CP - Earnings call transcript Q2 2019 | Canadian Pacific Railway Limited

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Operator

Good morning, my name is Adam, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Canadian Pacific's Second Quarter 2019 Conference Call. All slides accompanying today's call are available at www.cpr.ca. [Operator Instructions]. I'd now like to introduce Maeghan Albiston, AVP, Investor Relations and Pensions, to begin the conference. ahead. go Please

Maeghan Albiston

Good us Adam. and you thank Thank morning, joining today. for you, everyone,

With begin, remind are in filed differ U.S. Officer; Before Vice which presentation want described MD&A Officer; today that outlined I we by to that's Vice measures, results me actual non-GAAP The release [Operator X. President information, Executive here Brooks, President uncertainties other This Keith Slide Chief are President actual regulators. and contains could risks, the influence Officer. followed Marketing contains Slide Nadeem you Q&A. Instructions]. and formal our and Creel, results Executive also press The with Chief and John may Financial is today X Canadian on materially. remarks on be and Executive presentation factors the forward-looking and and this and Chief that in Velani, will

Mr. now introduce It's pleasure my to Keith Creel.

Keith Creel

Listen, I share When and our record-setting, record-setting Maeghan. family. mix say to XX,XXX get the represent a Thanks, for records. this We quarter team of strong and it's proud morning. are to discuss here morning and I Good CP this sit company. extremely the

most our accident we railway to bounced sets into day, apart the safely that records, the -- records. comes all-time most way back. quarter it records first efficiency bounce revenue, us in a the record run potential back EPS, importantly, company all-time this workload The train when in industries, to Second are the quarterly every to had that record way to on company regain train records, and the Records productivity the the very train fuel locomotive records, OR length speaks for safety has network, represents. on quarter GTMs this commitment we challenging ratio, from late momentum records, specifically

An all-time company. on the personal record for well as injuries

getting safety comes is strong the stronger. certainly, to culture when it So and

of. proud and on focused extremely extremely, we're Something

the kind a by mature precision railroading scheduled this industry company produce. best performance Now of demonstrates in what can the ran railroaders of team

records, peak This a this come more to a that even constructive us -- we our in encouraging. That as assets we softening record pursuit, accommodate alone. not of the might associated taking locomotives, team and demand headcount July, Maintaining the volumes out that's face tension or almost down making destination. as to a that I locomotives with of out those talk excellence on about doing of the in something that well said, in is that. constant kind out in the that locomotive fleet reducing and our operational sure something that a demands call constant it at journey, seasonal for rightsized is even we're we it's allow taking keep pursuit the Within any when immediate XX% face normal focused organization quarter,

a tell in to weight. XX you're like back year. our So I And to sustain and additional history, open we But we able quarter bounce to to you partners. that not XX, out was they things little you the of operating to bit reroute men Mississippi duration we pressures, side. and this be make that it as pressures to had the impact the to as River, to not capital rail well. kept Yes, faced our the years, we team. say pressures this Class with the some run challenges. up I about out us floodwaters. tell the kind we day Day X that the you, the in unprecedented from to that these over the prolonged possibly could. much They of their the being some of tied this revenue. tell battled that it, and testament be commercial well. you the can foregone I pressure We talk laid went are to October. women anything floods trains. that way we Switch continue the I'd That's team, some if experienced a this it going speaks day find plan was without They let back that railroad of go and hard-pressed this railroad of Yes, to for the did, to quarter When did said, had as long We expense Investor expense progress. inspiring. the encouraging strength again, at in tied

across a the the strategic told a of pace macro and that's industry our this unique plan the and told is we set We to hard marketplace, demand leader we investors growth developed economy. in convert where we created in told it that capacity had we to that fueling opportunities We set that what's market, a of a time in up. our worked unprecedented shareholders, the

We that's call of seeing it what to it results. these in the what countered balance allow you're that to be is opportunities industry us call We self-help. the unique experiencing and

and That's Network Express I setting an the about is alliance, it about XXXX read and equally Yang driving our yes, we're earnings revenue Hapag-Lloyd excited absolutely do, about success setting the in specific, XXXX, service to excited what the specifics growth John from which and Ocean company commercial allows for this press quarter during I'm and that operational to do because it's from the as excited Yang Ming. You continue a that's what of will our our of release new call super of. Ming, the leg standard going be now will perspective, the beyond. But to and competition, one itself about third apart partnership talk what in partnership. And in

it's in on-dock fine-tune or Coast get can't alternatives other dwell us lowest by whether to to Midwest industry-best something time the in be U.S. marketplace, with that markets Allows to continue fastest Shanghai to transit It into will operational and the West and routes create it's continue our in ability difference time. compelling with drive the capacity. and within make organization. our Canadian operational and our our to strong continue something matched to margins reliable from shortest that an the service a that's excellence competition we'll our you Chicago It's

To add alliance. that strategic made with. as of probably you've HME spring partnership decision Hyundai, read customer it's a benefit as a a is well, a to They joining currently that -- enjoys well, the which CP effective they're XXXX, and

another them handled to at by and the will velocity. the takes that again with shift improves will GCT be to be our the Deltaport currently on step moving shift costs takes the So calls South complexity and out CP serves, efficiency improvement, now and gives partners out terminal, that in term volume which Shore, in incremental volume on additional alliance, us which

dock about that's and proof back in of it XX% Just been our think this. I be you to balance the is at the competitors. year at as to about down If share to going With X.X for point, discharged ago, about the on XX% January. online product comes XX% a this Deltaport contract, the for We're CP go going GCT GCT. new

