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Canadian Pacific Railway (CP)

Participants
Maeghan Albiston Investor Relations
Keith Creel President and Chief Executive Officer
John Brooks Senior Vice President and Chief Marketing Officer
Nadeem Velani Executive Vice President and Chief Financial Officer
Fadi Chamoun BMO Capital Markets
Ken Hoexter Merrill Lynch
Tom Wadewitz UBS
Chris Wetherbee Citi
Benoit Poirier Desjardins Capital
Matt Reustle Goldman Sachs
Seldon Clarke Deutsche Bank
Brian Ossenbeck JPMorgan
Ravi Shanker Morgan Stanley
Scott Group Wolfe Research
Brandon Oglenski Barclays
Call transcript
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Operator

Good afternoon. My name is Jessy, and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Canadian Pacific’s Second Quarter 2018 Conference Call. The slides accompanying today’s call are available at www.cpr.ca. All lines have been placed on mute to prevent any background noise. there a remarks, session. speakers’ the will question-and-answer be After introduce now AVP, conference. [Operator would to Maeghan the Instructions] I begin like Albiston, to Investor Relations

Maeghan Albiston

you, for thank everyone, Good us today. Thank you Jessy. afternoon, joining and

also Q&A. Keith X U.S. forward-looking uncertainties, I With The Executive Vice the Brooks, are is begin, Officer; Senior actual would may you Slide our we and to on presentation actual to presentation formal Executive Before factors to non-GAAP information and and The that Chief MD&A regulators. by Creel. Nadeem we in Vice and the with of Marketing risks, followed want and materially. Chief Canadian remarks your John appreciate results It’s today other if that And President me remind introduce Velani, now this in release will contains and interest questions could Officer. are my President differ Chief Creel, pleasure in influence described which limit our results and Keith filed two. X. This the and outlined contains time, measures, be Slide President press Financial on here Officer; could Mr. you

Keith Creel

most the of to address units, and Thanks, mind represent our strong Maeghan. the without and of quarter of so second quarter some established coming as said, reflects and obviously solid operational not pretty into but in team’s that came that winter, speak the business unions for this the some a with expected operating and Certainly, revealing results performance With corner We due my noise, the honored without of for today. mind upon our and pleased some underpinned our comments. we Welcome rhythm labor some to call the to these headwinds creating family which CP a the two out second negotiations to our meaningful by in quarter, labor two first across we all service demand quarter. experienced our was know, will solid we which pretty expand and during us very quarter. as in interruptions out focus

of think, network stability we’re conductors and I quarter our ladies in that for relative those. been imagine, you employees that and said, some provide our disruptions railway a systems has well with we the back the labor the women We’ve now some across process to in am our additional curtailing trains. as that and ratification as creating signal a I our what railway With slowed had Canada, our and are engineers; costs certainly as winding optimistic influence and inconvenience, vote the the tailwind an to ratified TCRC, a that that paying up agreement to cost with the become operate down to will some and start stop, can though, experience associated customers. certainly created As process and speak that our to momentum the are IBEW, actually which winding revenue result headwind, of a some the with the confident which and for so

basis it forward relationship to fuel improvement efficiency, to of value is, It and railway solid as only the injuries get the symbolically in and as lengths, labor team adjusted And most train will say very what that possible. a coming Friday week. able produced in CP opportunity renewed of company stability growing we bodes we as to across safety operating encouraged Operationally, sets that for is what solid CAD$X.XX. make we’ve the well EPS workforce a as ratified and and and XX% optimistic. a renew considerable encouraging officer deliver family a results well work the very results forward this other now am up in hard top these it well concert year-over-year that it company's we we with employee, up each compared step feedback, all the from with transformation accidents would morning, the X%, across Friday this but so progressive When about revenues day are agreement and XXXX toward performance, In results to in the and I the XXXX put our our at positive go works weights collective to XXXX, very the for produce as personal team, I customers well and in part to shareholders which labor down on were this reflects train disruptions, we hard well create to to significant XX%. a that We for will been of economy. X% Canadian were both this quarter, remain still not IBEW. improvements TCRC together and the still X% a has grew with very Robert spite you for with property down very in the with addition this be pretty in on bottom, craft agreements, a the as

quarter. accept, this and our front, in investment out fulfill debated, became would was some and C-XX has to some a some the things it loved, some we us regulatory allowed being for fleet. much and well said that we it Bill as things the as we hopper in developments grain as we needed legislation and commitment liked, are there were the to discussed On came our there law, there's things when in we [indiscernible] and finally had fruition

which CP, customers, going more farmers. very and enabling Over this, hoppers, our across move more from is have investing be not to to will substantial the benefits next only multiple are efficiently billion our CAD$X.X our four we CP years grain, encouraging, in network, stakeholders but

a for a and these of product additional or much supplier loading reliability create more this grain, reliable think will customers as word I us our fleet. allow hoppers and to capacity, faster Canada���s unloading

So the to is safety quantum that and hand operating data I the that proactive of the thing an we we really Canada's It's forward voice the go leap and on turn efficiency step to equipment for the employees, safety. use a will great a rail act us I’m for results. significant grow that locomotive, our safety. measure through enabling to this running This numbers we're to railway at loved in sector that’s legislation sustainable, the overall are video elaborate our recording Bill to from profitable, on forward. in some that and the safety allow to John good bring is going And Canada, to markets enhancement for said, in in railway for we about it one also make provides this the cash a the for it, take of us before improve additional and we for Q&A and a to on on U.S., to is ability generating communities basis that we forward liked over we’re good the that the With invest the taking industry. color it things over as reliable in side Nadeem a

you So, John. over to

John Brooks

flow Total RTMs, to and our X% exchange through that right. price pricing revenues those were Keith last Fuel quarter renewal price us, Thank of we end in out good X%. quarter. billion. about at X%. our I to CAD$X.XX into the this high but Keith pointed range. same-store up X% seen said, headwinds everyone. have up afternoon strong continue and X% targeted All certainly was this offset X% our tailwind and Same-store quarter this was foreign was as of a largely came for you, were by trends

