CPKC(US:CP)2025-07-30 23:06PART I - FINANCIAL INFORMATION Item 1. Financial Statements The unaudited interim consolidated financial statements for Q2 and H1 2025 report increased net income, strong operating cash flow, and total assets of $85.2 billion Interim Consolidated Statements of Income CPKC reported increased Q2 2025 revenues and operating income, with net income significantly rising to $1,234 million, partly due to an equity investment sale | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $3,699 | $3,603 | $7,494 | $7,123 | | Operating Income | $1,343 | $1,267 | $2,660 | $2,416 | | Net Income Attributable to Controlling Shareholders | $1,234 | $905 | $2,144 | $1,680 | | Diluted Earnings Per Share | $1.33 | $0.97 | $2.31 | $1.80 | - A pre-tax gain of $333 million was recognized from the sale of an equity investment, significantly boosting income before tax10 Interim Consolidated Statements of Comprehensive Income The company reported a Q2 2025 comprehensive loss of $522 million, primarily due to a significant net loss in foreign currency translation adjustments | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $1,234 | $903 | $2,143 | $1,677 | | Other Comprehensive (Loss) Income | ($1,756) | $313 | ($1,784) | $1,031 | | Net (loss) gain in foreign currency translation | ($1,729) | $301 | ($1,758) | $1,000 | | Comprehensive (Loss) Income | ($522) | $1,216 | $359 | $2,708 | Interim Consolidated Balance Sheets As of June 30, 2025, total assets decreased to $85.18 billion, with corresponding reductions in total liabilities and equity, primarily due to decreases in Goodwill and Properties | Metric | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Total Assets | $85,180 | $87,744 | | Cash and cash equivalents | $799 | $739 | | Properties | $54,458 | $56,024 | | Goodwill | $18,352 | $19,350 | | Total Liabilities | $38,033 | $38,854 | | Long-term debt (incl. current) | $22,269 | $22,623 | | Total Equity | $47,147 | $48,890 | Interim Consolidated Statements of Cash Flows H1 2025 saw $2.51 billion in net cash from operations, with investing activities using $1.02 billion and financing activities using $1.39 billion, largely due to share repurchases offset by new debt | Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $2,511 | $2,293 | | Net cash used in investing activities | ($1,021) | ($1,324) | | Proceeds from sale of equity investment | $493 | — | | Net cash used in financing activities | ($1,385) | ($895) | | Purchase of Common Shares | ($1,740) | — | | Issuance of long-term debt | $3,102 | — | | Net increase in cash and cash equivalents | $60 | $93 | Notes to Interim Consolidated Financial Statements The notes detail key events including the sale of Panama Canal Railway Company for a $333 million gain, issuance of $3.1 billion in new debt, $1.77 billion in share repurchases, and ongoing litigation - On April 1, 2025, CPKC sold its 50% equity investment in the Panama Canal Railway Company for gross proceeds of U.S. $350 million, recognizing a pre-tax gain of $333 million23 - During H1 2025, the company issued multiple unsecured notes, including U.S. $1.2 billion and C**$1.4 billion** in new debt3637 - Under its Normal Course Issuer Bid (NCIB), the company repurchased 16,363,112 common shares for $1,773 million in H1 20254951 - The company is involved in ongoing legal proceedings related to the 2013 Lac-Mégantic derailment, with plaintiffs having filed for leave to appeal to the Supreme Court of Canada after lower courts dismissed claims against CPKC63 - CPKC is challenging a 2014 tax assessment from Mexican authorities (SAT) amounting to approximately $451 million as of June 30, 2025, and expects to prevail on the technical merits of its case6871 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion highlights a 3% Q2 2025 revenue increase to $3.7 billion, 37% diluted EPS growth, and an improved operating ratio, driven by volume gains and controlled expenses Executive Summary CPKC's Q2 2025 executive summary reports a 3% revenue increase to $3,699 million, 37% diluted EPS growth, and an improved operating ratio, alongside new labor agreements and an asset sale | Metric | Q2 2025 | Q2 2024 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $3,699M | $3,603M | +3% | | Diluted EPS | $1.33 | $0.97 | +37% | | Core Adjusted Diluted EPS | $1.12 | $1.05 | +7% | | Operating Ratio | 63.7% | 64.8% | -110 bps | | Core Adjusted Operating Ratio | 60.7% | 61.8% | -110 bps | - The company entered into new four-year collective agreements with two divisions of the Teamsters Canada Rail Conference (TCRC), featuring annual wage increases of 3% from 2024 to 202782 Results of Operations Q2 2025 total revenues increased 3% to $3,699 million, driven by a 7% rise in RTMs, while