Midwest. service Again, the enabling reliable that into service, industry-best

we and point our that for that things, say all best. investors? run die not you you you how a we kind we sustainable do a principle, when solid moving and you do kind it going of to don't of it those it. proof profitable this DNA results it you do with it's business. we're catchphrase, It and you something, it's the when breathe do are you growth, and says just try mean? you into by of our that mean them What for to and the it think possible. discipline. to It's What to do shareholders do, And but does together. you when it And serve put be do everything customers? you're What culture everyone you does about These what our and this So mean you live these does say that serve, it well going this

team to now not standpoint, into well expect company questions. to provide over after then That's open our in as future. and carry to to going guidance the perfect With as only company XXXX who's allows to opportunities XXXX as meet well to And it as our but from commercial grow are for employees it for bode I'm and invested that, this the John well. and certainly XXXX we'll The financial the And and performance, the color the XXXX, going together up covers and XXXX investor it in strength side Nadeem turn as as and on about more some that 'XX put our anybody trisection. customers. well John as excited to momentum the you we we an this for in

John Brooks

morning, All everyone. right. good Thank you, Keith, and

total X lines $X were being X%. RTMs our quarter this billion of tailwind X revenue. up up was of a of digits business FX revenues X%, were up in So XX% was fuel and flat. double to out with

land On X% to expected, range. to we the continue in that as pricing side, X%

at our a revenue quarter adjusted results performance taking I'll the slide. next basis. second currency speak the Now closer look a on on to

in were quarter for grain. past the was all delivered crop with spoke second Keith [Indiscernible] to, was and up of both for as be Canada double complete portfolio. May digits. up grain is it quarter, third-biggest the line this in XX%. CP and perspective, and Canadian tonnage to a And in we couple from products an extremely was as record years. right strong bulk for quarter months So a of grain time and expect new Grain now now volume, April record the

to normal side. expect to carryout project move good grain stocks the we Additionally, of say, on heavily volumes canola be this certainly to but there fall. this we weighted to more All be

emerged We're Eastern As challenged watching with a U.S. double be effect Actually Central down taking But this as grain into were that August though reminder, lingering dispute to will expected X.X%. because with the be contrast, CP present U.S. the market are the for pretty continued grain CP opportunity U.S. due grains areas to China. pricing the short that grain conditions markets tough-growing have across good on flooding to X P&W the for and digits production. export these trade be volumes a might new and in closely regulated

the coal onto Moving business.

at of a volumes result Canadian As both coal quarter. port decreased maintenance this and outages mine.

challenges movements and chain strong we U.S., the were up in thermal in of supply actually our However, of the revenues fairly saw coal Canada, in spite X%.

met strong strong, back year. half the continue a we for to and environment of demand expect remains The coal

of On Midwest upper an in potash weakness the QX in quarter our the weakness the side. revenue outweighed as in all-time record and being potash again the poor result front. on and volume United That export was flooding strength domestic condition the weather for States.

into half coming we the But in weakness strong into second domestic side potash. the the half and environment, upside we on from very certainly have for some of demand opportunity of move With for the expect pricing tough second global still we the year. and as the a spite healthy comps the year

On LPGs, strong quarter revenue another had XX%. all the merchandise and another on Vancouver. plastic energy, portfolio The front. refined energy The growth train strong of our quarter included with growth moving chemical of plastics, products, in

Excluding crude, XX%. and up grew were revenues X% volumes ECP

carloads On XX,XXX approximately curtailments to around began the to and the as crude-by-rail, as began production day barrels expected, ease we improve. XXX,XXX per in fundamentals at came or

a Although, as second stabilizes, up customers half existing balance year. increase contracts we curtailment continue of the our crude-by-rail and will ramp to and new the volumes variable, to remains continue and expect production

per were a by the about only surgical driven Permian we're trains we're single-line frac end to sand I've largely from frac the the year. in of sand, the this This our yields X%, improved higher re-hone declined down service, X basin have unit adding times by margins. a unit past, efficiencies revenues and in X%. in number train the We what however, revenue region Bakken. spoken and strategy Consistent carload, a third executing haul volumes currently to market a MMC, diversity facility with of In facilities

automotive. In were American North quarter. XX% Certainly, despite up in revenues the demand environment, CP a weak

spoken we've success Vancouver GLOVIS and the driven our see and to of auto continue compound We opening about. that by ramp-up

only full portion GLOVIS contract in online coming a a to this reminder, of As the XXXX. business us with is the

combined on international domestic This, Overall digits. confidence were gives continued this side us about the with and intermodal double business. sector XX%. Vancouver, finally, well were in of up growth year. revenues And volumes up into the Both low at next

some despite retail domestic QX. sector, In fact, in revenues were record a in softening the

continued we our the and On the international in playbook. of business, the market side to excel execute

are And well Rail awards further, onboarding Most recently, will Keith preparations Asian as Vancouver capacity move our Logistics route Provider a not Ming also for inland is fastest that leveraging their Kong. GCT very XXXX named CP Best as mentioned, underway which I'm our pleased the our only was terminals our around Logistics also and at in at Hong the Ming in network. our Supply Yang with Freight at and Chain Yang volumes, advantage capacity but Toronto excited, across Deltaport, port We're to into of Minneapolis. Chicago, taking of full of and

team look, this to extremely of deliver efforts operating pleased the marketing sales with I'm in and So team with the the quarter. team, collaboration

uncertainty So well, there's industry. that and new in I will up franchise moving the of we with bulk be in our continue is will and some now growth outpace of the the new no confidence business doubt, a in of XXXX. starting deliver strong combination business that macro some degree coupled there's business to that the lines have high and softness environment of our between

team CP over with With we're and in opportunities marketplace. it collaborating convert and efficiencies Nadeem. customers that, is our pass the focused, create The I'll to to

Nadeem Velani

Thanks, good and John, morning.

this year-over-year. challenging challenging noted, quarter saw XXX detailed, we as length. any -- the was was labor from operating of and were trends the of end QX led April, XXX operating to basis to points Those a strong quarter decreased quarter volume Keith encouraged John basis winter. as improvement the points strong a year's strong impact QX, cost XX.X%. recovering that revenue transfer had by control. quarter and well we a very the As The last throughout OR disruptions Ignoring reported ratio, continued as and I on OR how When still growth, was virtually second by in an result

