CPKC(CP) - 2024 Q1 - Quarterly Results

First-Quarter 2024 Results Overview Financial Highlights In Q1 2024, CPKC reported revenues of $3.5 billion, with core adjusted combined diluted EPS increasing by 3% to $0.93, despite a slight decrease in reported diluted EPS to $0.83 Q1 2024 Key Financial Metrics vs. Q1 2023 | Metric | Q1 2024 | Q1 2023 | Change | | :--- | :--- | :--- | :--- | | Revenues | $3.5 billion | - | - | | Reported Diluted EPS | $0.83 | $0.86 | -3.5% | | Core Adjusted Combined Diluted EPS | $0.93 | $0.90 | +3.3% | | Reported Operating Ratio (OR) | 67.4% | 63.4% | +400 bps | | Core Adjusted Combined OR | 64.0% | 63.5% | +50 bps | - CEO Keith Creel stated that the results show the success of driving growth through the combined network connecting Canada, the U.S., and Mexico, and the company is well-positioned to deliver on its 2024 guidance[1][2] Operational and Safety Highlights Operational volumes, measured in Revenue Ton-Miles (RTMs), saw a 1% increase on a combined basis, while safety metrics showed a decline with increased train accident and personal injury frequencies - Volumes, as measured in Revenue Ton-Miles (RTMs), increased by 1% on a combined basis year-over-year[2] Q1 2024 Safety Performance (Combined Basis) | Safety Metric | Q1 2024 | Q1 2023 | Change | | :--- | :--- | :--- | :--- | | FRA-reportable train accident frequency | 0.89 | 0.71 | Increased | | FRA-reportable personal injury frequency | 1.15 | 1.12 | Increased | Consolidated Financial Statements Interim Consolidated Statements of Income For Q1 2024, total revenues significantly increased to $3.52 billion due to KCS consolidation, leading to operating income growth, though net income attributable to controlling shareholders slightly decreased to $775 million Q1 2024 Income Statement Highlights (in millions CAD) | Account | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Total Revenues | $3,520 | $2,266 | | Total Operating Expenses | $2,371 | $1,437 | | Operating Income | $1,149 | $829 | | Net Income Attributable to Controlling Shareholders | $775 | $800 | | Diluted Earnings Per Share | $0.83 | $0.86 | - The significant year-over-year increase in revenues and operating expenses is primarily due to the consolidation of Kansas City Southern (KCS) results starting from April 14, 2023, whereas in Q1 2023, CPKC's interest in KCS was recorded under the equity method[3][12] Interim Consolidated Balance Sheets As of March 31, 2024, CPKC's total assets increased to $81.67 billion, with total liabilities at $37.91 billion and total equity rising to $43.76 billion, primarily driven by growth in Properties and Goodwill Balance Sheet Summary (in millions CAD) | Account | March 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $3,146 | $3,002 | | Total Assets | $81,668 | $79,902 | | Total Current Liabilities | $6,424 | $5,710 | | Total Liabilities | $37,907 | $37,491 | | Total Equity | $43,761 | $42,411 | Interim Consolidated Statements of Cash Flows In Q1 2024, net cash provided by operating activities increased to $1.015 billion, while net cash used in investing activities rose to $542 million, resulting in a net increase in cash of $55 million for the quarter Q1 2024 Cash Flow Summary (in millions CAD) | Activity | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $1,015 | $881 | | Net Cash used in Investing Activities | ($542) | ($401) | | Net Cash used in Financing Activities | ($431) | ($645) | | Net Increase (Decrease) in Cash | $55 | ($161) | | Cash and Cash Equivalents at End of Period | $519 | $290 | Notes to Interim Consolidated Financial Statements Note 3: Revenues Total freight revenues for Q1 2024 reached $3.43 billion, a substantial increase from Q1 2023, driven by significant growth across all commodity groups due to the full consolidation of KCS operations Freight Revenues by Commodity (in millions CAD) | Commodity | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Grain | $730 | $515 | | Energy, chemicals and plastics | $702 | $366 | | Intermodal | $638 | $492 | | Metals, minerals and consumer products | $440 | $233 | | Automotive | $265 | $125 | | Coal | $209 | $155 | | Forest products | $202 | $103 | | Total Freight Revenues | $3,427 | $2,217 | Note 8: Business Acquisition The accounting for the KCS acquisition was finalized on April 13, 2024, resulting in $17.63 billion in goodwill, with the company incurring $26 million in acquisition-related costs in Q1 2024 - The accounting for the KCS