution . Values retrieved from S&P Global.*
  • Revisions: With reaffirmed FY EPS growth (10–14%) and Q4 OR aiming “~sub-57,” models may edge casualty/fuel/price-mix and Q4 cost leverage; tax rate ~24.5% supports EPS cadence .

Key Takeaways for Investors

  • Execution remains strong: OR and core OR improved YoY with broad volume growth and better safety/operations; mix pressure manageable given pricing discipline .
  • Slight USD consensus misses are small and explainable (casualty spike, mix); FY EPS growth reaffirmation should anchor estimates into Q4 .*
  • Structural growth vectors intact: Mexico corridor, CSX link via Meridian Speedway (early-2026), Americold reefer ramp, Schneider domestic intermodal, and industrial development pipeline .
  • Near-term watch items: soybean tariffs (PNW), Mexico customs on refined fuels, and potash comps; monitor casualty normalization and OR trajectory into Q4 .
  • Capital returns support the stock: NCIB ~91% complete YTD; quarterly dividend C$0.228 declared (payable Jan 26, 2026) .
  • Regulatory overhang: STB process on proposed UP–NS merger could create multi-quarter noise; CPKC positioning as an active stakeholder and potential beneficiary of alliance-driven share gains .
  • Setup into Q4: Easier comps in Nov–Dec, strong grain harvest logistics, pricing tailwinds, and operating momentum offer upside to margin trajectory .

Footnote: Values retrieved from S&P Global.*