Adjusting we a sales, items and XX%. stock-based saw of closer at Taking a for the depreciation land comp, incremental few margins expense look on about side.

be $XX drivers million, and up the higher As benefits primary on of price resulting I'll increased versus results from stock-based was higher the the increase last exchange-adjusted The as to basis. as well or an $XX of million usual, speaking year. X% share Comp were headcount. compensation

price flat Fuel volumes fuel and decreased and gallons record as increase equipment were rent expense flat was expense year-over-year. year-over-year by thousand offset GTMs. QX of X.XX Materials were per efficiency both

increase X%. As million, expected, $XXX was an depreciation of

Primary stock a was a call, operating decrease driver decrease million, the which $XX sale land and $XXX was guided our other services QX Purchased decrease $XX X%. behind ruin on of was of million, million or in cost we tailwind. a efficiencies to further

Rounding services line adjusted casualty out back income the increased the Additionally, reverted historical Adjusted the income levels. under XX% statement. purchased to by and XX%. EPS grew

I'll there our million recovery in line, was the changes to benefit note earnings the have tax tax that tax $XX a normalized rate. impact corporate will XXXX from excluded related and income This negligible to was Alberta Below an rate. expected

more phased in or are we benefits the meaningful tax rate. benefits effective start over four seeing the As years, will

Turning slide. next to the

which our years, growth into X.Xx, debt March and last Our with maturity, operating in refinanced we leverage our target way came the we EBITDA, our In within adjusted May adjusted in target in we strong the the range at performance quarter debt range. in X Xx worked net back our to leverage X.Xx. of repaid to early

investments, given and While flooding CapEx our guidance billion. sequentially increased within will we $X.X winter, capital spending our keep of network

we XX% gradually fourth We our continue our take the move our to dividend a ratio returns. to by we marks balanced dividend have targeted This May, to we XX.X%. raised payout year approach as increased straight meaningfully In towards of shareholder XX%.

buyback the front. On share

share. roughly of repurchase QX, current of the at $XXX of average program of have share As nearly completed end we an XX% per cost our

industry team. as This discipline will of We is and by delivered last be and our undoubtedly performance, ROIC an capital. will the operating tremendous XX.X% deployment months. railroaders with through opportunistic the entire strongest our in the it, the The seen strong as disciplined in railroad XX our CP is operating ever achievement ROIC the getting this well each day. deeper we of remain I've and Combining at stronger team

watch closely should to continue base the environment We continue we'll adapt and our quickly. cost to change, demand macro the environment

strong mentioned, we back to up. when again wrap With things full to set turn expect to in that, results I'll of in to deliver Keith speak year we another Keith As are our it confident guidance October.

Keith Creel

Thanks Nadeem, John.

team lots happen its Just comps what to The we're year. be stay realist, the comp are and to and challenges, you commercially, year. all to our a main execute it this tough our half model tough understand made prior going of company been wrap financially same questions. CP's at going and With in confident, up, the of humble, open looking the testament delivering being for assured focused, the to can committed when time. forward results operating operationally, is for about up without performs to be guidance rest to let's stay our disciplined going not These that said, to but back are is focused. We the environment a we're the ability the and

Operator

And from Instructions]. your question Citi. [Operator Chris Wetherbee of first comes

Christian Wetherbee

the Maybe that to the on second about comment guys half comps and you up just faced. that pick wanted

talk your of If a comps? that confident key see you of priority are you through? Just where sort kind feel terms about you of in bit on If curious face [ph] the maybe volume tougher areas of those potentially some there some flow is that little as mid-single-digit growth you outlook sluggishness, groups RTM of kind could side? is the a about what the what of And there some demand, most maintaining could about the

John Brooks

continues the John. July Look, the in business, now -- bulk strong little trough grain. grain see turned strong. move I I tailwind and We're I Chris, in we the that continuing. very be a in of the weakness bit some quarter really in through the the the in we're domestic side to I quarter, continues side and environment that strong. as am can certainly This potash think kind the off. up demand I be side but -- we but we The upside start right picks through is expect in as of mentioned, a to QX export

most for part, is, Tech out the QX. QX, sold

tailwind to there. some see So continue

some Our as of, think, year-over-year upside in space, challenge comp international that facing. sales QX some I We are that the to through intermodal. despite I sort look results still others have, of

blank We sailings that our the haven't customers area. seen in with

on a all positive I'm space. So that

second I And parts today And I moving to also. And the here. be QX think need frankly, as that straight the side, for the And upside this to actually, that in certainly move place. sector more then outmatched the in we out to auto But get it's we've variable. trend optimistic are quarter. in than been the industry now we're continues on that rail. resolved. I worked be significant some crude a And we here have assets, there contracts think by improved going issues the could these are think, is

Christian Wetherbee

doubt. half Okay. for very about That's Nadeem, even helpful. of had to bit the Obviously, constructive strong Last speak were second you you comps sort performance. your of No I year really Could the the -- a that in pretty little challenging think facing OR second feeling more in QX. the getting quarter, potential the done? here in you how after quarter you're the

doesn't if It some you that of, year. But anything, high You blocking that margins. mentioned would there as color very was could be into around that, put sort of the we the half move back that incremental appear great.

