PR Newswire
CALGARY, AB, July 27, 2023
CALGARY, AB, July 27, 2023 /PRNewswire/ - Canadian Pacific Kansas City (TSX: CP) (NYSE: CP) (CPKC) today announced its second-quarter results, including revenues of $3.2 billion, diluted earnings per share ("EPS") of $1.42 and core adjusted combined diluted EPS1 of $0.83.
"This quarter we made history by completing our transformational combination to create the first single-line transnational railroad linking Canada, the United States and Mexico," said Keith Creel, CPKC President and Chief Executive Officer. "By uniting the outstanding railroaders at Canadian Pacific and Kansas City Southern to form our new CPKC family, we already are changing the freight rail industry, redrawing the map and delivering on the many benefits of our combined network."
Second quarter 2023 results2
- Reported operating ratio (OR) increased by 970 basis points to 70.3 percent from 60.6 percent in Q2 2022
- Core adjusted combined OR1 increased 430 basis points to 64.6 percent from 60.3 percent in Q2 2022
- Reported diluted EPS increased to $1.42 from $0.82 in Q2 2022 due to the net impact of the derecognition of the investment in Kansas City Southern (KCS) upon consolidation
- Core adjusted combined diluted EPS1 decreased to $0.83 from $0.95 in Q2 2022
- Federal Railroad Administration-reportable train accident frequency declined 32 percent to 0.76 from 1.11 in Q2 2022
"Despite the challenging results, we still expect to deliver mid-single-digit Core adjusted combined diluted EPS1 growth in 2023," Creel added. "The long-term growth opportunities for this franchise are unique and undeniable. With our CPKC advantage, we are extending our reach for our customers, introducing new service offerings to the marketplace and creating new competition in North American supply chains."
2023 Guidance
CPKC expects core adjusted combined diluted EPS1 to grow mid-single-digits versus 2022 core adjusted combined diluted EPS1 of $3.77. CPKC's reported diluted EPS was also $3.77 in 2022.
1 | These measures have no standardized meanings prescribed by accounting principles generally accepted in the United States of America ("GAAP") and, therefore, may not be comparable to similar measures presented by other companies. For information regarding non-GAAP measures including reconciliations, see attached supplementary schedule of Non-GAAP Measures and Forward-Looking Non-GAAP Measures below. |
2 | The results of KCS are included on a consolidated basis from April 14, 2023, the date we acquired control. From December 14, 2021 to April 13, 2023, we recorded our interest in KCS under the equity method of accounting. |
Conference Call Details
CPKC will discuss its results with the financial community in a conference call beginning at 4:30 p.m. ET (2:30 p.m. MT) on July 27, 2023.
Conference Call Access
Canada and U.S.: 800-225-9448
International: 203-518-9708
*Conference ID: CPQ223
Callers should dial in 10 minutes prior to the call.
Webcast
We encourage you to access the webcast and presentation material in the Investors section of CPKC's website at investor.cpkcr.com.
A replay of the second-quarter conference call will be available by phone through to Aug. 4, 2023, at 800-839-2434 (Canada/U.S.) or 402-220-7211 (International).
Forward looking information
This news release contains certain forward-looking information and forward-looking statements (collectively, "forward-looking information") within the meaning of applicable securities laws in both the U.S. and Canada. Forward-looking information includes, but is not limited to, statements concerning expectations, beliefs, plans, goals, objectives, assumptions and statements about possible future events, conditions, and results of operations or performance. Forward-looking information may contain statements with words or headings such as "financial expectations", "key assumptions", "anticipate", "believe", "expect", "plan", "will", "outlook", "guidance", "should" or similar words suggesting future outcomes. This news release contains forward-looking information relating, but not limited, to statements concerning financial guidance for 2023, the success of our business, the realization of anticipated benefits and synergies of the CP-KCS combination, and the opportunities arising therefrom, our operations, priorities and plans, business prospects and demand for our services and growth opportunities.
The forward-looking information that may be in this news release is based on current expectations, estimates, projections and assumptions, having regard to CPKC's experience and its perception of historical trends, and includes, but is not limited to, expectations, estimates, projections and assumptions relating to: changes in business strategies, North American and global economic growth and conditions; commodity demand growth; sustainable industrial and agricultural production; commodity prices and interest rates; performance of our assets and equipment; sufficiency of our budgeted capital expenditures in carrying out our business plan; geopolitical conditions, applicable laws, regulations and government policies; the availability and cost of labour, services and infrastructure; the satisfaction by third parties of their obligations to CPKC; and carbon markets, evolving sustainability strategies, and scientific or technological developments. Although CPKC believes the expectations, estimates, projections and assumptions reflected in the forward-looking information presented herein are reasonable as of the date hereof, there can be no assurance that they will prove to be correct. Current conditions, economic and otherwise, render assumptions, although reasonable when made, subject to greater uncertainty.