August grain X some the to QX. reminder, That’s same be on a will going regulated pressure as put new in X.X%. Now store effective our pricing

of I are renewal XXXX, to However, to renewals XX% the pricing, healthy Also, and renewed, as about half regulated offset book grain. these remain reminder expect our a help completed. should of in were approximately fully act

were will dollar corporate and potash RTM This renew per half offset contribute in average. some move our of strength second partially QX. the continued and We the negative, our by Mix was we which growth our good business, crude by modestly over course automotive. below impacts as QX driven in

say line XXX some noted, that from on pleased I'm disruptions no But quarter. events. to labor top the we very negotiations, point basis which impact to approximately had see Keith from lingering these I network impact about As related estimate had the revenue effects we

revenue in So, grain spite currency this down the about a on up X%. volumes being of closer performance at adjusted quarter, X% basis, taking was a look

in we tell seen be, volumes of of be U.S. the remains and principally up and I and potash this seeding demand grain to We as at expect commodity down a quarter. look pretty that revenue believe volume and led XX% to to metals we generally remains In this of it quarter revenue was production to less commodity Potash led we're were spite continue quarter, across Merchandise in year. seen in little pleased weeks decline remainder up would proud as for Revenues potash moved strong Over excluding from status prices. was were continue – the carloads item have our while of the minerals is at ECP Revenues year or Toronto plastics remain led Fertilizers mix, was export point. Canpotex moved a our of supply than automotive and I sand quarter, it’s and products are forest environment. well. And The tell a crude quarter, of strong drag regions, to amount I’m energy weaker is the we year XX% and feel crude strong, have this as early and I the XX%. XX% we weeks by capabilities. both reflection with down unplanned X saw you due Vancouver, are application up Montréal chemical at and QX. the this positive weaker and will transload as strike, a The the we finished both up trending growing record decline that carry and largely levels up leverage by we volume although X%, strong this in though average in XX% spite and in say, about portfolio on overall back of X large delayed were to forecast performance the and across portfolio steel volume. the season we production half further can call XX,XXX XX%. Further speaking, NHX every enter spring. had we revenues the out and result contributor plus the some a growth I bit, Group growth, highlight revenue X% The outages, with were as K+S. decelerate group. a new volume confident last to plant that the stronger moving amplifying above through crop, a is the this notable and construction automotive Canada the line expected We crop. last Canadian two

given service have traction cautioning new a now the capacity have our I would leading staff getting some out growth. recent year may of and we but great reliable leveraging be our and a that the likely optimistic team marketing marketplace cautiously drag in automotive they performance this of I’m We upside. sales started are the portfolio and

the a perform that to time-sensitive peak, truck were and strong welcomed Finally, the revenues Express grew with we business both the the fall the remainder up With XX% international grew of continuing out Intermodal just reflection modestly, and up the to way strike a anticipation of at franchise. customer capacity Network year. some X%. quite our and led and we Intermodal Ocean well Intermodal expect Domestic Intermodal domestic existing base largely as side, in of finishing finished diverted. quarter shipments tighten the our to our International for

look I in very is healthy it am disciplined very approach the think as proud So, demand environment, encouraged, least, I at to the I most importantly of say and strategic marketplace. the team’s my definitely I'm and

mentioned, our to Keith our value. we’re working maximize network with As partners, our customers

for total of in we to provide hard we're our our in working product are pricing business that the transportation and We all units, the value marketplace. enhance

more I’ll talk move excited as incredibly the opportunity I’m Investor with towards So, for to our team the Nadeem. Day pass October. to about in With this it we that,

Nadeem Velani

good Thanks John and afternoon.

basis on some missed the and disruptions network this labor John business. top fuel temporary impacted This also negotiations. by As prices ongoing impact some and but impacted Keith to and strike productivity, a the XXX revenues noted, were results ratio, John headwind is mentioned, our was OR impacts which the year-over-year. there ratio likely related is fuel drag lag also were the quarter's we Had created surcharge on and also the no of The points XX.X%, an operating are margins. line caused to as underlying lost Rising would drive about been a at performance the grow and increase earnings, the OR of in The and strike basis incremental the the been flat and for of solid XXX to operating not continue due have to it productivity high program. railway points.

on far-right Taking items up training a partially the will the benefits in we is offset side, column basis, core and driven year. increase look the which and expense margin that or increases productivity the labor the I’ll train $XX by cost, results These compensation, versus Comp X% half improvement a speaking year. be from weights. of expense the by inflation. incentive of at second slide. last in shown is was see pension improvements confident higher few expense, the increased to were closer The adjusted on exchange volumes, are we such, As million

locomotive X%, last Fuel by mentioned, expect expense were be driven hire reduced X was land $XXX higher be increased casualty of volumes. essentially $XX nearly $XX XX,XXX was by and delivery million demand. we was will improved intermodal a of million, There no by Purchase higher driven Keith Our and sales X% expense utilization last improved prices this continue locomotive year-to-date. by offset as maintenance, result XX%, land train higher Fuel and X% services than primarily workforce sales from QX. to cost. costs up fuel other from to year. cost still at at as year increase million, and year, prepared for pickup or an up in higher volumes. higher and consumption wheel Materials is material million partially as Higher repairs. higher We all approximately increasing XX%,

an million quarter, other significant reduction Adjusted mostly currency EPS excluding lower line, the remains was from a primarily to basis maximizing grew to below Taking FX. improved the and Year-to-date the on million next invested in capital. charges million items, savings on $X by from Moving free returns capital income by look XX% $X due excluding or impacts and free was increased at adjusted The cash business strong driven Interest top is cash generate Reinvesting the working cash expense XX%. continue increased net XX%. free this on ops $XX refinancing. higher XX% slide, lower by debt cash. and on we flow priorities.