Keith Creel

Chris to over still set you convicted this for Nadeem. Nadeem. We're up but me Let

Nadeem Velani

I Chris, think, do. we to what we're we're I Yes, going doing mean said

in that's it. we comes As from we've from softness that ever that, asset Keith only our of involved conviction -- this, false getting times a But as seen within comes as mentioned a in strong that's of adding putting we good start like not necessary. confidence. and comes resources as and aside a proactively you our bit DNA can cost It sense of see control from where running network noted,

the of had our cost-control margins good very bottom line. add the we half. from view. some to And comps, tough So can but same do will feel those in point we level back about Yes, we what of conviction incremental

John Brooks

half The of last Chris, year fundamental drove of that the exists. demands, second performance

car fleet. year and just to investing fleet the second us The more with this fewer in same I fewer more at with Meaning, the to don't The some or was grain from record respond Meaning, alone, need with of up our so talked things for demand are to potash cars. remote we We're surging demand, as many to our demand even We'll about cars, those doing I'm looking with investments. our car, start we're partner half point Think XXX Meaning, the pent room in an run we over about ran customers fleet ability given fleet. get using that. testing to recently. a and to UP speak trains even realize efficiencies velocity orders. potash Vancouver we XXX Portland, bad a and Canpotex, operational to more hopper with just to of begin efficiencies. execute, train,

as So of deliver we're going our And that, different to we in envelope, increases, push It's railroading we of down, or costs within continue do we come the to as improves. velocity second to assets to the less, precision-scheduled squeezing with in same half. capacity the the demand space better what do the to can just more operate continue mantra all with service.

on is is performance, which better should expect exactly focused what team this producing. You

Operator

next Markets. RBC Capital Your question Walter comes of from Spracklin

Walter Spracklin

about the the XXX Ming Keith, XXX the obviously, is And And anywhere is Gosh, into improved. you done consolidating from we last eyeballing to basis in back are done your to improvement Canada Keith, Deltaport. coming on you that you sequential. at go XXX complexity few generally ratio items, is from more the I suggests year everything points here, second guess at, OR. guess next talked mentioned quarters I above you've and XXX the know and on anything Nadeem, given much to your going quarter coming is annual a you points railroading back you've that typically everything easier, about to it on year you the to comments look lot basis the something at quarter, the XXX some is. then basis. -- XXX handling I third target. complexity in in Again, improved -- The XXX just from years, to the expect how at improvement But looking question lower my you year-over-year the could we come when we've the that well that of Yang beyond operating with be of

Keith Creel

Walter, exceed it's your in setting hard talking your it year. make this quantum model. our Part we in I it's love leaps. leaps just every optimism belief possible, and that the keep we we're have world-record expectation of you're areas about art to that the quantum in model past doing And a if but

to to sweat could in drive the in going some we we're responsible team So for the exceed expectations. either. to be puts we'll their I my takes, you here, want of to our and I their want say, these And in areas. We're the have a get going we conservatism responsible there's to same you constructive be railroad. team to bar in We're your a to -- we on and that a rest improvement seen improve. this going at team and business create that don't that don't we over a guidance. guide headwinds But envelope hope demotivate and leader And spite expect that to you next we're what that exuberant to We the and and push got way. I a mislead assets, going face need got continue we the be our -- assured, deliver. to we will That's high disappoint. margin so confident, feel several leadership able given time, years, feel to incremental But

to But be given I that may a of there with it may or everything tell out euphoric you basis and our I see moving goes XXX winter. way, when see love to I'd I you But control opportunities we things bet all not case, case, points parts the can't able that happen I but the all that can't.

not but see is. that's to to got yet. be my happen I've get reasonable. in basis And to it. responsible got it handle it going make to be and to XXX responsible that's points, assume So I a guidance of want willing the not ability I've XXX expand I what instead just I don't this wait the confident think happen. to that way to to I'm and

Nadeem Velani

terms stock-based bit is and class headwind terms year-over-year. when the so in The bad a -- certainly probably a looking problem that headwind. it's But complain shareholders at of of biggest a comps about adds challenge something our of first in that won't

Walter Spracklin

you that quarter. trend mean teen. comfortable in that that longer-term of EPS Fair I Consensus second double Are going into for did with mid-to-high I the range? -- is might that to obviously your Double level. enough. wide expectations that into XX% down now you a very mid-teen double And up digit. demonstrated kind is strong with Are your know mid-teen go -- as your digit results the -- digit progression? high -- this quarter longer-term you unspecific moving very the up mid-to go range. comfortable into second you -- teen mid this after

Nadeem Velani

Keith conveyed OR echo has side. on I'd what the

it's on think what deliver or be committed to we're we kind -- Call low you. double-digit, fair type able it range. to to I of what of to. want double-digit the talked have We've conservative about

control, we have weather which to if have run, a of sort can't things if headwind, mindful you that December, that the of in these what and stock some is you. description things continues and Just could be curtailments,

so that mindful don't the get double of long it there's confident into -- want weaves go. still at We're I'll So our a to digits of in we're way ability digits. I that to what just leave level to that. double grow

Operator

comes of Chamoun Fadi from Your next BMO. question

Fadi Chamoun

particularly this all domestic this John, of environment, I the the pricing we across a strength X% some range. the you the broad freight-demand seeing curious Are this base? about I'm easing you market, in to X% seeing mentioned guess. segment? market, pricing in intermodal Is kind intermodal are

can please? if you to that, speak so And

John Brooks

with pleased over talking discipline -- I'm Fadi, has we're the Yes. results on really the team year, pricing were I front, show was now producing been going so last to earlier the able quarter-by-quarter. we quite this morning. and the the

in to that look And range the I I we're upper again. feel landed I confident think we that So pretty sustain be as to renewal that. -- end that at into of QX, able going pushing

called more areas or there's challenged you there's little out, as than weakness Certainly, some where some others.

you in specific the decent, that call pretty had That in crude less took strong haul some as of some our pricing our said, business that our see towards also for being in have that place out, space. of just we for may range lower is brought then business. We seen, of weakness said, longer on did the sector, to had been I -- end be that would X.X that we've pretty area. just held also mix this and hall particular domestic some particularly do frankly, the that shorter of year. we QX, that retail-type It impact some of with pricing positive some quite new crudes, there, has

Fadi Chamoun

color. Great Okay.

