CPKC (CP) Q3 2025 Earnings Call Transcript

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Date

Wednesday, Oct. 29, 2025, at 4:30 p.m. ET

Call participants

• President and Chief Executive Officer — Keith Creel
• Executive Vice President and Chief Operating Officer — Mark Redd
• Executive Vice President and Chief Marketing Officer — John Brooks
• Executive Vice President and Chief Financial Officer — Nadeem Velani

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Takeaways

• Revenue -- year-over-year rise in several key bulk and intermodal segments.
• Operating ratio -- 60.7% (core adjusted) for Q3 2025, reflecting a 220-basis-point improvement compared to the prior year.
• EPS -- Core adjusted diluted earnings per share of $1.10 for Q3 2025, an 11% increase (core adjusted).
• Net productivity -- Terminal dwell improved by 2% in Q3 2025, and velocity increased by 1%, while both train length and train weight rose by 2% each.
• Workforce optimization -- Compensation and benefits expense fell due to workforce efficiencies and lower stock-based compensation.
• Bulk segment -- notably with U.S. grain volumes up 13%.
• Merchandise segment -- Energy, Chemicals, and Plastics revenue and volume both declined by 2%; forest products revenues and volumes dropped by 31% each.
• Automotive -- setting new records in both revenue and volume.
• Intermodal -- Revenue climbed by 7% with 11% volume growth; domestic intermodal volumes were up 13%, and international intermodal volumes increased by 10%.
• Capital expenditures -- $860 million invested in Q3 2025, with full-year CapEx expected to reach $2.9 billion in 2025 per guidance.
• Share repurchase -- 34 million shares repurchased as of Q3 2025, representing 91% of the program announced in March.
• Safety metrics -- FRA personal injuries rate at 0.95 (improved 3%).
• Fuel expense -- aided by elimination of the Canadian Federal carbon tax on April 1, partially offset by higher volumes.
• Guidance -- Management reaffirmed expectations for 10%-14% full-year earnings growth and noted good visibility to achieving a sub-57% operating ratio for Q4 2025, citing strong operational momentum and “good visibility.”
• Synergy capture -- $165 million of expense-side synergies recognized year-to-date, driven by operational integration and procurement alignment.

Summary

Canadian Pacific Kansas City (NYSE:CP) explicitly reported continued operational efficiencies and 11% year-over-year EPS growth for Q3 2025, with enhanced productivity metrics observed. The management maintained a clear strategic stance, asserting the company's ability to deliver on guidance and emphasizing advancements in bulk, intermodal, and automotive segments. Regulatory risk regarding the proposed UP-NS merger was addressed directly, with the company underscoring its limited direct exposure and continued pursuit of network-enhancing commercial partnerships. Management called out robust execution in share repurchases, ongoing network investments, and improved cost controls as contributors to performance. Safety improvements and expanded North American network capabilities were referenced as competitive differentiators supporting resilience and growth initiatives.

• Nadeem Velani noted the reduction in expenses from workforce optimization and stated that the core adjusted effective tax rate will be at approximately 24.5% in Q4 and for the full year.
• John Brooks confirmed continued price discipline above inflation, with renewal pricing exceeding the company's long-term outlook of 3%-4%.
• Creel addressed the industry consolidation environment and stated that any regulatory approval of the proposed merger will have to meet the conditions to be meaningful, citing minimal threat to Canadian Pacific Kansas City's unique growth profile.
• The company highlighted the successful Americold facility launch in Kansas City and the expected ramp-up of business opportunities from new and existing industrial customers in the coming year.

Industry glossary

• RTM (Revenue Ton-Mile): The movement of one revenue-paying ton of freight over one mile; key measure of rail traffic volume.
• Operating ratio: The ratio of operating expenses to operating revenues, used to assess efficiency; lower values indicate greater efficiency.
• Terminal dwell: The average time railcars spend within a terminal, reflecting asset utilization effectiveness.
• FRA (Federal Railroad Administration): U.S. government agency responsible for regulating rail safety and reporting industry incident rates.
• Canpotex: Exporter of Canadian potash, referenced as fully committed for the year, affecting shipment expectations.
• Gemini: International intermodal service platform associated with the company’s port operations and growth strategy.
• Meridian Speedway: Strategic rail corridor linking the Southeast U.S. and Texas, cited for future growth opportunity and competitive differentiation.