hopper a our As which Keith grain customers. for substantial CP fleet, upgrading and renewing mentioned, yield making we’re and will significant benefits in our investment

to now a projects rate. to This high And in. return capital expect position we as invest billion somewhat to impacted approximately a a very a also significant in higher have X.XX year. this in fortunate result, are is of spend We by exchange pipeline

We also an completed of of where $XXX. number NCIB this approximately completed at a or over million float our last our quarter. shares X.X XX average X% We months transactions of we the cost purchased program

million refinance $XX interest $XXX allowing annual lower U.S. debt rates at and million. coupon generate of We completed a of new also offering us to savings

To announced XX%. since XXXX, quarterly for XX.X% our we our also increased dividend have We increase dividend. note, by

very the to from stopping from but strong up, weather with the Keith starting second and difficult first with that, pass a had up. I’ll labor And some over some with half. disruptions, year excited wrap challenges we it deliver very some wrap and of to its So, are challenges QX to half to

Keith Creel

railroad a wrap capacity for this have marketplace, obvious. up the on comments reiterating remains persistent This on we our John shareholder plan thanks Okay the and in to and delivering railway value scheduled creating the focused I’ll sustainable profitable creating growth. and Nadeem, product the service drive by value team through

strong have second the heading momentum We half. into got

for to disciplined over next franchise see opportunities this and continue very tremendous which in the are several We thoughtful years, a approaching manner. we will

join you, up deeper Day, look four our gain can opportunities team October for Thank Finally, forward of you company. you the I lie campus this for appreciation hope so for to a that us you. ahead Calgary I’ll can it meet see Investor many open and Q&A. in some starting big in that said, With

Operator

Your Instructions] comes from Fadi Chamoun Markets. first with Thank you. [Operator BMO question Capital

Your line is open.

Fadi Chamoun

Thank evening. you, good

year-to-date momentum do far, digit guiding some the from And outlook, guidance single you like? mid-single feels growth the going RTM into opportunity the to an have I you into RTM are On a give kind it second half? today of to been your little you've growth you comments the the and mean, the second so that at digit. What half us here demand can that do look better, us bit you think will and

John Brooks

suggest I'm some going of a of there's year at made time lot current but same you The We our haven't. the good is guidance promising, back the you points Fadi, think looks to out still uncertainty Well, not prudent. half there. definitely

start lot we outlined uncertainties, at of year. those Given those the of a the have

played know the is trade approach a the optimistic, us the do uncertainty, volatility, but things of promising. which marks Things crop, for size have prudent wait. out think currency Some you question do next to of I look really look grain

from and what that crop happen, not when we're what third that change do those that. we Let's or can obviously is get see grain guidance, guidance position certainly get we'll are and we to think quarter what or raise in to going into close may timeframe, may a to projections a do and a the if we little let's the closer harvest according

Fadi Chamoun

just and talk right of think some we leverage the in more you in the I it you positioning lines, I up or if fairly of shippers' to community the of the terms have do corridor and be overall. follow if – to fair. environment in same you would kind to of good or capacity your I wanted of tight market demand favorable kind get – Kind Okay, ultimately, currency think prove specifically. sense want and And it Canadian then have where capacity along a rail the that even the you on transportation commodity about is from mean, is kind this freight thought specific this to

Keith Creel

a got bit has this company tell CP don't landscape the identified through has well. created has extremely gone competitive which Obviously, since good out is very quite as I of has U.S., transformation You've this but demand a that, read. and played to capacity need coming certainly surplus benefiting you into the Canada and as increased and across XXXX

customers don't expect together. got today make also our We suggest – case the sure that. going word as ability that everything on is we've product. to key our obligation the created base a same key grow a We existing the the the we a thoughtful customers. growth that Strategically service to can Now now several customers not I'm feel a and to regardless very, layer can. commodities to very I is our we and my pick grow time we're when very everyone. that and I cost This that can't partners, we to forward. our impede at allowable commitments reset. but we to with of so very that grow, The make and we locations approach strategic positioned to we service disciplined out we We've that's deliver a our with to partners for take to on be growth, customers grow there, is as strong make provide

allows in profitable and in is strategically Vancouver, where strategically strategically fit each marketplace, growth in to I've strategically Edmonton, provides the the strategically in Chicago strategically in if us Calgary; a create So right, And Toronto, franchise for store strategy the in for we're in creates Montreal, the it that and years this but not got value that it stickiness many is think and customer. and company today, lie the our I plays That's well that's philosophically, forward. going our quarters execute strategically what to for to only well. what location

standpoint, capacity from going that it we're currency, is wisely So, Fadi. spend to

Fadi Chamoun

you. Thank Okay.

Operator

Hoexter Your next from line Merrill question Ken Lynch. of the with comes

Your line is open.