operating expenses rose only 1% due to lower fuel costs offsetting other increases | Metric | 2025 | 2024 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues (in millions) | $3,699 | $3,603 | 3% | | Revenue Ton-Miles (in millions) | 55,529 | 52,130 | 7% | | Freight Revenue per RTM (in cents) | 6.54 | 6.78 | -4% | - The decrease in freight revenue per RTM was primarily due to a $100 million unfavorable impact from lower fuel prices on fuel surcharge revenue96 | Expense Category | 2025 | 2024 | % Change | | :--- | :--- | :--- | :--- | | Compensation and benefits | $659 | $612 | 8% | | Fuel | $405 | $466 | -13% | | Materials | $124 | $97 | 28% | | Purchased services and other | $572 | $606 | -6% | | Total Operating Expenses | $2,356 | $2,336 | 1% | Liquidity and Capital Resources The company maintains strong liquidity with $799 million cash and an undrawn U.S. $2.2 billion credit facility, supported by $2.5 billion cash from operations, new debt issuance, and share repurchases - Primary liquidity sources include cash on hand ($799 million), a commercial paper program, and a U.S. $2.2 billion revolving credit facility, which was undrawn at quarter-end156157160 - In H1 2025, the company issued new unsecured notes raising net proceeds of approximately U.S. $1.2 billion and C**$1.4 billion**158159 - Net cash from operating activities increased to $2.51 billion in H1 2025 from $2.29 billion in H1 2024, driven by higher cash-generating operating income167 - Financing activities in Q2 2025 were highlighted by $1.39 billion in share repurchases, offset by $1.39 billion in net proceeds from new debt issuance170 Non-GAAP Measures The company utilizes Core adjusted operating ratio and Core adjusted diluted EPS to assess underlying earnings trends, reporting a Q2 2025 Core adjusted operating ratio of 60.7% and Core adjusted diluted EPS of $1.12 | (per share) | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Diluted EPS as reported | $1.33 | $0.97 | $2.31 | $1.80 | | Less: Gain on sale of equity investment | $0.36 | — | $0.36 | — | | Less: Acquisition-related costs | ($0.02) | ($0.03) | ($0.04) | ($0.06) | | Less: KCS purchase accounting | ($0.10) | ($0.09) | ($0.20) | ($0.18) | | Add: Tax effect of adjustments | $0.03 | ($0.04) | ($0.01) | ($0.07) | | Core adjusted diluted EPS | $1.12 | $1.05 | $2.18 | $1.98 | | | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Operating ratio as reported | 63.7% | 64.8% | 64.5% | 66.1% | | Less: Acquisition-related costs | 0.5% | 0.7% | 0.5% | 0.8% | | Less: KCS purchase accounting | 2.5% | 2.3% | 2.4% | 2.3% | | Core adjusted operating ratio | 60.7% | 61.8% | 61.6% | 62.9% | Item 3. Quantitative and Qualitative Disclosures about Market Risk The company faces market risks from interest rate and foreign exchange fluctuations, with a 1% interest rate decrease potentially increasing debt fair value by $1.9 billion, and significant exposure to U.S. dollar and Mexican peso movements - The company is exposed to interest rate risk on its debt. A hypothetical 1% decrease in interest rates would increase the fair value of the company's debt by approximately $1.9 billion as of June 30, 2025214 - Significant portions of revenues, expenses, assets, and liabilities are denominated in U.S. dollars and Mexican pesos, creating foreign exchange risk142 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting identified in Q2 2025 - The CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2025215 - No material changes to internal control over financial reporting were identified in Q2 2025216 PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal actions detailed in Note 14, including an ongoing U.S. EPA inquiry regarding Clean Air Act compliance, with no material penalties anticipated - The company is responding to an inquiry from the U.S. EPA regarding compliance with the Clean Air Act's mobile source provisions, and does not expect any potential penalty to be material219 - Further details on legal proceedings are available in Note 14, covering contingencies like the Lac-Mégantic accident and a Mexican tax assessment218 Item 1A. Risk Factors No material changes to the risk factors previously disclosed in the company's 2024 Annual Report on Form 10-K have been identified - No material changes to risk factors from the 2024 Annual Report on Form 10-K have been identified220 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds In Q2 2025, the company repurchased 12,882,454 Common Shares at a weighted-average price of $108.52 per share under its publicly announced program | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2025 | 4,392,960 | $100.23 | | May 2025 | 4,675,789 | $112.75 | | June 2025 | 3,813,705 | $112.89 | | Total | 12,882,454 | $108.52 |