Canadian Pacific Kansas City (NYSE:CP) FY Conference February 19, 2026 08:05 AM ET Company ParticipantsChris de Bruyn - EVP of Finance and CFOKeith Creel - President and CEOConference Call ParticipantsBrandon Oglenski - Airline and Transport AnalystNone - AnalystBrandon OglenskiAll right, good morning, everyone. Welcome to day three of Barclays 43rd Annual Industrial Select Conference. I'm Brandon Oglenski, airline and transport analyst, and very excited to be kicking off, day three here with Canadian Pacif ...

Group 1: Market Reactions to Tariff Announcements - The announcement of a $550 billion investment package from Japan, which includes a 15% baseline tariff on Japanese imports, has significantly impacted the energy and infrastructure sectors, particularly benefiting companies like XOM (+2.4%) and LNG (+3.1%) [2][3] - The introduction of a 100% tariff on foreign-produced films led to a sharp decline in media stocks, with NFLX dropping 4.2% and DIS down 2.1%, raising concerns about the sustainability of the streaming model [4][5] - The S&P 500 index remains volatile, currently at 6,120, as market participants react to unpredictable policy changes and social media announcements [11] Group 2: Sector-Specific Developments - The energy sector is experiencing a surge due to new projects, including a major natural gas plant in Portsmouth, Ohio, which has positively influenced local utility and construction stocks [3] - The entertainment industry is facing challenges due to proposed tariffs, which could fundamentally disrupt the streaming business model, as highlighted by analysts at JPMorgan [5] - The logistics sector is under pressure as trade tensions create uncertainty in supply chains, with companies like FDX and UPS experiencing increased volatility [10] Group 3: Broader Economic Implications - The recent trade deal with India, promising reciprocal tariff rate decreases, has provided a modest boost to emerging market ETFs, although the S&P 500 showed little reaction [9] - The presence of major financial institutions at a crypto forum hosted by the Trump family indicates a shift in Wall Street's approach to decentralized finance, with COIN seeing a 5.7% increase [6][8] - The overall market sentiment reflects a need for diversification into sectors favored by the administration, such as oil, gas, and crypto, while reducing exposure to sectors impacted by tariffs [12]

Financial Data and Key Metrics Changes - For Q2 2026, net sales were $118.2 million, reflecting a 9% increase from $108.5 million in the prior year quarter, marking the ninth consecutive quarter of year-over-year sales growth [12] - GAAP operating income was $9.0 million, or 7.6% of sales, compared to $11.7 million in the prior year quarter, which included a $5 million gain from the sale of a manufacturing facility [12][13] - Current quarter operating income increased 35% compared to adjusted operating income of $6.7 million or 6.1% of sales in the prior year quarter [13] Business Line Data and Key Metrics Changes - The increase in sales was primarily driven by higher unit volume in sourced soft seating products and pricing from tariff surcharges, partially offset by lower unit volume in made-to-order soft seating products and Homestyles branded ready-to-assemble products [12] - Sales order backlog at the end of the period was $82.4 million, which includes estimated tariff surcharges [12] Market Data and Key Metrics Changes - Industry demand remains uneven, with consumer behavior showing variability due to economic uncertainty and inflation concerns [8] - Feedback from retail partners indicates that consumer engagement fluctuates, impacting overall industry demand [8] Company Strategy and Development Direction - The company is focusing on agility, discipline, and long-term value creation, with a strong emphasis on new product introductions and strategic account growth [4][5] - Investments in consumer insights, product development, and innovation are aimed at improving the effectiveness of new launches and accelerating adoption across multiple categories [5] - The company is evaluating broader cost reduction opportunities and alternative supply chain options to strengthen its long-term position [10] Management's Comments on Operating Environment and Future Outlook - The external environment is expected to remain unpredictable, with tariff policies evolving and consumer demand patterns being inconsistent [17] - The company is confident in its ability to manage near-term volatility while continuing to invest in growth platforms that support sustained share gains [10][17] Other Important Information - The company ended the quarter with a cash balance of $36.8 million and working capital of $126 million, with no bank debt [13] - The increase in working capital was driven by higher cost inventory due to tariffs and an intentional increase in safety stock of top-selling products [14] Q&A Session Summary Question: Can you talk about unit volumes and pricing as far as how that impacted the quarter? - The tariff revenue in the quarter was approximately $9.5 million, with unit volumes relatively flat compared to the prior quarter, although some categories saw gains while others experienced declines [19][20] Question: What portion of your sales is now coming from new products? - Over the last 6-8 quarters, 30%-40% of overall sales have been derived from new products, which is a substantial driver for gaining market share [22] Question: Are there additional retailers that you think you may be underpenetrated in? - The company has strong relationships with 20 large independent retailers and sees significant growth potential with emerging relationships [24][26] Question: How do you expect to offset tariff impacts going forward? - The company has been able to mitigate tariff impacts through pricing actions and cost savings initiatives, but expects some margin dilution in the second half of the fiscal year due to higher cost inventory [27][30] Question: Was there anything unusual regarding the tax rate this quarter? - There was a slight impact related to foreign taxes, but the tax rate going forward is expected to align more closely with the full-year tax rate [31]

