Company Overview - Canadian Pacific Kansas City (CPKC) is the first and only single-line transnational railway linking Canada, the United States, and Mexico, providing access to major ports from Vancouver to Atlantic Canada to the Gulf Coast to Lázaro Cárdenas, Mexico [2] - CPKC operates approximately 20,000 route miles and employs 20,000 railroaders, offering unparalleled rail service and network reach to key markets across North America [2] - The company is focused on growth alongside its customers, providing a suite of freight transportation services, logistics solutions, and supply chain expertise [2] Upcoming Event - CPKC's Executive Vice-President and Chief Financial Officer Nadeem Velani, along with Executive Vice-President and Chief Operating Officer Mark Redd, will address the 2025 Wells Fargo Industrials & Materials Securities Conference on June 10, 2025, at 8:00 a.m. CT [1] - The event will be accessible via a live audio webcast, with a replay available after the conclusion of the event [1]

Investment Rating - The report does not explicitly state an investment rating for the transportation and logistics industry Core Insights - The report highlights a positive trend in U.S. imports, with a 6.1% week-over-week increase as of May 18, outperforming seasonal expectations by 980 basis points and showing a 2.8% year-over-year increase [2] - Spot rates for truckload transportation have surged, with dry van rates increasing by 6.1% week-over-week, outperforming historical averages [3] - There are concerns regarding potential freight demand impacts due to tariffs, with expectations of a flat outlook for dry van spot rates in 2026 [6] Summary by Sections Import & Congestion Monitor - Container bookings from China to the U.S. are at five-year lows, down 27% compared to 2023, indicating subdued future demand [2] - The report notes a recovery in container imports at the Port of LA/LB, which increased by 24% week-over-week [2] Truckload and Rail Data - Spot rates for dry van, reefers, and flatbed have all increased week-over-week, with dry van rates now 4% higher year-over-year [3] - The dry van load-to-truck ratio increased by 57% week-over-week, indicating a tightening market [6] - Rail management teams express skepticism about the feasibility of transcontinental mergers due to regulatory barriers [7] Airfreight & Surface Transportation - Airfreight rates have been monitored closely due to tariff implications, with significant declines observed in key freight lanes, particularly the China-U.S. lane, which fell by 6% week-over-week [10] - The overall airfreight market is experiencing broad-based weakness, with all major lanes underperforming seasonal expectations year-to-date [10] Rail Performance - The report card for railroads indicates varying performance levels, with some railroads rated as excellent while others are fair or poor [9] - Regulatory challenges are highlighted as a significant barrier to potential mergers in the rail industry, with environmental impact studies being particularly burdensome [7]

Summary of Key Points from the Conference Call Industry Overview - **Healthcare Sector**: Anticipation of an Executive Order on drug pricing expected next week, with a probability of over 70% for the implementation of Most Favored Nation (MFN) pricing to reduce the disparity between US and international drug prices [3][9] - **Transportation and Logistics**: Expected reduction in shipments due to tariffs, but supply chain disruptions may provide some offset. Favorable outlook for specific companies like XPO, NSC, and CP, while UPS and SAIA appear oversold [4] Company-Specific Insights - **Alphabet Inc. (GOOGL)**: Notable shift in search dynamics with the first-ever decline in Safari searches, raising concerns about AI search potentially replacing traditional search methods. However, long-term monetization of AI is expected to ramp up [2][27] - **Microsoft Corporation (MSFT)**: Azure reported a 35% year-over-year revenue growth, with a 34% increase in backlog, outperforming Amazon's AWS and Google's GCP. Combined cloud backlog growth of 33% indicates strong core demand despite AI capacity constraints [5][27] - **Tesla, Inc. (TSLA)**: Focus on Robotaxi and affordable model launches, but concerns over tariffs and execution risks contribute to share price volatility [6][27] - **Walmart Inc. (WMT)**: Anticipated Q1 sales are expected to be in line or slightly better, but caution is advised due to product mix and potential impacts on EBIT growth [5][27] - **Capital One Financial Corporation (COF)**: Continued performance exceeding expectations, with FY27 EPS estimates raised to approximately $25. Merger synergies of $2.7 billion expected to phase in from Q2 [7][27] - **MP Materials**: Potential factory closures in the US due to the absence of rare earth magnet flows from China, impacting industries such as aerospace and electric vehicles [7][27] - **GeneDx**: Management confidence in over 30% volume growth for NICU genetic diagnostics this year, with a compelling valuation at 4x projected 2026 revenues [8][27] Market Dynamics - **Quant Strategy**: Increasing EPS risk indicated by Q1 earnings beats and misses, with the Mag 7 model yielding a cumulative long-short return of 10.5% since its launch [2] - **Russell Rebalance**: Notable buy/sell pressure on specific stocks leading into the June 27 rebalance, with BAM, FLUT, and HWM among the top gainers, while SSB and HQY are under pressure [4] Additional Considerations - **Tariffs and Supply Chain**: The impact of tariffs on shipments and the potential for redirected flows to mitigate some negative effects [4] - **AI and Search Trends**: The evolving landscape of search engines and the implications of AI on traditional search methods [2] This summary encapsulates the critical insights and data points from the conference call, providing a comprehensive overview of the current state of the healthcare and technology sectors, along with specific company performances and market dynamics.