XXXX? outlook, you opportunities you have continuing new have already had The that feel is, into you mean, that the kind billion in into the obviously, to I very to $X.X grow be few well positive, range question I Is second about business and communicated. CapEx awards of, XXXX,

some think flow free last been you on about, Do talk And that, just see flow you average that cash creeping Can I XX% there improve margin the of CapEx the as performance. that kind of, could to levers improve highlight move kind maybe side X the can as about maybe else have X is unique on conversion like net as understand up? for to years. help into cash has you there's cash few the the that to obviously, the years. that improvement is flow I next free income conversion you that we in anything but that related to Nadeem, to

Keith Creel

on Fadi, I'll let cash Nadeem take can, flow. question. the Okay. if I'll I capital free expand

our in the The discipline managing to is comes running it the on capital the when capital. no envelope, So It's disciplined same same creeping. railways. answer approach

art you the So possible? as the sustainable, the about what's formula, we How low-cost growth. talk get of do

capacity. create You

network. of the your to sell You strength

have. lockstep you to model the book to able the you're sign the and if every success that that's you capacity line across entire or you selling You the operating with deliver capital to up required you in new of don't, revenue, business. Because And capacity to worth of when customers to business. create capacity grow jeopardize the the be

So here, that's business It's be starting that assets and we plan. Inspection 'XX surgical, there. in Inspection all here truck truck up for The signed there. it starting phased the XXXX, the locomotive being we CTC the remanufactured. into All in there. remodeled, there, here, need plan. the CTC

diminishing swing envelope big we on actually the capital fact we a So And see 'XX growth, you not will what need start XXXX. as on additional business see our based into bring in the in 'XX our today. for go not in comes capital this and down, to see you'll account after Taking up.

Nadeem Velani

did our next is going with the monetization, of to support to of segue what or from And in hoppers, perfect the invested, to cash opportunities leg about your trailing what service, conversion now Those the free and the one did, covered locomotive off. our agenda? well question point continue we growth A story be do to view. we [indiscernible] Minneapolis on a things as where we second invest I positive very support we will where are right think to a on

past covered you 'XX-'XX conversion XX% kind kind that once we you'll get look investment and XX% in more cash of levels. of hoppers if in So seeing free the to timeframe, the -- start in the

I overlooked. that's is somewhat to going And something very what to can so deliver. that's we I in story impactful think a that, think CP be that And

think on terms next can achieve what where of I right in there's you're opportunity. we and So

Operator

Suisse. Your next Crédit question Allison of Landry from comes

Allison Landry

on in guidance it, of go bit little RTM But X% question a full year. the way. different to, the ask and to I to just the the want get just for math a X% I'm call to to back if doing

basis. I mean basically on a sequential

seen half historically. need sequential much low the increase bigger in to half. the Second range we've first really somewhere versus RTMs increase That's double-digit than a

commodities crude, the the earlier in comps aside, to, for the about tough potash, question, on that Chris year-over-year asked we your may you've response how et I talked grain, maybe So be cetera. can ramp-up think based sequential think about the putting

Nadeem Velani

I to to year-to-date I mid-single don't double up digits already. think need we're mean, get Allison, we digit. X.X%

So I'm not...

Allison Landry

I Not Sequentially, meant. year-over-year.

Nadeem Velani

in tough Sequentially, back -- comps the use the the right. back We half.

to going areas, a to point I'd growth is potash. So a out sequential like see which up the John's so... support comments RTM to in you're crude, bulk ramp strength going in on strong

John Brooks

which working It's out spite in to It's see a going the demand second than to year. coal issue. the a less due of of that coal chain The supply some working noises last shipped itself, in We're the You're We've realizing mean third month-to-date some in chain, pickup supply the see. we is we out. was growth in quarter. some coal. itself talking shipping not challenges. tech, the quarter, Allison, more did actually I just we month-to-date. We're softest experienced about

So X% -- X.X% all with those the number. things year-to-date

north not you the to coming be second The little bit get digit, to that hard and there. Then to come math sequentially, half of we're going can a at it's you're the mid-single to.

Allison Landry

I prepared you at in resource on like side? Okay. your strong about, in record a volumes All headcount the you right. great incrementals a capacity and if growth layer But resources on specifically networks. they've need in really It GTMs from you It seems are confident back or point of the sounds persists, QX. terms Keith, shape. think workload for standpoint, Where to what guys network's remarks, in you might the hitting obviously, some you pretty in workload are like basically, there. think do talked

Keith Creel

We've that we capacity. quarter. the we'll trying old that Calgary and got yard very capacity, of to terminal what We're in investments yard, place year capacity-constraint, only fourth locomotives. strategic productive the this was track mean didn't on into we're be into all We converted an lock not that along. just we've We've stealth that Well, switching week January. hump a more first adequate than [ph] realize until capacity-contained. finish we're made I some said in

even the fourth haven't we that quarter. realized of So benefit in the

in we're operate with we're well. as We're then step demand steps And pull Running our employees that's But them the locomotives locomotives, the large got it. we hiring ready online demand the with bringing the in large locomotives. training, Trades as again, to remanufacture to we've make sure

We've on the right the So spot not things, on with to in pipeline assets. got long the moving the right to be just asset. game parts be is

in more and comes GCT we're So our at with to Deltaport. ability all. surges track to than in is We've terminals, not fact, ever at capacity got handle And partnership it had we've capacity, when there improved. drastically our flexibility, our

there, on Our increased grain demonstrates creating fluidity with in And It records stress We've We're hitting put in history. South XXX-year is of this history, volumes. year-over-year, by than the network. capacity. train put extremely our well. network X%. we on Shore this about speed the network partners ever talking working its been We're record its has more

employees' day and and just tells about customer you're this our conviction execution why in our network. in trust. have our trust service, years worried into of in partnership a we're need much you And or we investors' don't trap, playing capital there's in to that's That That's two get and with [indiscernible] catch-up we're a investor, we day if in confidence It's guidance. protecting or out plan resiliency strategic a developed our Protecting this what company overcommitting. gain, customers. doing an ago and a so our you we're surgical getting

Operator

Ken America And Bank from Lynch. next Merrill of comes question your of Hoexter

Kenneth Hoexter

a quarter, on Keith Congrats solid and team.

low the the and digits it trends you Just read stay on Should with the impact and the about as to you base. think with the volumes, employee BOR grow employees, how do your mid mid-single costs. -- thoughts

Keith Creel

Yes.

base, or mid-single-digit employee capital that way up be That RTM X% bit the at That's little down mid-single-digit come it. X% this to like and the We're X% best is its gauge a RTM. peak. year, X% with the work will right now to On headcount. sequentially, we'll on

Nadeem Velani

and We government anticipation getting kind has pre-hiring started crude up the our June -- contract in people July. the in of Alberta of were

we've for So pre-hired that. kind of

already So speak. as we in that was the base, cost

Kenneth Hoexter

on you're then of So employees ahead because that?