Undue reliance should not be placed on forward-looking information as actual results may differ materially from those expressed or implied by forward-looking information. By its nature, CPKC's forward-looking information involves inherent risks and uncertainties that could cause actual results to differ materially from the forward looking information, including, but not limited to, the following factors: changes in business strategies and strategic opportunities; general Canadian, U.S., Mexican and global social, economic, political, credit and business conditions; risks associated with agricultural production such as weather conditions and insect populations; the availability and price of energy commodities; the effects of competition and pricing pressures, including competition from other rail carriers, trucking companies and maritime shippers in Canada, the U.S. and Mexico; North American and global economic growth and conditions; industry capacity; shifts in market demand; changes in commodity prices and commodity demand; uncertainty surrounding timing and volumes of commodities being shipped via CPKC; inflation; geopolitical instability; changes in laws, regulations and government policies, including regulation of rates; changes in taxes and tax rates; potential increases in maintenance and operating costs; changes in fuel prices; disruption in fuel supplies; uncertainties of investigations, proceedings or other types of claims and litigation; compliance with environmental regulations; labour disputes; changes in labour costs and labour difficulties; risks and liabilities arising from derailments; transportation of dangerous goods; timing of completion of capital and maintenance projects; sufficiency of budgeted capital expenditures in carrying out business plans; services and infrastructure; the satisfaction by third parties of their obligations; currency and interest rate fluctuations; exchange rates; effects of changes in market conditions and discount rates on the financial position of pension plans and investments; trade restrictions or other changes to international trade arrangements; the effects of current and future multinational trade agreements on the level of trade among Canada, the U.S. and Mexico; climate change and the market and regulatory responses to climate change; anticipated in-service dates; success of hedging activities; operational performance and reliability; customer, regulatory and other stakeholder approvals and support; regulatory and legislative decisions and actions; the adverse impact of any termination or revocation by the Mexican government of Kansas City Southern de México, S.A. de C.V.'s Concession; public opinion; various events that could disrupt operations, including severe weather, such as droughts, floods, avalanches and earthquakes, and cybersecurity attacks, as well as security threats and governmental response to them, and technological changes; acts of terrorism, war or other acts of violence or crime or risk of such activities; insurance coverage limitations; material adverse changes in economic and industry conditions, including the availability of short and long-term financing; the pandemic created by the outbreak of COVID-19 and its variants and resulting effects on economic conditions, the demand environment for logistics requirements and energy prices, restrictions imposed by public health authorities or governments, fiscal and monetary policy responses by governments and financial institutions, and disruptions to global supply chains; the realization of anticipated benefits and synergies of the CP-KCS transaction and the timing thereof; the satisfaction of the conditions imposed by the U.S. Surface Transportation Board in its March 15, 2023 final decision; the success of integration plans for KCS; other disruptions arising from the CP-KCS integration; estimated future dividends; financial strength and flexibility; debt and equity market conditions, including the ability to access capital markets on favourable terms or at all; cost of debt and equity capital; improvement in data collection and measuring systems; industry-driven changes to methodologies; and the ability of the management of CPKC to execute key priorities, including those in connection with the CP-KCS transaction. The foregoing list of factors is not exhaustive. These and other factors are detailed from time to time in reports filed by CPKC with securities regulators in Canada and the United States. Reference should be made to "Item 1A - Risk Factors" and "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Forward-Looking Statements" in CPKC's annual and interim reports on Form 10-K and 10-Q.
Any forward-looking information contained in this news release is made as of the date hereof. Except as required by law, CPKC undertakes no obligation to update publicly or otherwise revise any forward-looking information, or the foregoing assumptions and risks affecting such forward-looking information, whether as a result of new information, future events or otherwise.