Core Points - Canadian Pacific Kansas City Limited (CP) reported first-quarter 2025 earnings of 74 cents per share, in line with Zacks Consensus Estimate, reflecting a 7.3% year-over-year improvement [1] - Operating revenues were $2.64 billion, slightly missing the Zacks Consensus Estimate of $2.66 billion, but showed year-over-year growth [1] - Total freight revenues per revenue ton miles increased by 5% year-over-year, while total freight revenues per carload rose by 6% year-over-year [2] Financial Performance - Operating income increased by 15%, with total operating expenses growing by 5% year-over-year, resulting in an operating ratio improvement of 210 basis points to 65.3% from 67.4% [2] - Freight revenues, which accounted for 98.2% of total revenues, increased by 8.7% to $3.72 billion, surpassing the estimate of $3.5 billion [3] - Cash and cash equivalents at the end of the first quarter were C$695 million, down from C$739 million in the previous quarter, while long-term debt rose to C$21.1 billion from C$19.8 billion [5] Segment Performance - The Freight segment saw varied performance: Grain up 4%, Coal up 21%, Potash up 10%, Energy, chemicals and plastics up 3%, Automotive up 18%, while Metals, minerals and consumer products decreased by 1% [4] - Other revenues increased by 7.6% year-over-year in the first quarter of 2025 [4] Outlook - The company expects 2025 core adjusted combined diluted earnings per share to grow in the 10-14% range, revised from a prior view of 12-18%, targeting C$4.25 per share [6] - Capital expenditures for the full year are projected to be C$2.9 billion, with an expected core adjusted effective tax rate of 24.5% [7]

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Core Viewpoint - Canadian Pacific Kansas City (CP) reported a slight increase in revenue and earnings per share (EPS) for the quarter ended March 2025, but fell short of revenue expectations according to the Zacks Consensus Estimate [1] Financial Performance - Revenue for the quarter was $2.64 billion, reflecting a 1.2% increase year-over-year [1] - EPS was reported at $0.74, an increase from $0.69 in the same quarter last year [1] - The revenue reported was a surprise of -0.70% compared to the Zacks Consensus Estimate of $2.66 billion [1] - The consensus EPS estimate was also $0.74, indicating no EPS surprise [1] Key Metrics - Adjusted Operating Ratio was 62.5%, slightly better than the average estimate of 62.7% from seven analysts [4] - Total carloads were reported at 1.1 million, compared to the average estimate of 1.11 million from five analysts [4] - Specific carload metrics included: - Energy, Chemicals and Plastics: 142.5 thousand vs. 142.18 thousand estimate [4] - Intermodal: 435.4 thousand vs. 433.98 thousand estimate [4] - Automotive: 57.8 thousand vs. 60.06 thousand estimate [4] - Forest Products: 34.8 thousand vs. 35.07 thousand estimate [4] - Grain: 133.7 thousand vs. 136.74 thousand estimate [4] - Coal: 118.4 thousand vs. 115.11 thousand estimate [4] - Potash: 39.8 thousand vs. 44.61 thousand estimate [4] - Fertilizers and Sulphur: 17.8 thousand vs. 17.2 thousand estimate [4] - Metals, Minerals and Consumer Products: 124.4 thousand vs. 123.9 thousand estimate [4] - Operating Ratio was reported at 65.3%, higher than the average estimate of 62.8% from four analysts [4] Stock Performance - Shares of Canadian Pacific Kansas City have returned +1.5% over the past month, outperforming the Zacks S&P 500 composite, which saw a -0.2% change [3] - The stock currently holds a Zacks Rank 3 (Hold), suggesting it may perform in line with the broader market in the near term [3]