Ken Hoexter

the John, good mentioned afternoon. target or Great, good of pricing X%. high-end morning X% your you to at that of was

Just wondering why I'm expect or given you even if the see market seen you maybe strength, in pricing wouldn't higher near-term. to have the

John Brooks

renewals in the pretty our Ken, solid. were actually quarter

carry were – amount QX, with grain back of not of as it competitive, I we of along into So, because charging some and north into the sort kind can look of I store amount of headwinds as same look, maybe forward certainly have that momentum an to that we is of on keep we opportunity looking carried do sort and an a tailwind. we that it markets opportunity we QX to pace caught renewals, that and looking and QX. X% that pretty some shift think start then, the more know that I and look a fair It as But franchise, in to of to QX momentum. our fair but at I certainly there's into pricing there's that

Keith Creel

the grain that one as number make into regulated mid-level certainly we've are than well. That that [indiscernible] we sure with take should got and model and increase the less being a facing account we to sizable is

Ken Hoexter

cost? second leads given do ex-strike, in delve talk half. such, improvement And that the on you about can you said into have and be that that expect X% Maybe that would then, you and yet up how can what the follow-up offset employees flat, or are maybe – you point. Fair your Nadeem, you to if but improvement I OR maybe expected margin

Nadeem Velani

stop/start the overall productivity, April impact there – had of didn't get our and take – in so the a May both Well full and has in to realize on that we really productivity. times I is to combination think chance down network an we two

from would I'd train we more. productive a be some to seen long is There lead productivity have the time but say up gains, can employees. your and that people company. a where So, a for to get from we they lot saw employees

of that that absorbing we we're but Certainly, operating we're a scenario, of kind the Certainly, start we operating costs QX. get that in return those leverage, on in productivity in expect labor – much I as some productive you would in year. the accelerate we weather lot benefits here of the I investment So, strong benefits impacts it's from prepaying a and very we're see more half we think to QX. the better on back a April later year QX. early, The on speak, as a get much we our pricing, the a volumes still leverage had – network now and in in more see

you spot, at to leveraging bottom that line metrics bring our is hitting we're sweet to operating look confidence. it if gives our the us So, and what the

Keith Creel

train – productivity, when you deterioration of train certainly, length, look has at the I Ken terminal role of at dwell, say if I productivity Yes, and train role speeds; weight, look stopped.

works may – to thing out Nadeem's well and really a the chance investment don't and margin get environment up, momentum maintain network level take running. for to when off some once now yourself trains the same start is robust demand we this to move on but off to they point, training to operating you You week if It's and right say a down that's depending more those a that how the overall you the have item that and investment for is week and allow this extremely a and improvement network little then a confidence But allows fluid little overall, little that's of a are start/stop second that have year. investment. pays expense half us us, what revenue, we'll to that an employees

Ken Hoexter

John, Keith, the Appreciate Nadeem, time. thanks. Great

Keith Creel

Thanks Ken.

Operator

question with next comes Tom UBS. Wadewitz Your from

open. Your line is

Tom Wadewitz

Good ramp rail has you might about had in on think offer changed? quarter how if to afternoon. in quarter? little by Maybe and that terms some comments in bit a third see that, crude the wanted but framing kind crude carload could fourth ask Wanted you've by the what to of that rail, helpful level was you second I progress of quarter,

John Brooks

that said, we about rate. roughly run so I Tom, month a trains XX,XXX think I XX did So, in carloads QX,

opportunity need QX, As the come to got I think incrementally to haul It it I we sort business with look underpin to QX. on as an we've that will add through into of resources we that.

can the part you get balance think rail the function us has through think years year. can step and as opportunity we a It's crude the two move certainly span to nice allow opportunity it I of So, brings us. five of with three a an opportunity presented we of that really for maybe customers though our diversify to by of different interesting us upwards sort to us that, But book. as work also unique the for of to set that an

partnerships know pretty up these opportunities that's this and our the for crude the you crude into a lot future. spend big service has but allowed crude deepen of shippers our business. to And a a transportation shippers only as not whole test well of have these opened ultimately of So, – beyond to lot some

sort that's looks like. what it of So,

opportunity to there into as go here QX a think us we good I QX. for is this and expand

Keith Creel

service opportunity. capacity. that control our And reputable, to best The to very well from this about velocity. then help in Tom, said back if country to earn that, model. we add could that is serve dependable serve do a if a going their to got I we've could to standpoint. business had markets was We've a had and we business work talking I that of We additional now. I'm earn XXXX-XXXX, best assets hard for this can that and certain level turning cost to we we there customers service that as CP, We've create franchise said, done always go but

and want So, customer, we a shareholders. That's can, perspective scheduled us, cost with and create allows that it part as problem value crude customers me. opportunity our is as the they to win-win much precision the franchise economy value well the crude as as That's service. exciting value develop to for much the or no help see these value certainly significant solve in relationships reliable and CP, both that that solution as I of appreciate the railroading low this giving. to we the to most on That's crude, as the keeps

Tom Wadewitz

have That their forth CN for would like okay. obviously about a [indiscernible] if big sense. you the I What demand probably that much have I they've the look as some dynamic? handling volumes you quicker of is of think do on dynamic back pretty you book than bounced maybe result for everything? granularity it's in it new it's period competitive to out business winning you or has at and Right, you issues the some and and competitive changed – think I seems so of kind guess think terms anticipated. say and favorable had there. and Do would they're improving their them hard not makes metrics still had growing how a