Forward-Looking Non-GAAP Measures
Although CPKC has provided forward-looking non-GAAP measures (Core adjusted combined diluted EPS) management is unable to reconcile, without unreasonable efforts, the forward-looking Core adjusted combined diluted EPS to the most comparable GAAP measure, due to unknown variables and uncertainty related to future results. These unknown variables may include unpredictable transactions of significant value. In recent years, the Company has recognized acquisition-related costs, the merger termination payment received, KCS' gain on unwinding of interest rate hedges (net of Canadian Pacific's (CP) associated purchase accounting basis differences and tax), the FX impact of translating the Company's debt and lease liabilities (including borrowings under the credit facility), loss on derecognition of CPKC's previously held equity method investment in KCS, discrete tax items, changes in the outside basis tax difference between the carrying amount of the Company's equity investment in KCS and its tax basis of the investment, changes in income tax rates, and changes to an uncertain tax item. Acquisition-related costs include legal, consulting, financing fees, integration planning costs consisting of third-party services and system migration, debt exchange transaction costs, community investments, fair value gain or loss on FX forward contracts and interest rate hedges, FX gain on U.S. dollar-denominated cash on hand from the issuances of long-term debt to fund the KCS acquisition, restructuring, employee retention and synergy incentive costs, and transaction and integration costs incurred by KCS which were recognized within Equity earnings of Kansas City Southern in the Company's Consolidated Statements of Income. KCS has also recognized significant transaction costs and FX gains and losses. These or other similar, large unforeseen transactions affect diluted EPS but may be excluded from CPKC's core adjusted combined diluted EPS. Additionally, the Canadian-to-U.S. dollar and Mexican peso-to-U.S. dollar exchange rates are unpredictable and can have a significant impact on CPKC's reported results but may be excluded from CPKC's core adjusted combined diluted EPS. For further information regarding non-GAAP measures, see below.
About CPKC
With its global headquarters in Calgary, Alta., Canada, CPKC is the first and only single-line transnational railway linking Canada, the United States and México, with unrivaled access to major ports from Vancouver to Atlantic Canada to the Gulf of México to Lázaro Cárdenas, México. Stretching approximately 20,000 route miles and employing 20,000 railroaders, CPKC provides North American customers unparalleled rail service and network reach to key markets across the continent. CPKC is growing with its customers, offering a suite of freight transportation services, logistics solutions and supply chain expertise. Visit cpkcr.com to learn more about the rail advantages of CPKC. CP-IR
FINANCIAL STATEMENTS
INTERIM CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
For the three months | For the six months ended | |||
(in millions of Canadian dollars, except share and per share data) | 2023 | 2022 | 2023 | 2022 |
Revenues (Note 3) | ||||
Freight | $ 3,101 | $ 2,154 | $ 5,318 | $ 3,950 |
Non-freight | 73 | 48 | 122 | 90 |
Total revenues | 3,174 | 2,202 | 5,440 | 4,040 |
Operating expenses | ||||
Compensation and benefits (Note 8) | 659 | 348 | 1,097 | 761 |
Fuel | 397 | 370 | 723 | 643 |
Materials | 98 | 63 | 170 | 125 |
Equipment rents | 80 | 29 | 110 | 64 |
Depreciation and amortization | 410 | 211 | 635 | 421 |
Purchased services and other (Note 8) | 586 | 313 | 932 | 623 |
Total operating expenses | 2,230 | 1,334 | 3,667 | 2,637 |
Operating income | 944 | 868 | 1,773 | 1,403 |
Less: | ||||
Equity earnings of Kansas City Southern (Note 8, 9) | (26) | (208) | (230) | (406) |
Other expense (Note 8) | 21 | 7 | 23 | 6 |
Other components of net periodic benefit recovery (Note 14) | (83) | (101) | (169) | (202) |
Net interest expense | 204 | 160 | 358 | 320 |
Remeasurement loss of Kansas City Southern (Note 8) | 7,175 | — | 7,175 | — |
(Loss) income before income tax expense | (6,347) | 1,010 | (5,384) | 1,685 |
Less: | ||||
Current income tax expense (Note 4) | 281 | 131 | 419 | 217 |
Deferred tax (recovery) expense (Note 4) | (7,953) | 114 | (7,928) | 113 |
Income tax (recovery) expense (Note 4) | (7,672) | 245 | (7,509) | 330 |
Net income | $ 1,325 | $ 765 | $ 2,125 | $ 1,355 |
Less: Net income attributable to non-controlling interest | 1 | — | 1 | — |