Group 1: Earnings Performance - Canadian Pacific Kansas City (CP) reported quarterly earnings of $0.74 per share, matching the Zacks Consensus Estimate, and an increase from $0.69 per share a year ago [1] - The company had a surprise of 5.75% in the previous quarter, posting earnings of $0.92 per share against an expected $0.87 [1] - Over the last four quarters, CP has surpassed consensus EPS estimates two times [1] Group 2: Revenue Performance - CP posted revenues of $2.64 billion for the quarter ended March 2025, missing the Zacks Consensus Estimate by 0.70%, but showing an increase from $2.61 billion year-over-year [2] - The company has topped consensus revenue estimates two times over the last four quarters [2] Group 3: Stock Performance and Outlook - CP shares have declined about 0.4% since the beginning of the year, while the S&P 500 has declined by 5.5% [3] - The company's future stock performance will depend on management's commentary during the earnings call and the earnings outlook [4][6] - The current consensus EPS estimate for the coming quarter is $0.84 on revenues of $2.74 billion, and for the current fiscal year, it is $3.44 on revenues of $11.12 billion [7] Group 4: Industry Context - The Transportation - Rail industry, to which CP belongs, is currently in the top 12% of over 250 Zacks industries, indicating a favorable outlook [8] - Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can impact CP's stock performance [5]

Financial Performance - Total revenues for Q1 2025 were $3,795 million, an increase of 8% from $3,520 million in 2024[77] - Diluted EPS was $0.97, a 17% increase compared to $0.83 in 2024[77] - Core adjusted diluted EPS rose to $1.06, up 14% from $0.93 in 2024[77] - Operating ratio improved to 65.3%, a 210 basis point improvement from 67.4% in 2024[77] - Net income for Q1 2025 was $397 million, compared to $1,496 million for the full year 2024[149] - Operating income for Q1 2025 was $621 million, with total operating expenses of $1,153 million[149] - The effective income tax rate for Q1 2025 was 24.32%, a slight decrease from 25.09% in the same period of 2024[112] Revenue Breakdown - Freight revenues increased by 9% to $3,727 million, driven by higher freight revenue per revenue ton-mile (RTM) and increased volumes[86] - Revenue ton-miles (RTMs) increased by 4% to 53,724 million, reflecting higher volumes of Coal, Grain, Intermodal, Potash, and Automotive[88] - Freight revenues in the Energy, Chemicals and Plastics segment increased to $758 million in Q1 2025, up 8% from $702 million in Q1 2024[97] - In the Metals, Minerals and Consumer Products segment, freight revenues rose to $448 million, a 2% increase from $440 million in the previous year[98] - Automotive segment freight revenues grew significantly by 19% to $315 million, compared to $265 million in Q1 2024[99] - Intermodal freight revenues increased by 6% to $674 million, up from $638 million in the same quarter last year[100] Expenses and Costs - Total operating expenses for Q1 2025 were $2,478 million, reflecting a 5% increase from $2,371 million in Q1 2024[101] - Compensation and benefits expenses decreased by 1% to $682 million, primarily due to a reduction in stock-based compensation[102] - Fuel expenses rose by 5% to $481 million, driven by increased workload and unfavorable FX impacts[103] - Materials expenses surged by 32% to $124 million, attributed to higher locomotive materials costs and increased track maintenance[104] - Net interest expense increased by 5% to $216 million, influenced by short-term borrowings and FX impacts[110] Cash Flow and Financing - As of March 31, 2025, the company had $695 million in cash and cash equivalents, down from $739 million at the end of 2024[126] - The company issued $600 million in 4.80% unsecured notes due March 30, 2030, and $600 million in 5.20% unsecured notes due March 30, 2035, generating net proceeds of approximately $1,189 million[128] - Net cash provided by operating activities increased by $141 million in Q1 2025 compared to Q1 2024, primarily due to higher cash generating income[136] - Net cash used in investing activities increased by $173 million in Q1 2025, attributed to higher capital additions[137] - The company repaid $642 million of its 2.90% 10-year Notes during Q1 2025[127] - As of March 31, 2025, the company had total commercial paper borrowings of $786 million, compared to $1,102 million at the end of 2024[130] Shareholder Actions - The company declared a quarterly dividend of $0.228 per share, a 20% increase from the previous quarter's $0.190[77] - The company announced a normal course issuer bid to purchase up to 37.3 million Common Shares for cancellation before March 2, 2026[77] Acquisitions and Related Costs - Acquisition-related costs for the KCS acquisition amounted to $20 million in Q1 2025, negatively impacting diluted EPS by 2 cents[159] - KCS purchase accounting for Q1 2025 was $92 million, which unfavorably impacted diluted EPS by 7 cents[160] - The company expects to incur acquisition-related costs beyond the year of acquisition due to the complexity of integrating KCS[156] Operational Efficiency - The Core adjusted operating ratio improved to 62.5% in Q1 2025 from 64.0% in Q1 2024, indicating enhanced operational efficiency[166] - The operating ratio as reported for Q1 2025 was 65.3%, down from 67.4% in Q1 2024, showing a positive trend in operational performance[166] Market and Economic Factors - Forward-looking statements indicate expectations for continued integration of KCS and potential impacts from currency fluctuations[170] - As of March 31, 2025, a hypothetical one percentage point decrease in interest rates would increase the fair value of the Company's fixed rate debt by approximately $1.8 billion[179] - The Company may enter into forward rate agreements and swap agreements to manage interest rate exposure, which could incur higher costs depending on the contracted rate[178] - The Company is exposed to increased interest costs on future fixed debt instruments and existing variable rate debt instruments if market rates increase[177] Management Insights - Management believes that excluding significant items from GAAP results provides a clearer view of the company's operational performance[157] - Significant items impacting net income attributable to controlling shareholders included $10 million in adjustments related to Mexican taxes, affecting diluted EPS by 1 cent[163] - The tax effect of adjustments for Q1 2025 was calculated at 26.76%, reflecting the applicable tax jurisdictions and nature of adjustments[164]

