CPKC(CP)2024-07-30 22:07Financial Performance - In Q2 2024, the Company reported diluted EPS of $0.97, a decrease of 32% year-over-year, while core adjusted combined diluted EPS increased by 27% to $1.05[91]. - Total revenues for Q2 2024 increased by 14% to $3,603 million, driven by higher volumes, the KCS acquisition, and increased freight revenue per revenue ton-mile (RTM)[92]. - The Company achieved a core adjusted combined operating ratio of 61.8% in Q2 2024, improving by 280 basis points compared to the same period in 2023[100]. - The reported operating ratio for the second quarter of 2024 was 64.8%, compared to 70.3% in 2023[208]. - The core adjusted combined operating ratio for the first half of 2024 was 62.9%, an improvement from 64.0% in 2023[208]. - CPKC's diluted earnings per share for Q2 2024 was $0.97, down from $1.42 in Q2 2023, while for the first six months of 2024, it was $1.80 compared to $2.28 in the same period of 2023[202]. - Core adjusted combined diluted earnings per share for Q2 2024 increased to $1.05 from $0.83 in Q2 2023, and for the first six months of 2024, it rose to $1.98 from $1.73 in the same period of 2023[202]. Revenue and Freight Performance - Freight revenues in Q2 2024 rose by 14% to $3,534 million, with non-freight revenues slightly decreasing by 5% to $69 million[103][104]. - For the six months ended June 30, 2024, freight revenues increased to $1,395 million, a 33% increase from $1,052 million in 2023[114]. - Revenue ton-miles (RTMs) increased to 27,810 million, a 33% increase from 20,961 million in 2023[114]. - Coal freight revenues for the second quarter of 2024 reached $236 million, an 8% increase from $219 million in 2023[115]. - Potash freight revenues for the second quarter of 2024 were $180 million, a 25% increase from $144 million in 2023[119]. - Fertilizers and sulphur freight revenues for the second quarter of 2024 increased to $103 million, a 16% increase from $89 million in 2023[122]. - Forest products freight revenues for the second quarter of 2024 were $203 million, a 9% increase from $187 million in 2023[124]. - Energy, chemicals, and plastics freight revenues for the second quarter of 2024 reached $695 million, a 21% increase from $575 million in 2023[127]. - Automotive freight revenues for the second quarter of 2024 increased to $358 million, a 39% increase from $257 million in 2023[131]. - Intermodal freight revenues for the first six months of 2024 were $1,268 million, an 11% increase from $1,145 million in 2023[134]. Expenses and Costs - Total operating expenses for the second quarter of 2024 were $2,336 million, a 5% increase from $2,230 million in 2023[135]. - Fuel expenses for the second quarter of 2024 increased by $69 million, primarily due to higher fuel prices and the impact of the KCS acquisition[139]. - Compensation and benefits expenses for the first six months of 2024 rose to $1,302 million, a 19% increase from $1,097 million in 2023[136]. - The increase in Depreciation and amortization expense in the first six months of 2024 was primarily due to the KCS acquisition, amounting to $255 million[143]. - Purchased services and other expense increased by $235 million in the first six months of 2024, largely due to the KCS acquisition and cost inflation[144]. Cash Flow and Financial Position - As of June 30, 2024, the Company had $557 million in cash and cash equivalents, an increase from $464 million at December 31, 2023[167]. - During the first six months of 2024, cash provided by operating activities increased by $519 million compared to the same period in 2023, primarily due to higher cash generating income[174]. - Cash used in financing activities was $895 million in the first six months of 2024, an increase of $17 million compared to $878 million in the same period of 2023[177]. - The Company has total commercial paper borrowings outstanding of $536 million as of June 30, 2024, down from $800 million at December 31, 2023[169]. - The Company has contractual cash requirements of $3,684 million due within the next 12 months, including debt and finance leases[171]. - As of June 30, 2024, the Company's long-term debt stood at $18,772 million, a decrease from $19,169 million at December 31, 2023[187]. Tax and Interest - Income tax expense was $292 million in the second quarter of 2024, a change of $7,964 million from a recovery of $7,672 million in the same period of 2023[153]. - The effective tax rate for the second quarter of 2024 was 24.40%, compared to 120.88% in the same period of 2023[155]. - Net interest expense was $406 million in the first six months of 2024, an increase of $48 million, or 13%, from $358 million in the same period of 2023[151]. - The company is exposed to interest rate risk, with a hypothetical one percentage point decrease in interest rates increasing the fair value of fixed-rate debt by approximately $1.8 billion as of June 30, 2024[221]. - The company may enter into forward rate agreements and swap agreements to manage interest rate exposure[220]. Acquisition Impact - The KCS acquisition significantly impacted revenue growth across various segments, including Energy, chemicals, and plastics, contributing to higher volumes and freight rates[128]. - Acquisition-related costs in the first six months of 2024 amounted to $54 million, impacting diluted EPS by 4 cents, while in the first six months of 2023, these costs were $145 million, impacting diluted EPS by 13 cents[198][199]. - KCS purchase accounting for the first six months of 2024 was $170 million, unfavorably impacting diluted EPS by 13 cents, compared to $123 million in the same period of 2023, which impacted diluted EPS by 11 cents[200][201]. - CPKC's acquisition of KCS began consolidating on April 14, 2023, after previously accounting for it under the equity method since December 14, 2021[193]. - In the first half of 2024, acquisition-related costs for the KCS acquisition totaled $54 million, negatively impacting the operating ratio by 0.8%[204]. Other Financial Metrics - Other income was $40 million in the second quarter of 2024, a change of $61 million from an expense of $21 million in the same period of 2023[147]. - The unfavorable impact of fuel prices on Operating income was $67 million in the first six months of 2024, leading to a decrease in Total revenues of $70 million[164]. - The Company recognized $26 million and $230 million of equity earnings from KCS for the periods from April 1 to April 13, 2023, and January 1 to April 13, 2023, respectively[146]. - Deferred tax recoveries related to changes in the outside basis difference on the equity investment in KCS amounted to $7,855 million in the first six months of 2023, positively impacting diluted EPS by $8.42[199]. - Management believes that excluding significant items from GAAP results provides a clearer view of CPKC's financial performance for multi-period assessments[194].