Net income attributable to controlling shareholders | $ 1,324 | $ 765 | $ 2,124 | $ 1,355 |
Earnings per share (Note 5) | ||||
Basic earnings per share | $ 1.42 | $ 0.82 | $ 2.28 | $ 1.46 |
Diluted earnings per share | $ 1.42 | $ 0.82 | $ 2.28 | $ 1.45 |
Weighted-average number of shares (millions) (Note 5) | ||||
Basic | 931.2 | 929.9 | 930.9 | 929.8 |
Diluted | 933.8 | 932.6 | 933.6 | 932.7 |
Dividends declared per share | $ 0.190 | $ 0.190 | $ 0.380 | $ 0.380 |
See Notes to Interim Consolidated Financial Statements. |
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
For the three months | For the six months | |||
(in millions of Canadian dollars) | 2023 | 2022 | 2023 | 2022 |
Net income | $ 1,325 | $ 765 | $ 2,125 | $ 1,355 |
Net (loss) gain in foreign currency translation adjustments, net of hedging activities | (611) | 719 | (638) | 383 |
Change in derivatives designated as cash flow hedges | 1 | 2 | 3 | 3 |
Change in pension and post-retirement defined benefit plans | (3) | 38 | 5 | 77 |
Equity accounted investments | 4 | 73 | 7 | 135 |
Other comprehensive (loss) income before income taxes | (609) | 832 | (623) | 598 |
Income tax (expense) recovery on above items | (17) | 2 | (20) | (34) |
Other comprehensive (loss) income (Note 6) | (626) | 834 | (643) | 564 |
Comprehensive income | $ 699 | $ 1,599 | $ 1,482 | $ 1,919 |
Comprehensive loss attributable to the non-controlling interest | (7) | — | (7) | — |
Comprehensive income attributable to controlling shareholders | $ 706 | $ 1,599 | $ 1,489 | $ 1,919 |
See Notes to Interim Consolidated Financial Statements. |
INTERIM CONSOLIDATED BALANCE SHEETS AS AT
(unaudited)
June 30 | December 31 | |
(in millions of Canadian dollars) | 2023 | 2022 |
Assets | ||
Current assets | ||
Cash and cash equivalents | $ 325 | $ 451 |
Accounts receivable, net (Note 7) | 1,656 | 1,016 |
Short-term investments (Note 12) | 264 | — |
Materials and supplies | 381 | 284 |
Other current assets | 292 | 138 |
2,918 | 1,889 | |
Investment in Kansas City Southern (Note 9) | — | 45,091 |
Investments | 532 | 223 |
Properties | 51,183 | 22,385 |
Goodwill (Note 10) | 17,674 | 344 |
Intangible assets (Note 11) | 3,019 | 42 |
Pension asset | 3,261 | 3,101 |
Other assets | 585 | 420 |
Total assets | $ 79,172 | $ 73,495 |
Liabilities and equity | ||
Current liabilities | ||
Accounts payable and accrued liabilities | $ 2,430 | $ 1,703 |
Long-term debt maturing within one year (Note 12, 13) | 1,909 | 1,510 |
4,339 | 3,213 | |
Pension and other benefit liabilities | 562 | 538 |
Other long-term liabilities | 834 | 520 |
Long-term debt (Note 12, 13) | 21,353 | 18,141 |
Deferred income taxes | 11,080 | 12,197 |
Total liabilities | 38,168 | 34,609 |
Shareholders' equity | ||
Share capital | 25,563 | 25,516 |
Additional paid-in capital | 88 | 78 |
Accumulated other comprehensive (loss) income (Note 6) | (544) | 91 |
Retained earnings | 14,972 | 13,201 |
40,079 | 38,886 | |
Non-controlling interest (Note 8) | 925 | — |
Total equity | 41,004 | 38,886 |
Total liabilities and equity | $ 79,172 | $ 73,495 |
Certain of the comparative figures have been reclassified in order to be consistent with the 2023 presentation (Note 8). |
See Contingencies (Note 16). |
See Notes to Interim Consolidated Financial Statements. |
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the three months | For the six months | |||
(in millions of Canadian dollars) | 2023 | 2022 | 2023 | 2022 |
Operating activities | ||||
Net income | $ 1,325 | $ 765 | $ 2,125 | $ 1,355 |
Reconciliation of net income to cash provided by operating activities: | ||||
Depreciation and amortization | 410 | 211 | 635 | 421 |
Deferred income tax (recovery) expense (Note 4) | (7,953) | 114 | (7,928) | 113 |
Pension recovery and funding (Note 14) | (78) | (72) | (155) | (144) |
Equity earnings of Kansas City Southern (Note 8, 9) | (26) | (208) | (230) | (406) |
Remeasurement loss of Kansas City Southern (Note 8) | 7,175 | — | 7,175 | — |
Dividend from Kansas City Southern (Note 9) | — | — | 300 | 334 |
Other operating activities, net | 28 | (16) | (19) | (99) |
Change in non-cash working capital balances related to operations | 11 | (87) | (129) | (254) |
Cash provided by operating activities | 892 | 707 | 1,774 | 1,320 |
Investing activities | ||||
Additions to properties | (628) | (370) | (1,034) | (596) |
Additions to Meridian Speedway properties | (8) | — | (8) | — |
Proceeds from sale of properties and other assets | 12 | 11 | 16 | 26 |
Cash acquired on control of Kansas City Southern (Note 8) | 298 | — | 298 | — |
Investment in government securities (Note 12) | (267) | — | (267) | — |
Other | ||||
