Canadian Pacific Volumes, Revenues, and Operations (Tony Hatch - ABH Consulting)

20161212 Tonyhatch (Cropped)

Canadian Pacific shows improvement, prepares for the “Tale of the 2nd Half” – and thinks about the next three years. They produced an OR of 59.7% on a slight volume decline (1%); RTMs (-2%) would have been “high single digits” but for Canadian grain (6/9 categories overall were up YOY). Unlike CN intermodal (-4% about in line with the NA industry), CP’s volumes increased 14% and they expect that rate to more or less continue (Keith to Street: Curate this!). Potash, with serious wind at its back, grew RTMs 10% and revenues 21%, and that, too, is expected to continue. They also priced above inflation (achieving renewals in the +6% range).

  • Operations were better than the US, second best in-nation on a YOY basis – velocity flat, dwell up 12%.  Sequential numbers showed improvement. They too had unusual safety numbers – but the opposite of their neighbors: Train Accidents +136% (!), FRA Personal Injury rate -18%.  Weird….
  • “You got your Halifax, I’ll see you our St John!”  Not sure the cards are actually even, but one has to play them as they lay. CP looks to CMA, Hapag Lloyd, and capacity growth plans from 300K TEU to 800K to look to play in the SEA-East Coast game that (may) develop, taking business from the US.
  • Mergers helped – CMQ not only is the link to St John, of course but is some $200mm in revenues ahead of plan. 
  • Mergers helping, part 2: KCS produced a solid quarter, flat margins, real (3%) carload growth, with revenues up 13% led by autos (+34%) and Cross-Border Intermodal, +49% - and despite still trouble in refined products exports to Mexico, the subject of the first big USMCA action (by the US and Canada against Mexico/AMLO).  Also:
    • It’s worth reiterating that at very little cost KCSM got its concession extended to 2037.
    • CPKC expects deal resolution by Q1/23 (perhaps a tad optimistic) and this will get approved!
    • Creel gave a shout-out to KCS and COO John Orr for the capacity work already being done (“an additional 15,16 sidings” pre-consolidation) before the ~30 sidings, $275mm (eagles) Capex post-approval.
    • CP and KCS as still independent operators continue to test-run trains from Lazaro to Chicago (up to about 7 now) and even in reverse….still a Missourian here, but we’ll see….