Nadeem Velani

Yes.

Kenneth Hoexter

Okay. second one my is crude-by-rail. And on the then

on the shift to just Just given that potential. Alberta's Nadeem, were what and you highlighting, commitment

crude-by-rail know be do outcome, commitment you volumes see but going So volumes seeing so talk what expect or wasn't your in what the where maybe with about for forward? to I you far trending And that negotiations? you're

John Brooks

Yes.

So workable producers of that with the with what, pleased capacity. major you to the Alberta that of those of government. know in the commercializing, from term, government shippers solution. with I'm discussions right a interest that's There's in we're a efforts seeing a number progression expression if of good And the try terms find underway

that it, they relief. production if curtailment. going around read probably about prove railcar, can sort And they into give of sure, You've equal that, would a matching that's I'm the levels

about it's all at guess, of -- QX if So those My that probably as QX. see resolution for QX. carloads carloads we are of in up. in being said, did upside maybe couple a another jumping that months, ongoing. least look up potential XX,XXX getting But to story terms we in discussions ramped at I XX,XXX more can with

steady ramp-up here. we coming of stats move So a as forward we've online got fairly

Keith Creel

Yes.

acting and things to up will work for there's in the all [indiscernible], the see for parts favorable cautiously it's resolved only space with John, favorable capacity I optimistic, issue agree fourth been I crude And lot being the be the oil then add, mean demand it quarter work is think listen, is those where a the to things had you'll got forward as nature would Ken, this I in resolved. direction take and lockstep I demand. and a quarter. represent things with lining, and moving unpredictable. there's a against right happen. upside. the resolution. to mother in to But the far this, fundamentals government in a just And other more as think fourth work which produced some good get I'm bit is this going volatile, of and are thing If to all to marketplace, the again, line It's a a force other space. us we've to optimism I see I'd this more us, We get just pipeline through market. in it's got there's in But the But all we'll to away. been in robust continue trying

Operator

question next of comes Wadewitz from your Tom And UBS.

Thomas Wadewitz

frame, of high-level business would level contribution you is XXXX? on know if larger the be revenue John or execution put be ask together you right about high you Keith, term, perhaps, share some And new might kind to say? similar? on I gain's it share the this impact? frame me kind this the strong business, year? could revenue wanted Or gains And of if a business let just Whether that that quarter. give May a of contribution for on on you think I kind in we new Congratulations the from high-level the if in year? don't -- but how what or new how

John Brooks

of also. our and a grow I continue transload our think we're they a spaces a in strong confidence performing do I and see of, We've bulk remains in to why well been and to but We've think not we new, a to you up. significant seen talked, and the built upside further wanting ramp what those develop about good we've We've in auto I've as with Potash, we've an -- able albeit, terms We've Tom, QX. bit compound. got that, had quite into business. QX it's look talked indication and share K+S Dollarama. our QX as

business going quite can fuel, refined strong the you, I we've Eastern tell you a bit of success through look with had as at transload. in markets

throughput. facility Our digits steel has in grown that terms of double Hamilton

adding year. $XX out business other that, far adding added up. to day, just of new million focus put of this to all been And of, start low we've sort some looked it. fruit time things those line and that's you start hanging doubles for partners and quite about a there You singles I sort with little That's annualized short up. the our so

us of some I today. are think propel things the those helping are So that

spoken the in the about. look auto we've I got XXXX, next course we've in of year, the and further opportunities Ming that As Yang

even hasn't up ramped yet. GLOVIS fully As

another terminal about into step this spoke year. next GX Suncor we And really big well. business as next up you look they is got publicly up growth XXXX. the K+S function refined start opening for -- got we that ramped we expect We've but again, got will You with year. up forget about fuels project And that of

compelling it becomes You start putting blender into pretty that all and a story.

Thomas Wadewitz

differently. ask me bit a let you Well, little

year? So it's frame next you revenue business bigger year? just terms of it the new from similar this just of next year year do kind or think a Is do in contribution than impact this Or magnitude? you impact how the bigger a

John Brooks

confidence, think to Tom. growth double-digit I frames the it earnings the magnitude RTM best way and probably That's mid-single-digit in it. summarize

Thomas Wadewitz

guess comment you build on changing, a and is add on -- that they I more little your can to And the are means one, of second there Keith, in just Hyundai terms if at what business beginning the you primarily that comment maybe new just efficiency or side of of your kind a for on that's bit volume Or little with on the you started Hyundai? call.

Keith Creel

Yes.

I both. think it's

think for growth and Hyundai. volume I it's

explain say also And it. efficiencies. this I think and I'll it's

where the they've have. years, synergies the they of realized competitors Vancouver, with their cost industry So at they're over us because their all reduced out the of has although, followed been size of a shipping And of cost the we their disadvantage. last some partners, turn. same the that been They business landed several weren't the benefited. haven't All or in served they consolidation pie

service advantage And get enjoying fuller they're their a a of believe then anymore. forward result and won't cost in They They're industry-best marketplace. move XXXX. sign to disadvantage with the the alliance. ships to trains They're enjoy So And cost. we our They firmly improvements, as service. fuller. up be to industry-best when get grow going at the going the that

the optimized. My a more It the allows quality and scheduled highest the hits larger can just moving are parts you creates faster. my assets in crew to we optimized, My cost to discharge us remaining dock is the parts, cost it's opportunity time incrementally our every unit is velocity to problem revenue density is minimize at It it you to optimized. be be business time and going going is capacity, dwell going and going take lower. on because corridors. and precision move equipment time. across Any moving same moving to of [indiscernible] me be trains my to for railroading, going some it's The So faster. be The or on frequently.