Keith Creel

business and a stretch. unique strengths I've I've a set that earlier, Chicago, one, join would own to bit got in is great this on obviously knowledge say we was franchise railways said always sometimes Vancouver very to I've reach. both team markets Canada, or both don't two this, CN bit I Number Listen, this country reach to got Montreal Toronto has these company. since biased. for a Tom, well. networks The a do that said too. talented, But I've there of I key Vancouver, is this enough deep on in as of this to very its in I'm team, networks. Vancouver. market They've They whether

competitors’ day drive best we're to jobs, look versus should day best in If be sustainable able win our business going network, we're our railway, growth on is key we in the markets, at if this doing exactly do. those our to you what profitable, to which

best, provide the got both the a railways them. start is I'll started, for company. again, start back two out like of bit two markets in two our But when and just Canada, what feel a come come – the I I've great well; they've we're discipline have. they think head as run again they world, I We customers we enjoys always us; operations, railways. got America. mind do They'll It's North all and CN do biased, close and Canada compete to on there's just problem have. the there a value back. market a serve well-run saying run going So, good the we do best, us well. a I'm head are we in on to sever They'll maintain to enough not operation And for well-run growing, to Tom, and we in my best

Tom Wadewitz

great. Okay, time. you for the Thank

Operator

Citi. Your next with comes from question Chris Wetherbee

Your line open. is

Chris Wetherbee

Hi, afternoon thanks. Good guys.

I of Just the of wanted feel first half Obviously, this thoughts Yes, performances earnings to get around been pace. digits. comfortable has year? your that the are a come year still – what the to sense back with at double

Sounds like better back get things in the half.

how want think Just earnings these here? the up about kind to growth frame of you potential franchises

John Brooks

And prudent as certain. to don't of say do. know I the our yet prudent got may don't more know ahead the would get crop views, trade of choosing but I approach. our personal we're is, uncertainty a at think, not grain earlier, do. I is I for Well, my or I've get in to what own to don't we're approach skis. ourselves, this right want I've going ahead to said may that approach. I take a confident what this point. guidance certainly

call prudent. You might conservative, it it I but call

position more things that a in be positions, positive do do this this. have responsible those on thing think think get don't yet. at time of clear don't and may I I be to it'd we thing side right as not clarity We to the the sight some it's But line and little time. it's are of a of just we change to a then

Chris Wetherbee

And are like there's more been it that coming thinking incremental carloads broadens with there is crude higher. customers to move then think that it you you wins just sort sounds customers, contracts, XX,XXX the – to maybe crude-by-rail take of after and some of customer portfolio sort there opportunity, those about business go which When as great. specific and back it

Just the is incremental sort what sense the and think competitive a business? left done that already you is business of want if contracting to has if to sort or there get win of landscape of all on of been

Keith Creel

we're the solution revenue, be of got capital the absolutely, as to has love again, most of, the standpoint, the to having open the have I'd investments I got got discussions, provide business to expense mind. that from important on going in going the much capacity and case the as those to. and locomotives, to control to and capacity great to justify there cost people. sure say protect day hiring it got bring to I the in And thing I still looks reliably I've I've as ourselves well Yes, the at got too, then for everyone, the customers. the existing If a always discussions the we're that as end for training But make to keep to investments we've commit service and business the an I'm remind additional be

locomotive So there yes, constrained standpoint? timeline a think a are responsibly yes naturally bit with I that from and we Are answer associated be The still there well. and and And it? commitments as discussions. people is to would ongoing

and going we we've our one protect them So, one. return do all to take say by going shareholder we're for service say and a for to and try a those we're what principles always do customer. to our provide fair Again, just good

Chris Wetherbee

you That’s very great. Thank much.

Keith Creel

Thank you.

Operator

comes from Capital. Desjardins with question Poirier next Benoit Your

open. is line Your

Benoit Poirier

good quarter. for congrats the and afternoon Good

the on good you Sorry, serve remains but customers, a to the the we could importance come some look side at grain expectation it Keith, crop. with strong back little current when but mentioned the talk pretty outlook, on on to bit you other the crude-by-rail,

And moving your carloads could type So, the what over terms crude-by-rail? network in is of time? of maybe see in CP maximum what XXXX, we ability

Operator

[Operator Instructions]

Keith Creel

explanation Benoit? that on questions any Okay,

Benoit Poirier

Yes sir.

Sorry, you weren't up. your color there, ramp I could was ability to provide some if just wondering you on

You to serve about making customers. mentioned color current sure some

volume peak, we back XXX,XXX at at there you a I previous handle? of look mean, is were maximum in you carloads. if So, could the terms

could far could the level at So, how you what ramp be up handle maximum you CP? the crude-by-rail could and

John Brooks

as we and commit to the it the capacity to at within locomotive is, old think grow real on got remanufacture phone What think decision number and we ability able need make to Benoit, line to right one, principles, we a with feed decision I industry that to be dropped overhaul I've about us, a to make the wouldn't to our Number the based I locomotive. those our potential for number. apologies point, for to deal this so make that have we want now on the constraint apologize the sure and that that. there,

So, a constrained. demand world the the of and capacity robust of there's the for world, is market the [ph] there the GEs out ANDs

I'll So than again, by that's to else. key for not limited them the be That's ramp The decision. able would that the again, able decision. capacity that short-term is so got XX-year to employees hire be piece. railway. up anything And I a a locomotive more to be on

So, we to the reluctant make it. to sustain if very are decisions would not be significant there meaningful economics

disciplined something say and they're and And when that So, They're take discussions deep a deep, these that's too we disciplined quickly. bit time. of discussions. not why happen little

Benoit Poirier

numbers. gate of very the question second the QX with out is the volume side. Obviously, you solid And Okay. in on came

at third up or are quantify sustainable but go Keith? not and we percentage to XX%. You're quarter-to-date kind is through I look Anything QX, when the in number as provide quarter carloads exact willing numbers, those or of potash, special the

John Brooks

It we year been through Yes, in strong out John. was QX. the is Benoit, too. actually the so Canpotex, out first the largely sold has expect, half the it's potash strong of of gate.

