CPKC outlines 10%–14% earnings growth target while advancing Meridian Speedway for 2026

Earnings Call Insights: Canadian Pacific Kansas City Limited (CP) Q3 2025

MANAGEMENT VIEW

* CEO Keith Creel opened by expressing appreciation for the team’s performance, highlighting "strong volume growth in the quarter of 5%. Revenues were up $3.7 billion, up 3%, operating ratio of 60.7%, which was a 220 basis points improvement in earnings per share of $1.10, an increase of 11% versus a year ago." Creel emphasized safety improvements and noted, "the team continues to generate a diverse profitable growth across a number of areas." He underscored record performance in automotive, strong growth in grain and potash, and the launch of the Americold facility at the Kansas City terminal. He reaffirmed guidance, stating, "we remain on track and fully expect to deliver on our guidance of 10% to 14% earnings growth versus a year ago."
* Addressing industry consolidation, Creel stated, "we strongly believe further consolidation is not necessary at this time and is not in the best interest of the industry, the shippers or the U.S. economy." He described the proposed UP and NS merger as presenting "unprecedented risk by heavily concentrating much of the decision-making for our national rail network."
* COO Mark Redd reported, "terminal dwell improved by 2%, velocity improved by 1%, train length and train weight improved by 2%." He pointed to improved productivity and record throughput on both legacy networks. Safety metrics also improved, with "personal injuries...0.95, which is a 3% improvement. Train accident frequency was 1.15, which is 20% for the quarter."
* CMO John Brooks highlighted, "freight revenue growth of 4% on 5% increase in RTMs, both a revenue and RTM all-time Q3 record." He cited record U.S. grain volumes up 13%, potash revenues and volumes up 15%, and intermodal revenue up 7% on 11% volume growth. Brooks also noted, "we continue to be well positioned to outperform the industry and the macro on the strength of this franchise, paired with our unique synergies and self-help."
* CFO Nadeem Velani stated, "CPKC's reported operating ratio was 63.5%, and the core adjusted operating ratio came in at 60.7%, a 220 basis point improvement over prior year. Diluted earnings per share was $1.01 and core adjusted diluted earnings per share was $1.10, up 11% versus last year." He indicated "we've repurchased 34 million shares or approximately 91% of the program we announced in March."

OUTLOOK

* Management reiterated their guidance for "10% to 14% earnings growth versus a year ago" and expect "our average headcount to continue to be slightly lower year-over-year, driving strong labor productivity gains."
* Looking ahead, Brooks noted, "our outlook though is positive for this new crop, and we expect this new crop to be in the range of 78 million to 80 million metric tons ahead of the 5-year average, and we expect a strong close to the year for our grain franchise."
* Velani stated, "we remain well positioned to meet our guidance and lead the industry with another year of double-digit earnings growth."

FINANCIAL RESULTS

* Revenues were reported at $3.7 billion, up 3% year-over-year.
* Core adjusted operating ratio improved by 220 basis points to 60.7%.
* Core adjusted diluted EPS was $1.10, up 11% versus last year.
* Year-to-date cash provided by operating activities increased 6% to $3.8 billion, with CapEx investment of $860 million in the quarter.
* The company reported repurchasing 34 million shares, or about 91% of its announced program.

Q&A

* Fadi Chamoun, BMO Capital Markets: Asked whether the UP/NS merger could trigger further consolidation. Creel responded, "it's not a layup...the hurdle is going to be high...I believe their decision, if approved, will contain significant conditions or if they don't meet the standard, I believe they'll reject it."
* Christian Wetherbee, Wells Fargo: Questioned near-term strategy. Creel highlighted pursuit of alliances, "we're not going to sit on our laurels. We've been very engaged with the nonapparatus to look at creating alliances...to achieve merger like benefit without the risk that merger represents."
* Brian Ossenbeck, JPMorgan: Asked about Meridian Speedway service disputes and timeline. Creel explained, "the service product, the actual infrastructure will be done in January...by, I would say, January, February of 2026 is going to be a Class 4 railroad that allows us to create a transit time and a product off never before possible that's going to connect Atlanta to Dallas in about 30 hours."
* Jonathan Chappell, Evercore ISI: Questioned the ability to achieve full-year targets. Velani said, "we have strong visibility...we are very confident, we'll be able to achieve at least 10% EPS growth for the year."
* Steven Hansen, Raymond James: Asked about grain timing. Brooks replied, "I'm pleased with our cycles...we've been able to backfill with good opportunities on our Southern franchise."
* Scott Group, Wolfe Research: Asked about sense per RTM and mid-teens earnings algorithm. Velani explained, "in Q4, we should see positive sense per RTM. Pricing has been strong...we'll start seeing benefits of share repurchase starting next year."
* Additional questions covered potash, intermodal, volume trends, synergy realization, and responses to the proposed UP/NS merger.

SENTIMENT ANALYSIS

* Analysts took a probing, slightly skeptical tone regarding the impact of industry consolidation, volume trends, and the achievability of double-digit earnings growth with only weeks left in the year.
* Management maintained a confident, occasionally defensive tone, emphasizing visibility, execution, and the unique advantages of CPKC’s network. Examples include, "we are very confident, we'll be able to achieve at least 10% EPS growth for the year" and "we will remain seized even if this consolidation happens on maintaining our industry-leading position."
* Compared to the previous quarter, both analysts and management engaged more deeply on regulatory and competitive risks, with management reiterating confidence but facing more pointed questions.

QUARTER-OVER-QUARTER COMPARISON

* EPS increased from $1.12 to $1.10 core adjusted, while revenue remained at $3.7 billion.
* The operating ratio improved by 110 basis points last quarter and 220 basis points this quarter.
* Management’s tone in Q3 was more focused on addressing regulatory threat and M&A risks versus Q2, which centered on integration progress and operational recovery.
* Analysts maintained pressure on guidance credibility, especially as year-end approached.
* Strategic focus shifted to leveraging alliances and maximizing unique network advantages amid uncertainty over industry consolidation.
* Discussion of the Meridian Speedway expansion and opportunities intensified, positioning it as a future revenue driver.

RISKS AND CONCERNS

* Management highlighted industry consolidation as a material risk, with Creel stating, "the merger of this magnitude introduces unprecedented risk by heavily concentrating much of the decision-making for our national rail network."
* Tariffs impacting soybean exports and macroeconomic headwinds were cited.
* Service disputes on the Meridian Speedway and supply chain challenges, including chip shortages, were acknowledged.
* Analysts questioned sustainability of volume trends, ability to meet guidance, and risks from the UP/NS proposed merger.

FINAL TAKEAWAY

Management reaffirmed CPKC’s commitment to delivering double-digit earnings growth for 2025, citing strong operational performance, robust pricing, and unique network advantages. The company is closely monitoring the regulatory landscape surrounding the UP/NS merger, but asserts that its growth prospects and industry positioning remain intact regardless of potential consolidation. Investments in capital, safety, and network enhancements—particularly the Meridian Speedway corridor—are expected to support further growth into 2026, while share repurchases and disciplined cost control are positioned to drive additional shareholder value.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/cp:ca/earnings/transcripts]

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