because positive, improvement get but a just that as for business benefit railroaders win-win, and sustain and as and Through better day That through allows now. positive. as intermodal better. execution lines railway. all given it's allow us for we a for of forward CP does Vancouver, the us -- corridor positive, for it's through only enjoy and our excited as to get not we executing in not a So go It become this operationally I our day our such model and constant to It's it investments out. go key operating just we

Operator

question Scott Wolfe your from Research. next of Group And comes

Scott Group

double-digit ask quarter? a in earnings to Do and the you third we wanted maintained Nadeem, fourth think growth guidance. follow-up on that

Nadeem Velani

I last In the part. what? Yes. didn't hear

Scott Group

Do fourth the you think in trying to get to want the quarter? of I second half maintained strong and we isolate digits. third understand, growth full double double-digit don't we just into earnings year. year, digit versus double I'm

Nadeem Velani

you expect the bit I in little EPS to an a what maybe all-time QX. company. a was for but representation was number certainly QX, QX at that that, give It fair looking difficult. a not record quarterly EPS going on -- guidance that's I'm

Scott Group

XX-year next philosophically. think or up Keith, with this sort that a tech take the since then, Opportunities big think I to opportunities, XX I at And year. an it's contracts don't pricing, or an Do sense. there's that has opportunity to a you either team this make years. It's little know time, I'm That the look been management from contract. operating contract if Okay. ask of, first early but comes just

Keith Creel

It comes XXXX. in up

little that company. we of lower-cost supply following of want Their this the to is thinking early, and in rest We're do their do something reliability enjoy So We're be producers to here's of markets. the well that We they the chains. tech and well. reason share supply chain we market of able into Listen, our real part list. become the part in a part in not to companies when the that Scott partner strategy It's bit objective integral not we're because but success, you're with. assured it's about.

as good coal. supply role, to the we partners. originate we continue We to chain play long As that be continue

We to have access to Westshore. Access Neptune.

We're be to continue be going going key walk to to to a create strategic compelling away. player value that's player, hard in --

I that. But you're helping strengthen of help make So you yes, supply better, sense. the and in at when protecting opportunities. we're partnership that And is in leaps the in if huge as at knock marketplace leaps, you we our productivity. -- opportunity the far stream succeed gives we're revenue no; that. in noise, them grow confidence us do as then and making as partner world from It's out negotiating to opportunities. the marketplace. and with our middle, hard partnership a we that do quantum succeed as part got some always ability the to as in the the with things confident there's walk push quantum to When able far to more Listen, To terminals to sense with company what that can the the the We to just and about it the improving in them that's a the coast lability and market talk chain move well the think And be space, away partnership and make load going to table. as very helps terminals coal. in me

Operator

Brian And your comes question Ossenbeck from of next JPMorgan.

Brian Ossenbeck

just been just it's this quarter. a to bit also of like that? driving sounded as It back significant come a want points of crude, but the new strong John, was source little Couple was mix, you be mix mentioned. I elaborate your what's comment a may you on crude to business. Can on

how So ramp-up to half in back the maintain the reliant on of you continued year? on that of if do sort you what of in clip And crude? expect can is much elaborate that

John Brooks

Yes.

on very City, as has in And it some brought Though of some on, crude-by-rail shorter this, level. definitely that come had the material saw the pricing our at we gateways noise a mentioned, impact Brian. strong Kansas I I and also at crude space like So we business. of new less Western haul more on that look over long-haul

I As QX QX. and at look

ramps sure some see mix we at moderates this had -- I'm of backup. like I other not we crude up think that that longer-haul in tailwind QX

Brian Ossenbeck

Okay.

is the So crude biggest...

Keith Creel

It is.

Brian Ossenbeck

little expected. another on question than XXXX, now, Canadian you, John, EOP later bit just June for [ph] And effective a the mandates and

XXXX we shift sort ready but you think had as upside to been think in past having as the place people that typically actually guidance any of referred you've the it's in means Do may a of early start I even will outside assessment of now for whether of. create delayed to sort to maybe is that that the be outlook. actually that improved Or any get spite it that? still think impact for something from too about business bit,

John Brooks

No.

I now think marketplace is having that in that. certainty the

and We those is strength a and into crunch of, change get between do then? of, a that's know, the we like sort come capacity, driver And we to to pricing the when can on how now discussions have that renewals, locked applied. we be about, expectation now impact and when expect in ELDs And when going marketplace. the looks it with our what it sort date, that somewhat of

having I putting sort in now all, think out. clarity, and us sand of helping the that's a in line all So actually

Operator

from Seldon next Deutsche Clarke comes Your of Bank. question

Seldon Clarke

Just of getting the for back half this to outlook margins in year. back the

your incremental which above of You margin that XX% in is quarter, long-term. the called well

Keith Creel

on. wasn't I

Seldon Clarke

sorry... I'm

Keith Creel

if can. that take Please you

a on locked bit got somehow. You little

Seldon Clarke

apologize. I

to the outlook different a way. little wanted bit just of a So the for about in in margins year half back ask of the

You mix called some talked the of of or quarters. about tailwinds of you above employees incrementals you XX%. pre-hiring out which well your had the And range kind in is, quarter, in longer-term XX% obviously, and

kind we all core the pieces, half incremental moving your those think should the given of So how margins in back year? of just about

John Brooks

we about a little it margins, talk little XX% quarter-to-quarter, could comfortable that. just how as mix level. bit change? XX% I incremental are the a operating. guide mean business on we Yes, the be and when it mean lower dependent or things bit I and higher? Could with somewhat well We're

whole, the with confident I level. So on still XX% think, to we're that XX%

Seldon Clarke

And okay.

still -- of step And with the to positives from So to expect up the pre-hiring the in quarter, there there's you down? enough kind get even XX? are enough that headwinds to second