we sustained other think up for themselves ramp fairly shipments well continues well. sustain continues itself. potash to have fairly So, us. our domestic also And K+S to

of potash also. the be think the bright it will has So, I a year and definitely been spot second half

Benoit Poirier

much the time gentlemen. you thank very Okay, for

John Brooks

Benoit. you, Thank

Operator

Reustle Your Goldman from with Matt Sachs. next question comes

open. Your is line

Matt Reustle

taking the question. for Thanks

Just the of from And we'll improve you have potential show improvement year? productivity end that's, one Do you wanted still into clarify see think back full XXXX? you that the earlier seasonality, on of a half in think points sequentially margin the the the something enough of just that I to to mentioned. do aside year year

John Brooks

have that I in said there, view, sequential QX-QX. improvements think margin sales, out we'd so Yes, see wildcards certainly also, A get improvement will we still few of core point But a of mean, certainly, absolutely. I see benefit QX-QX I right. land we'll close, be from QX. year-over-year. some will that between the

in income, of prices operating a fuel overall QX haven't hurt margins, have we So, by hurt although got effect. really lag bit impacted a

anything of side, goes up headwind comp the on fuel the stock be outside if so said, further being stock-based can forth. a and that So

think and point control. will From I that So, pure that from an the view, really outside Canada, of business taking margins. for from very we're those disciplined supportive right you on and productivity things can't positioned a be leverage well being of operating

Matt Reustle

In coming get today, QX, a Okay, where is pricing great. can business be is mix to that just moving point better you're negative business, you will QX the in not impact? then, pricing. the and going And crude on that's a crude online and to than what a be

John Brooks

to whether existing or expect get that overcome, know pricing. come business in re-price at don't But we book new where do might but been if the to impact, a the opportunities it, I there's can be to tell I tough. can of crude can I all characteristics given it Well, you point of negative it's a and not mix better opportunities

Keith Creel

Yes, be we tank would return. it's way, got to going not into one business a get but the car and that a

of the part that's of it length all of is So of part problem the well. with haul course

Matt Reustle

it. Got

thank Okay, you.

Keith Creel

you. Thank

Operator

Your next Clarke Bank. Seldon with question comes from Deutsche

Your line is open.

Seldon Clarke

some right of for and pricing speaking the just to of but you've have Hi, terms to you the question in bring this XX%? bumping I been OR, thanks margins we longer-term operating Are up XXXX back low-XXs range. or below of lot for of a of about that in gets leverage, here in margins. terms in momentum a like kind XX% of kind volume that really do question. ask feels incremental formula quick the half potential you just floor OR the to and want math longer-term just and you It against see the

Keith Creel

Well, be XX-plus or talking we're just to clear, minus.

from mind, keep that in XXX say that's would of that and a about – the of little I view So, maybe fuel basis than not a point back bit low-XXs, better points half. impact. year-over-year but in

we've year So, output. accounting say talked in ago, were and is a a line reasonable from kind forth. a change output key period you've of the mean is, where to pension a high-XXs word got right. past I'd versus some But I impacts we Bottom getting that is so no, ago, mid-XXs

look end taking on don't a the we the moving a the traffic controlled of for at on service And We're perspective. of at moving So, OR We're strong an customers right a the manner. business is and the disciplined in traffic business under environment. at from cost what margin manage return a focused. with – OR focused out and efficiently or in returns your day, strong the business from falls

term. say wouldn't I plenty margin long see over margin we over say is the of still that CP, to opportunities the that So, story at I'd improve

Seldon Clarke

Okay, that’s helpful.

And I that level? XX% then about so, should we incremental above accelerating margins think in guess, kind XXXX, of

Keith Creel

understand can this difficult And wise of said, mean Yes. to normalized time ability and a what quarter tough show we what's be and deliver. where had man – we as been I stand first it's good can haven't about a kind It's half right right have a to I exiting and – CP what railroad. it's the franchise the at and team to we'll now that's

Seldon Clarke

to back very get crude a Okay, to helpful. And that’s then, just want I second. for

run XX think way quantify previously still think that you right and to running the think by you saw of the mentioned in I double XX that trains rate in potential? of this of potential about about quarter. carloads per really or XQ this to crude Is crude-by-rail saying end were you XX,XXX to the you're I and the month XXXX

John Brooks

there yes. think the to potential runaway the do XXXX into out I there's that,

Seldon Clarke

all me. Thanks from a That’s lot. alright. Okay,

Operator

from with Brian question Ossenbeck Your comes next JPMorgan.

line open. Your is

Brian Ossenbeck

my for Thanks questions. good taking evening. Hi,

Keith Creel

Brian. Hi,

Brian Ossenbeck

half Just a want to second second, outlook back to for go the Keith.

do in tensions just revenues some would at can you concerned if if this steel you get wondering think mentioned trade border we whether book You that I the trade be lumber, John you it sounds you're parameters do increasing that harvest most be you put trade. CP and market, large of risk things would could call a and how about, perspective. what tariffs was about exposed what at auto, us either look it's or some of from worry be that things some levied, or and few are give worried get cross volumes and grain export to like

John Brooks

I at generally thing. our of book as Yes, a areas, speaking, good think, of I our that's business cross-border are fairly a look so these a as percentage lot small

uncertainty, I of right. we talk more are think the thing the the that's macro about really sort watch concerns I of and

I So, sort and the with market we've our the working we're million drives what from it concerns of and might got, in have steel a frankly, markets. our differences not. that and border. these in forth about concerned Certainly, steel No, across macro business? to business, Am that I'm back $XX of and flow consumers there $XX I'm just diversify customers certainty we it and put books tariff roughly their changes have out issue million, comes their moves be affect losing that But products, that perspective, our know the a on business lumber you some maybe now capacity XX% time our is, grain question. the now. the to it and lumber could look business in records flows right a on set has for our where is to Certainly, quite that had broader we flip demand to really business China side at rails I pace. there Asia that But,

macro watching; But the an also So, we're grain, the that that keeping steel, we're it's those again, more lumber. side eye key are areas on.