Core Insights - Insteel Industries reported a strong start to fiscal 2026, with a year-over-year shipment increase of 3.8% driven by improved demand in commercial and infrastructure markets and contributions from acquisitions [1][3] - The company's net earnings rose significantly to $7.6 million, or $0.39 per share, compared to $1.1 million, or $0.06 per share, in the prior-year period, benefiting from improved demand and a wider spread between selling prices and raw material costs [2][6] - Management anticipates a strong year ahead, supported by the Infrastructure Investment and Jobs Act (IIJA) and robust data center activity, despite uncertainties related to trade policy and domestic supply constraints [4][15] Financial Performance - Net earnings increased to $7.6 million from $1.1 million a year ago, with shipments up 3.8% year-over-year and average selling prices climbing 18.8% [2][6] - Gross profit rose to $18.1 million, with gross margin expanding to 11.3% from 7.3%, driven by higher shipment volumes and lower unit manufacturing costs [8] - SG&A expenses increased to $8.8 million, or 5.5% of net sales, primarily due to higher incentive compensation reflecting stronger financial performance [9] Inventory and Working Capital - The company experienced a $34.5 million increase in inventory, leading to a net working capital consumption of $16.6 million, attributed to higher raw material purchases [5][10] - Quarter-end inventory represented about 3.9 months of shipments, up from 3.5 months at the end of the fourth quarter, with expectations for moderation as purchasing normalizes [11] - Insteel's net working capital has risen by over $50 million in the last 12 months, with ongoing imports expected until domestic availability improves [18] Market Outlook - Management sees demand supported by the IIJA and data center construction, with expectations for continued robust activity into 2027 [15][16] - The Architecture Billings Index indicates contraction in nonresidential construction, while the Dodge Momentum Index showed a 50% year-over-year increase, particularly in commercial planning [13][14] - CEO highlighted the impact of tariff policies on domestic wire rod prices, which are significantly higher than global prices, contributing to supply constraints [17] Capital Expenditures and Shareholder Returns - Insteel plans to invest $20 million in capital expenditures to support growth and reduce production costs, with a focus on technology investments [20] - The company returned capital to shareholders through a $1 per share special cash dividend and repurchased $745,000 of common stock [12]

Group 1 - The Supreme Court's delay in ruling on the legality of Trump's tariffs may indicate a favorable outcome for the Trump administration, according to JPMorgan analysts [1][2] - The longer the court takes to decide, the more it suggests a leaning towards the Trump administration, despite predictions from legal experts [2] - The underlying case involves potential tariff refunds amounting to $135 billion [3] Group 2 - President Trump warned of severe economic consequences if the Supreme Court rules against the federal government, potentially leading to repayments of "many hundreds of billions of dollars" in tariffs already collected, with costs possibly reaching into the trillions [4] - U.S. Treasury Secretary Scott Bessent expressed confidence in the administration's ability to enforce tariff policies, citing sections of the 1962 Trade Act that grant significant authority over import duties [5] Group 3 - Costco Wholesale Corp has initiated legal action against the Trump administration for a complete refund of all duties collected under the IEEPA, raising concerns about the eligibility of other businesses for refunds if the tariffs are deemed unlawful [6] - Other companies, including Revlon Consumer Products Corp. and Kawasaki Motors Manufacturing Corp., have also filed lawsuits in a U.S. trade court regarding similar issues since late October [7]