Nadeem Velani

I mean, yes.

you be closer pre-hiring, If will the take XXX%. it up to

QX. in done pre-hiring That So that just numbers we the in was reported, right? was

Seldon Clarke

step kind it It's Yes. or asking just... of a was again was Right. back what I down why

John Brooks

depends it's to forever. sustainable if other it hit you doesn't mean on the one again, Well, quarter-to-quarter, be There's going So vary quarter-to-quarter. and cost things quarter, XXX% other right? that between

basis, a year that's full So we quarterly. why guide on not

Seldon Clarke

Got it.

then just And kind longer-term Okay. OR. of a question on

on everything is XXs given you quarters. team theoretical Just put guys the it given they're like out of as to done like have industry But that's the as for that going for last management feels PSR, their in well just high kind what the OR. several willing

think range margins at ultimate at your XX% floor and the XX%. quarter the next years? margins XX% over incremental is to incremental are you What for several Your rail do ORs

Keith Creel

a line sight shorter it going to all I control little I'm actually some But get I to of good know, this, or say things what can't obviously, -- and I'd be to speak I got annually X with and and next to to what growth, I've see improve mix growth overachieved. and going it with bring to partnerships, business the and X the ability we're if an year years. cheer for organic our appointing inorganic online and with

the this say to mid-XXs going or sub- I'll So possible annually from XX

Operator

question Capital. Poirier And your next comes Ben from from Desjardins

Benoit Poirier

half? when drivers key a the are for kind of talk forest discrepancy at you second you X%. of just see forest seemed up terms here versus maybe in product. the And big Obviously, what about very Could industry. good we revenues quarter. the a the the good It for performance product? of terms Congratulations John, in what look

John Brooks

Yes.

quite a business has quite in been is pulp bit we've our You areas. success actually seen know what, One strong. of X

our allowed our in So that's of sort to that has derivative export international us of business business grow out a pulp Canada. of growth the back for

really and So been in good our success asset of utilization that space, our then we've fleet. focused center seen on team has beam

less in a do And on frankly is because in market that are us curtailment is we've QX into utilization focus sawmill It somewhat the our -- think no the bit with I there's in no got been on origin from we that as that asset ongoing marketplaces. doubt, going impact. challenged. we network sustainable our the into part The and be those into of B.C. us as see really But certainly has market partners places that space we've some insulation big actually So look business. some then doubt and QX, targeted West headwinds to of I transload, is that of has the good thing than impact transload it gives got lumber

more So certainly the and in to pulp challenged space forest QX certainly in try we it business. I be do we'll product into as sustain at that lumber space. look our expect the QX But will to going

Benoit Poirier

Keith. may the the high-level at become, Still bottom material of think but be Okay. line more of where business more way strategy? there your having issues, dollar, so the level That's certain When the for your it's the let's a the companies competitive year a influence great strength about is on we their say, could with Canadian or right in And XXX. customer obviously, impact color. Canadian some no the it does look difficulty Keith? question for assumption line now And guidance --

Keith Creel

generally advantage them on A it to the favor It's producer going because bit exists. fundamental dollar reaching lower exports. Canadian gives little a the is the that marketplace same Canadian

Canadian there, the that possibility I the of stronger in you As dollar than to whole But as just a probability remarkably may get long lot or see were a don't is future. I be. see could that as impact? change. see If don't any immediate

Operator

Shanker your question comes Ravi And next of Stanley. Morgan from

Ravi Shanker

seen as initial constructive and conversation ask extend focus I like, on are the you're window? longer-term in volumes customers or seeing with projects. a am and viewed contracts those new opportunity your pipeline if of you Is a, crude-by-rail in in this that still near the I conversations X-year delays have constant you terms longer-term for having beyond a of the question a lot term

Keith Creel

to add pipelines X this pipelines would John uncertainty the been let so to have discussions to, to X-year those expectations missed. is I'll Well, X have he'll X based with There's color started possible. much that is far been But years X all when if like discussion on Ravi.

it think be and lot through extends of to still lot I So a believe built. will just come. a pipelines a I they critical of a but the hoops noise There's and too the of tail will There's bit. much obstacles get need.

it's So or our tail, a X based XX this which XX asset there's to be on when Certainly continue remind this company. bit going the we X but decision. and to kind team, for X we're commercial that tail. XX, our of started not tail going overextend to thing, a capital we're overextend ever of to to at to year I making a not -- not opportunity our XX-year X-year And decisions company on year John

John Brooks

Ravi. Keith, bang on.

just is X to year range. producers. the contract in X a lining frankly with discussion lengths Our These up are

Ravi Shanker

opportunities acquisitions at us just think [forward] any Got it. Kind what M&A you kind or your growth and that looking and of non-rail beyond long-term some there's outlook, activity peers -- business, pipeline there? core I the an you when give update of growth your mention like Can maybe looks railroad additional if such. on pipeline

Keith Creel

our have win but in not market. we're take strategy that service? is, mean the we play that to opportunities, make story we core sure our share our strength. a unique field update that the based mean look railroaders. won't at own We're trucking companies. customers to to won’t strategic do going as We'll buy at that interested our that Does to on to strength and in CP, given pursuing [mine] shortest or playing companies our partnerships? to trucking as a that Does We're not continue The level of steps continue far market

Operator

time. at And questions have we further this no

over turn back call to will the I closing for So Keith Mr. Creel remarks.

Keith Creel

a had quarter. us confidence. I trust it's will everyone time past. thank in and our shareholders your vote forward. your morning, wrap now and, their the Okay. of We're this for you looking for thank phenomenal for interest up. We’ve for Want to behind this It's your

the year We shareholders. that are meet expectations this in as to on half convictions as make customers' we our continue to well exceed our second our of focused sure or

sharing quarter you. look to So third the results with in later forward that said, year. our we Thank being

Operator

And today's call. does conclude this conference

may now You disconnect.

Canadian Pacific Railway Limited (CP) 16 Jul 192019 Q2 Earnings call transcript