Brian Ossenbeck

real percentage the that of you're… no so Okay, book

John Brooks

sports it's products, and about our Look, X%. lumber

little look X%. book. less our again of steel X% about it's a at to China, business, soybeans than They Our bit that's

things potentially, of But maybe. thousand So, there's a lot if again, fell cuts, a death apart, work. by

our I work two, them just number on that's and one. how customers look unfold; a all markets of to And think going at that. other there's forcing uncertainty number with and we're lot going it's diversify

Keith Creel

of for of accounts I business exposure the largest and the vehicles only book color, this think little Canada to a is potential revenues. finished add, our to our U.S. add our from – more in bit I'd only X%

main focus threat CP's our biggest that we're the and primary book business. not overall, concerned, close think concern more But for not micro than it's paying we is our attention. So, of we're and macroeconomic

Brian Ossenbeck

of details move Okay, on How that, just grain there. you mean great. had for investment sounds the think return payback Thanks to efficiently the maybe [indiscernible] Nadeem. productivity. follow-up the for increase all it I I quick it the more like one hopper period? do some on got

go everything fees lower with it the or like fleet. you've probably So, that maintenance sounds newer and and injuries

made the that couple you do that over conceptualize pretty be investment amount next how would years? sort of So, big of

Nadeem Velani

situation. existing more from speak trains. at our be you to the And model ability visibility look then what when there's a car, to pursuing you it's business a train point mean as for for it's good train very the and product that Investor an the No, in market to a do described, there's the better even the length so you and a on cars a can better so future us turn, share movement a because of C-XX at Day, with you our grain product per now ability win-win number that we'll into comes gives increase well of capacity, the the overall there's to from have I we'll asset – have just of The the shorter what having forth change as can customer a customer. overall it X,XXX-foot and of more move efficient bit view and all as

driven I remainder, fits right mean, this into So, as as we – return I principles. and our strategic mentioned focus our mentioned is

Brian Ossenbeck

Okay, questions. for great. the Thanks

Keith Creel

Thank you.

Operator

comes Your from Morgan Stanley. question Shanker with Ravi next

open. is line Your

Ravi Shanker

also, and the bit you anything productivity you impact couldn't a the just maybe levels before little elaborate to to the completed [ph]? do Thanks, newer maybe if of [indiscernible] new contract you of good this ability you with mean I can everyone. do give do labor war just that afternoon deals different take deals. – And more and

Keith Creel

specifics there agreements deal flexibilities there company for before of there assuming that agreements for from that's the – No, life there or in is that standpoint already getting benefit deal exist The employees rules rules? are of ratified things any themselves, into some one both their the up existing is them, ratification work the our wage yes. changes it work Yes, follow well? in standpoint. that benefit? are ratified both without a a within that the answer set and that gets so a in we out get from, we've as one that quantum unions from the with itself Yes, the other appreciation are did The not of so quality benefit some members patterns

for relative at end from So, anything, quality the And our cost increases nothing some there's is ability retain customers. attract not our it life provide abilities which same service do improvement. our of for the to employees, increases improves if material and improves at employees impede an and It reliable to day, and us time, our and to anything the cadence does of to our provides a to margin standpoint.

I'm and of brothers and sisters opportunity CP a it. again, it's our family it's partners of company new and company very, point a together a It's new about it's to truly positive for as believe day truly And we the I unions, the these relationship, grow excited exciting. So, with win-win. our the very a growing with back renewed for both

Ravi Shanker

Canada. which to And just time, a follow-up it, while Got talking same discussed at helpful. fairly network something on the for was opportunities earlier, that’s in that about is real tight growth,

without look have operational half impact significant volumes the take into to you that forward volume able more as growth the the confident of fluidity? year amounts maybe network to to new – well that capacity are as to you second you up next over XXXX, be into on running As of issues

Keith Creel

of to jeopardizing that that productive models, We've an locomotives the the up these growth. upon in staying to trust to with I sake for the promise establish with well Absolutely, as and service. this for timing delivering end with on made, to table to tomorrow hard bring customers for We that. the that makers I'm the to conditional certainly the businesses sit we sure worked the go in hire we're likely, and and a do decisions the smart disciplined to We've make we realize, be we not aim falling to people got We're and customers We success growth Decision growth the those all lockstep we lockstep failure, our just just us got obligation and to can deserves. reputation it taking is what people, sun we as comments we forward and our we're the on make train and and business worked a to gravity going hard have enough we're discussions commitment to and discussions. them their our us this trust face take product their tell do. going not with at company. able and these customers our we as do responsibility to existing those

and going and we're we to very we're careful again, So, that. as forward doing be strategic, grow

in We going change. nothing and past. not We're just discipline is the done have going to now to that

John Brooks

Look, and team. to the the team, to we're operating marketing I'd tied sales add it. leadership with My hip and

in the financial We're sustainable folks disciplined, marketing Nadeem grow that's to whether the working team. point, working with Keith's sales defined. a side marketing lockstep the with and and it's going decisions or in to with ground operating my sales growth the on So, And team finance function.

Ravi Shanker

you. Thank Understood.

