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Canadian Pacific Kansas City says first-quarter earnings rose ahead of merger

CALGARY — Fresh from a historic merger, Canadian Pacific Kansas City president and CEO Keith Creel says the company is focused on a disciplined integration into a railway network that he believes will become "the most relevant in North America.
Canadian Pacific Railway trains sit at the main CP Rail trainyard in Toronto on Monday, March 21, 2022. THE CANADIAN PRESS/Nathan Denette

CALGARY — Fresh from a historic merger, Canadian Pacific Kansas City president and CEO Keith Creel says the company is focused on a disciplined integration into a railway network that he believes will become "the most relevant in North America." 

"We're not going to get ahead of our skis. We're going to be methodical about this," he said on a conference call with analysts Wednesday. 

“We uniquely and only and solely bring three nations together. It has never been done before. I would suggest it will never be done again," he said. 

CPKC reported its income and revenue rose in the first quarter of 2023.It was the last earnings report for the company's operations before the merger of Canadian Pacific Railway and Kansas City Southern Railway kicked in April 14.

"Our strong bulk franchise, fuelled by a robust Canadian grain harvest, plus competitive service offerings in intermodal helped produce these results providing momentum as we begin our journey as CPKC," said Creel in a press release.

CP’s purchase of KCS, the continent’s first major railway merger in more than two decades, created the only railway stretching from Canada through to the U.S. and Mexico. The U.S. rail regulator approved the US$31 billion deal in March.

Canadian National Railway Co. fought the acquisition, wooing KCS away from CP’s initial offer with its own offer in May 2021, but the U.S. regulator rejected CN’s bid on antitrust grounds later that year.

The newly merged company operates nearly 33,000 kilometres of rail and employs nearly 20,000 people.

Its network stretches from Vancouver and St. John, N.B., to Houston and Mexico City, reaching the Gulf of Mexico and the Pacific Ocean.

Creel said on the call with analysts that despite strong demand, CPKC won't allow its network to be oversold as it integrates the two companies.

"We're going to make this thing right and we're not going to fail by letting our ... aggressiveness and our want for revenue oversubscribe our ability to execute," he said.

"We've got to make sure the network can handle the business to be able to execute our operating model and that's exactly what we're going to do."

The company recently announced multi-year agreements with Schneider National Inc. and with Knight-Swift Transportation Holdings Inc. to provide intermodal transportation services on CPKC’s new north-south corridor. The two companies are expected to transition traffic to CPKC starting in mid-May. 

Surface Transportation Board chair Martin Oberman said in March that the merger is expected to speed up freight travel time, enhance efficiency, encourage better competition with the other U.S. railways, and shift around 64,000 truckloads a year from North America’s roads to rail. 

Executive vice-president and chief marketing officer John Brooks said on the conference call that customers are compelled by the capacity that CPKC can offer with its network.

"It has been a tough couple of years of railroading for the industry. And a lot of these customers are ready for a differentiator," he said. 

CPKC's net income for the first quarter of 2023 was $800 million, up more than 35 per cent from $590 million a year earlier, the company said Wednesday.

The Calgary-based railway company said diluted earnings per share were 86 cents, up more than 36 per cent from 63 cents the same quarter last year. 

Rail traffic has been slowing in the short term as the economic outlook for the year is uncertain, with container traffic in Canada dropping almost 12 per cent in March compared with a year ago, according to the National Bank of Canada. 

Brooks said CPKC isn't immune to the fact that volume in ports across North America are down, but he said the company has been aggressive and able to grow despite this. 

"There are self-help initiatives that are helping keep us afloat a little better," he said. 

Revenues for the quarter ended March 31 were $2.27 billion, up more than 23 per centfrom $1.84 billion a year earlier. 

CPKC said that core adjusted earnings per share, which exclude significant items and accounting related to its purchase of Kansas City Southern, were 90 cents, up from 67 cents a year earlier.

Volumes, as measured in revenue ton-miles, were up 11 per cent compared with a year earlier.

CPKC declared a quarterly dividend of 19 cents earlier Wednesday. 

— With files from Chris Reynolds

This report by The Canadian Press was first published April 26, 2023.

Companies in this story: (TSX:CP)

The Canadian Press