Financial Performance - CPKC reported Q1 2025 revenues of $3.8 billion, an increase of 8% from $3.5 billion in Q1 2024[7] - Diluted EPS rose 17% to $0.97 from $0.83 in Q1 2024, while core adjusted diluted EPS increased 14% to $1.06 from $0.93[7] - Operating income for Q1 2025 was $1,317 million, compared to $1,149 million in Q1 2024, reflecting a 9% increase[111] - Net income for the three months ended March 31, 2025, was CAD 909 million, an increase of 17.4% compared to CAD 774 million for the same period in 2024[20] - Total revenues for the three months ended March 31, 2025, were CAD 3,795 million, up 7.8% from CAD 3,520 million in the same period of 2024[28] - Basic earnings per share rose by 18% to $0.98, up from $0.83 in the same quarter last year[78] - Core adjusted diluted EPS for Q1 2025 is projected at $1.06, up from $0.93 in Q1 2024[105] - The company reported total freight revenues of CAD 3,727 million for the three months ended March 31, 2025, an increase of 8.8% from CAD 3,427 million in 2024[28] Operational Efficiency - Operating ratio improved, decreasing by 210 basis points to 65.3% from 67.4% in Q1 2024[7] - Total operating expenses increased by 5% to $2,478 million, compared to $2,371 million in Q1 2024[82] - Total RTMs (Revenue Ton-Miles) increased by 4% to 53,724 million in Q1 2025, up from 51,838 million in Q1 2024[82] - Average train weight increased by 5% to 9,034 tons, compared to 8,639 tons in Q1 2024[84] - Average fuel price decreased by 4% to $3.20 per gallon, down from $3.34 in the previous year[84] Safety and Compliance - The company experienced a decrease in FRA-reportable personal injury frequency to 0.98 from 1.14 in Q1 2024[7] - FRA-reportable train accident frequency decreased to 0.38 from 0.90 in Q1 2024[7] - FRA train accidents per million train-miles improved by 58% to 0.38, down from 0.90 in Q1 2024[84] Future Outlook - CPKC expects 2025 core adjusted diluted EPS to increase between 10% and 14% compared to 2024's core adjusted diluted EPS of $4.25[4] - The company anticipates mid-single digit RTM growth and a Core adjusted effective tax rate of 24.50% for 2025[98] Financial Position - Total assets increased to CAD 88,040 million as of March 31, 2025, compared to CAD 87,744 million as of December 31, 2024[18] - Cash and cash equivalents decreased to CAD 695 million at the end of March 2025, down from CAD 739 million at the end of December 2024[20] - Total liabilities decreased slightly to CAD 38,797 million as of March 31, 2025, from CAD 38,854 million as of December 31, 2024[18] - The carrying value of the company's long-term debt was CAD 21,523 million as of March 31, 2025, with a fair value of CAD 19,853 million[43] - As of March 31, 2025, the long-term debt, including long-term debt maturing within one year, is CAD 22,652 million, a slight decrease from CAD 22,728 million in 2024[115] Shareholder Actions - The company repurchased CAD 347 million worth of common shares during the three months ended March 31, 2025[21] - The company repurchased 3,480,658 common shares at a weighted-average price of CAD 107.68, totaling CAD 375 million during the three months ended March 31, 2025[50] Legal and Environmental Matters - The Company is involved in multiple legal proceedings related to the Lac-Mégantic rail accident, with claims totaling approximately $440 million for damages[61] - The Québec Minister of Sustainable Development has issued a Cleanup Order against the Company, with a Notice of Claim for $95 million pending[62] - Environmental remediation accruals as of March 31, 2025, total $258 million, with payments expected to be made over the next 10 years[75] Acquisition-Related Costs - In Q1 2025, acquisition-related costs of $20 million impacted diluted EPS by 2 cents, primarily due to restructuring and system migration expenses[91] - For 2024, acquisition-related costs totaled $112 million, negatively affecting diluted EPS by 9 cents, with significant costs in the fourth and third quarters[94] - The company continues to incur acquisition-related costs beyond the year of acquisition due to the complexity of integrating KCS[89]