Economic Indicators - The U.S. labor market data is crucial for assessing the economy's health and predicting interest rate trends, with the December jobs report expected to show a nonfarm payroll growth of 73,000 and a decrease in the unemployment rate to 4.5% [2][7] - The U.S. trade deficit fell by 39% month over month in October, reaching its lowest level since 2009, indicating the impact of tariffs implemented by the Trump administration [5] Corporate Developments - Saks Global is facing significant financial challenges, seeking up to $1 billion in financing to avoid a Chapter 11 bankruptcy filing, with concerns from investors about its ability to repay loans [11][12] - General Motors announced it will incur $7.1 billion in special charges for Q4 2025, primarily due to adjustments in its electric vehicle strategy and a Chinese joint venture, which will affect its net income but not adjusted results [14][15] International Affairs - The U.S. government is contemplating investments in critical mineral mining projects in Greenland, which could be a strategic move amid ongoing discussions about the potential purchase of Greenland [10] - President Trump canceled a second wave of military attacks on Venezuela, indicating a shift in U.S. foreign policy, following Senate actions to block further military strikes [8]

Group 1 - The Supreme Court is expected to rule on President Trump's tariff policy, which could significantly impact markets and individual stocks, with a complex range of possible outcomes [1][2] - If the tariffs are deemed illegal, companies heavily affected by the tariffs, such as Dick's Sporting Goods, Mattel, and Hasbro, could see substantial reductions in tariff expenses [5][3] - Retailers currently face an estimated incremental tariff of 20%, which could be alleviated if the IEEPA tariffs are struck down, although new tariffs may be introduced at around 15% [6][5] Group 2 - The tariffs imposed last year resulted in an average tax increase of $1,100 per U.S. household, projected to rise to $1,400 this year, but could decrease significantly if the IEEPA tariffs are removed [4][3] - The court's decision may not provide total clarity, as it could either fully support or partially roll back the tariffs, potentially allowing for a grace period for the administration to adjust legal authorities [7][8] - Even if tariffs are fully repealed, the Trump administration has alternative powers to reimpose or replace current tariff levels, adding uncertainty to trade policy [9][8]

Market Reactions to Geopolitical Events - The U.S. military's capture of Venezuelan President Nicolás Maduro caused significant market reactions, particularly in the energy sector, despite Venezuela's limited economic impact on global GDP [2][3] - On January 5, 2026, major U.S. indices surged, with the Dow Jones Industrial Average rising 1.23% to an all-time high of 48,977.18, the S&P 500 climbing 0.64% to 6,902.05, and the Nasdaq Composite gaining 0.69% to 23,395.82 [3] Energy Sector Performance - U.S. energy stocks benefited from the geopolitical developments, with Chevron's shares increasing by 4% and Exxon Mobil rising by 1.6% on the same day [4] - The S&P 500 energy index reached its highest level since March 2025, reflecting optimism about potential Venezuelan oil production [4] Oil Price Movements - Brent crude futures rose 1.2% to $61.48 per barrel, while West Texas Intermediate (WTI) gained 1.4% to $58.11 on January 5, 2026 [5] - However, Chevron's shares fell by 4% the following day, and WTI futures slipped 1% to $57.75, indicating market volatility [5] Canadian Oil Market Reaction - Canadian oil stocks experienced declines, with major producers like Canadian Natural Resources Ltd. and Cenovus Energy Inc. falling approximately 8% and 8.7% respectively, as analysts deemed the market's reaction an overreaction [6] Financial Sector Impact - Financial stocks also saw gains, with Goldman Sachs up 4.5% and JP Morgan gaining 2.9% on January 5, 2026, indicating a broader market response to the Venezuelan news [7] Tariff Policy Effects - The U.S.-U.K. trade deal, which reduced tariffs on cars from the U.K., led to a 14% increase in Aston Martin shares, while Detroit's automotive giants expressed disappointment over potential competitive disadvantages [9][10] - The Supreme Court's deliberation on Trump's tariffs, which generated $130 billion in revenue, could significantly impact market dynamics, with analysts predicting a 70-80% chance of unfavorable outcomes for Trump [11] Consumer Goods Sector Response - Delays in tariff hikes on furniture led to stock surges for retailers like Wayfair and RH, highlighting the immediate benefits of tariff postponements for certain sectors [12]