acquisition was finalized, with goodwill recognized at $17.632 billion, representing future synergies and the acquired workforce[37][38][40] Final Purchase Price Allocation Highlights (in millions CAD) | Item | Final Allocation | | :--- | :--- | | Properties | $28,749 | | Intangible assets | $3,022 | | Total identifiable net assets | $20,539 | | Goodwill | $17,632 | | Fair value of previously held equity investment | $37,227 | - In Q1 2024, the company incurred $26 million in acquisition-related costs and recognized $84 million of KCS purchase accounting amortization[43][45] Note 10: Debt During Q1 2024, CPKC repaid U.S. $48 million of Senior Secured Notes and maintained a U.S. $1.5 billion commercial paper program with U.S. $650 million outstanding at a 5.55% weighted-average interest rate - The company repaid U.S. $48 million ($66 million CAD) of 5.41% Senior Secured Notes at maturity during the quarter[49] - As of March 31, 2024, U.S. $650 million was outstanding under the commercial paper program at a weighted-average interest rate of 5.55%[50] Note 14: Contingencies The company faces ongoing legal proceedings, including an appeal related to the 2013 Lac-Mégantic rail accident, a challenge to a $499 million Mexican tax assessment, and an accrued $252 million for environmental remediation liabilities - Regarding the Lac-Mégantic rail accident, a Québec Superior Court decision on December 14, 2022, dismissed all claims against the company, but the plaintiffs filed an appeal on January 13, 2023[72][73] - The Mexican tax authority (SAT) issued a 2014 tax assessment against subsidiary CPKCM for Ps. 6,141 million (approx. $499 million), which CPKCM is challenging in Administrative Court with a decision expected in 2024[79][80] - The company has accrued $252 million for environmental remediation costs as of March 31, 2024, with payments expected to be made over the next 10 years[83] Supplementary Rail Data Commodity and Volume Data In Q1 2024, total Revenue Ton-Miles (RTMs) increased by 38% to 51.8 billion, and total carloads grew by 58% to 1.07 million, driven by the KCS consolidation, with freight revenue per RTM increasing by 12% Q1 2024 Volume Growth vs. Q1 2023 | Metric | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Total RTMs (millions) | 51,838 | 37,549 | +38% | | Total Carloads (thousands) | 1,072.6 | 679.5 | +58% | - The largest percentage increases in carloads were in Metals, minerals & consumer products (+110%), Forest products (+103%), and Automotive (+94%)[87] - Overall freight revenue per carload decreased by 2% to $3,195, while freight revenue per RTM increased by 12% to 6.61 cents[86] Operations Performance Key operational efficiency metrics declined in Q1 2024 compared to the prior year, reflecting the integration of KCS's network, with average train speed decreasing by 10% and average terminal dwell time increasing by 14% Q1 2024 Key Operational Metrics vs. Q1 2023 | Metric | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Average train speed (mph) | 19.1 | 21.3 | -10% | | Average terminal dwell (hours) | 9.7 | 8.5 | +14% | | Fuel efficiency (US gal / 1,000 GTMs) | 1.065 | 0.973 | +9% (less efficient) | Non-GAAP Measures Reconciliation of Non-GAAP Measures CPKC provides non-GAAP measures to offer a clearer view of underlying performance by excluding significant items like KCS acquisition costs and purchase accounting, adjusting reported diluted EPS of $0.83 to a Core adjusted combined diluted EPS of $0.93 and the reported operating ratio of 67.4% to 64.0% Reconciliation of Diluted EPS | Item | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | CPKC diluted EPS as reported | $0.83 | $0.86 | | Adjustments (Acquisition costs, tax, etc.) | ($0.04) | ($0.03) | | KCS purchase accounting | ($0.09) | ($0.05) | | Tax effect of adjustments & other tax items | $0.03 | $0.04 | | Core adjusted combined diluted EPS | $0.93 | $0.90 | Reconciliation of Operating Ratio | Item | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | CPKC operating ratio as reported | 67.4% | 63.4% | | KCS operating income & pro forma adjustments | 0.0% | 3.1% | | Less: Tax adjustments & Acquisition costs | (1.1%) | (0.7%) | | Less: KCS purchase accounting | (2.3%) | (2.3%) | | Core adjusted combined operating ratio | 64.0% | 63.5% | - Significant items excluded from Q1 2024 GAAP results include $26 million in acquisition-related costs and $10 million for adjustments to Mexican tax provisions[97]