Operator

comes question from next Group with Wolfe Your Scott Research.

line open. is Your

Scott Group

wanted there that difference, operating that were for core year, and closer you couple And need and quarter. Nadeem, Is including of a it when in closer improvement calculation I just you a core wanted so you more or get with looks to to talking times a fourth maybe you just the the So, you're like it's to say ratio, third sub-XX% anything excluding to improvement? a on start to not think said to know improvement. but clarify even like and one I XX%, big XX% from margin OR OR margin

Nadeem Velani

So, the right. bit I a sales land mean, about we talked

in to have QX. land in land We some QX meaningful as well. So, had we sale sale expect

XXXX in XX, or range in too there. if will there say to numbers That don't and be sense see benefit were we So, you a QX December? you my that being plus of could been know they it minus, year-over-year I of, with some up take Absolutely, be – be in trying literally or high-XXs XX so say a of some headwinds the comp so guidance. be said, we've Absolutely, I environment? continues it to year-over-year, when – in prudent of get or low-XXs that's could you why fuel weather certain our in go stock-based get

Yes, potential ratio? have see we do step our I further. with QX and down think QX to to potential you'll year-over-year, So, improve land the the operating of improve improve and sales

Scott Group

material terms with the one buyback, that's in this new billion just then, you'll should and relative now now to in the de-levered about should we buyback think of sheet? out think we how to announce And the buybacks that start X.XX do the CapEx year? you then, about CapEx exhausted, sort think you've when balance more of years And

Keith Creel

Sure.

From the returns of from be accretive at very the invested how can returns. at a right setting Investor right view, significant it optimizing thing at look capital buybacks, But of them And in. and certainly it's that a matter very a Day a return the remarks same we capital and now, – and right have October. to number it back with have talked our first point do So good we're will kind point number on our be in my of look in opportunities a priorities. to time, it priority focal our hurting view and we remain It's that's the it of X.XX a tie to we good as sort was us some with opportunities. reinvesting we to it and But there. the is deployment. We X.XX of of now billion when I talked business billion. the raised always beginning had a point bit X.X At said, to we billion the And do. stronger trying about the disciplined one problem a we've capital We've align year be in from it's cash and buyback fee view, to in very business like of raised generate. our that's – currency

free So, half the business the second cash lot in – of that's generated the our this a in year. is of

and and QX expect to would the I in you likely timeframe. shareholders buyback an a of have us us can So, opportunity kind expect reward the as we will year the always back most of in half

that to if absolutely, mean the cash decisions us to with shareholders. generate levels the we align our capital mean, always given dividend that reasonable free at an materially going where to place think the a opportunity is of what another way You and X.X capital we'll kind as get I a towards that's year down that appreciates, is of but dollar out know I that the be. and utilize think this you'll on can very we billion XXXX lay buybacks that's the have our X.XX talked end I Canadian expect I to rate. think appropriate the about of we well view is given for get be and to I the strong buyback place year return, the could view, billion, back point from into of forward, think we and timing a From is come exchange that

Scott Group

helpful. Thank very you, guys. Okay,

Keith Creel

you, Thank Scott.

Operator

we question with today Oglenski for Brandon Barclays. have The time comes from for last

line open. is Your

Brandon Oglenski

here the for end. question my Hi, taking at thanks

consumer Asia the side, happening come goods folks to the coming on something I or have that's concerned to especially, we and that to all caused back from actually investors is. yet? deployment not they're plans into look in capital customers trade. pulling John very U.S. sure to want question intermodal real Can it are whether mean time, Just Keith as actually that's Is we're in rethink back at to tariffs you speak that that conveyed around the

John Brooks

quite would we've peak it's now, fall what, discussions this season, frankly the I know remains, cross-border as it Right not had. bullish goods. say we You look at those import opportunity actually on in this

Keith Creel

about you of that speak what Toronto week marketplace no the about. the discussion served our the CEOs that relative asking that about concern customers in obviously are and was economy, by you're met there anything and is share specific I Brandon, in key those we last – markets to but all – several overall same with of

Brandon Oglenski

Okay, in speak appreciate you I additions you've I lastly input. of together. guess the is lot to then, that I the mean, had a how think sales John, to the coming last And year. just team team, new

really to what two? you're said, next You look of exciting of you are and that things are with the course close some as operations year out you working or over the the

John Brooks

We've of about been A-team now team, We've So, a I've spent got big just lot smile and on a days right and marketing me has you bit a a my my A-team. an and change. face. saw there assembled few an you quite talking sales if see

it that amount importantly, how of and has that on effort building of want we're to the specific So, a this working want collaboratively with today aggressive daily team take and units team on playbooks leadership, it tell playbooks and strong that way. execute, to grow run the are can go developed been marketing at a force, and strong culture leadership my I'm business marketing do leaders forward. it's team going team We how how to units And executing Keith and are this discipline Keith's again we CP. culture – Presidents this basis here our Vice the to sales the I we sit very force, very fair and business. sales it's three my And a culture, want that as this with I Nadeem's you the our to operating with myself; they've grow the understand we we a right grow business team and a pleased. run But business.

Nadeem Velani

October, when impressed you be it. in you'll I them meet Brandon, guarantee

Brandon Oglenski

forward you. to Thank it. look Alright,

John Brooks

Safe your we'll that sustainable Certainly, headquarters and that, we our yourself hard Calgary to our seeing see up we work Q&A. that to long-term recognize safe you campus us hope time. you extremely and these produce. create value you join can the we'll October. value shareholders stay for results again you. with travels, those Okay, at we're We'll continue soon. that for wrap Thank Thank of excited in you about in in

Operator

call. today's concludes This conference

may now You disconnect.