Core Viewpoint - Trade policy significantly impacts retail and consumer discretionary stocks, particularly those with global supply chains, as tariffs can affect margins and investor sentiment. The recent delay of higher tariffs on furniture imports by President Trump provides unexpected relief for the industry, especially for companies like RH [1][5]. Group 1: Company Overview - RH, formerly known as Restoration Hardware, is a luxury retailer specializing in upscale home furnishings and décor, offering a range of products including furniture, lighting, textiles, and outdoor living items [3]. - The company has a market capitalization of $3.6 billion and faced a challenging 2025, with its stock declining over 50% year-to-date due to high mortgage rates and slowing home sales impacting demand for luxury furnishings [3]. Group 2: Impact of Tariff Delay - The delay of higher tariffs on imported furniture until 2027 alleviates a significant near-term risk for RH, allowing the company to manage supply chains and protect gross margins without passing costs onto consumers [5]. - Following the announcement of the tariff delay, RH's shares surged approximately 8%, reflecting market optimism and improving the outlook for the company's earnings in 2026 [2][5]. Group 3: Valuation Metrics - Despite the recent stock rebound, RH is trading at a premium valuation, with a price/book ratio of 1,003, significantly higher than the sector median of 2, indicating potential overvaluation [4]. - RH's price/earnings ratio stands at 29, which is notably above the sector average of 17, suggesting that the stock's valuation may be stretched [4].

Group 1: Drug Price Cuts and Pharmaceutical Stocks - President Trump announced significant drug price cuts in collaboration with nine major pharmaceutical companies, aiming to align U.S. drug costs with those in other developed nations [2] - Despite the announcement of price cuts, shares of involved drugmakers like GSK, Merck, Amgen, Novartis, Sanofi, and Roche rose by approximately 1% to 3%, as the deals removed the immediate threat of punitive tariffs for three years [3] - Analysts noted that the deals serve more as a public relations strategy rather than a substantial change in company economics, with Medicaid already benefiting from significant discounts [4] Group 2: Market Reactions to Health Insurers - Major health insurers such as Cigna, CVS Health, Elevance Health, and UnitedHealth Group experienced an initial dip of about 1% following Trump's comments but quickly recovered, indicating a market accustomed to Trump's policy announcements [5] Group 3: Merger of Trump Media & Technology Group and TAE Technologies - Trump Media & Technology Group announced a merger with TAE Technologies, valuing the combined entity at $6 billion, which led to a 42% surge in DJT shares, closing at $14.86 [7] - The merger has drawn mixed reactions, with some analysts viewing it as a significant move towards creating a public nuclear fusion company, while others criticized it as a questionable venture [9] Group 4: Tariff Threats and Market Volatility - Throughout 2025, Trump's threats and impositions of tariffs, particularly against China, have caused significant market volatility, including a $5 trillion market wipeout following an April tariff announcement [11] - The S&P 500 and Nasdaq Composite experienced substantial declines during tariff threats, but the market has shown resilience, often recovering to new highs [12] Group 5: Overall Market Environment - As 2025 concludes, the financial markets continue to be influenced by Trump's unpredictable policies, creating a landscape where traditional analysis is often overshadowed by political developments [13]