Full Conference Call Transcript

Keith Creel: Thanks, Chris, and good afternoon, everyone, for joining us here on the call to discuss our third quarter results. As I always do, I am going to start by expressing heartfelt gratitude and respect for the 20,000 strong family of railroaders across these three nations that delivered the results that we are now sharing with you today. So speaking of the results, the team delivered strong volume growth in the quarter of 5%. Revenues were up $3.7 billion, up 3%. Operating ratio of 60.7%, which was a 220 basis points improvement in earnings per share of $1.1, an increase of 11% versus a year ago.

Most importantly, we saw a strong performance from a safety perspective with improvements in both our FRA personal injuries as well as our industry-leading train accident frequencies. Despite what has been consistent macro and trade policy headwinds, the team continues to generate diverse profitable growth across a number of areas. We produced a continuing trend of differentiated performance in our automotive franchise, with another record quarter strength in our bulk franchise with strong growth both in grain and potash, another strong quarter in intermodal growth in domestic and international. Which included an important milestone that we have spoken to before in the quarter with the opening of the new Americold facility here at our terminal in Kansas City.

This is a first of several facilities that will be co-located on the Canadian Pacific Kansas City Ltd. And again, it is a perfect example of our ability to be market makers with our unique industry network. Mark and the team delivered a very strong execution on the operating side with the results with improvements across a number of our key metrics. The network overall is performing well. We have a lot of operating momentum heading into the end of the year to close out, and we will remain on track and fully expect to deliver on our guidance of 10% to 14% earnings growth versus a year ago.

That said, while there is certainly a lot of focus currently on potential industry consolidation, we remain focused on executing this unique growth opportunity that Canadian Pacific Kansas City Ltd. represents. A couple of comments on UPNNS. As it pertains to the proposed merger. I think we have been very clear about our views. We strongly believe further consolidation is not necessary. At this time and is not in the best interest of the industry, the shippers, or The U.S. Economy. As we said before, we remain and will be active participants throughout the regulatory process to ensure that the facts are known and understood about what a merger of this size and scale means.

Just for reiterating the obvious, the proposed merger would result in one single line railroad handling about 40% of the freight rail traffic in The United States. This proposed merger, in spite of what has been said, represents overlap in key markets such as Chicago, Memphis, St. Louis, and New Orleans. This is not a simple end-to-end merger. The merger of this magnitude introduces unprecedented risk. Heavily concentrating much of the decision-making for our national rail network with undeniable implications on the entire supply chain. That said, while this is certainly driving a lot of focus, we will remain seized even if this consolidation happens from maintaining an industry-leading position to continue delivering industry-leading results.

A direct threat from a TransCon merger to Canadian Pacific Kansas City Ltd. is minimal. This is a proposed East-West merger on our U. Network is primarily North-South. By no means does merger impair change our unique growth prospects that our three-country network is creating for us for years to come. And I am confident for the merger to meet the regulatory standard it will have to meet the conditions will have to be meaningful. So while much is still to be determined, our story remains unchanged. We have a unique network. And a novelty, a proven team, and a differentiated growth opportunity in front of us.

That will continue to set us apart in growth and execution for years to come. We are well-positioned to finish the year strong, to produce another year of double-digit earnings growth. This network, this team, opportunity is unique, and we are going to continue to deliver value for all stakeholders. So with that said, I am going to hand it over to Mark to speak to the operation. John bring a little color on the markets. And Nadeem the numbers, and then we will open it up for questions.

Mark Redd: Thanks, Keith. Good afternoon. I would like to start by thanking our employees for their dedication and hard work in producing these results. The strong operating performance is a testament to the team's effort and execution in the third quarter. Looking at the third quarter results, we saw improvements to several key operating metrics. If you look at terminal dwell, improved by 2%. Velocity improved by 1%. Train length and train weight improved by 2%. Following the technology cutover that we executed in the second quarter, we are now leveraging the integrated Canadian U.S. Operating systems to drive further efficiencies and operating discipline. In the quarter, we saw CP legacy network operate at a record productivity and car velocity levels.

While the legacy KCS network achieved its highest ever throughput levels, we are carrying this momentum into the fourth quarter with solid improvements to the key operating metrics, including velocity, dwell, car miles per car day, and on-time to purchase. The strong network performance continues to provide John and his team product they can sell into. Our 100 Series Transcontinental intermodal trains in Canada are delivering consistent performance, along with low dock dwell at Centerm At Vancouver South Shore, This is also supporting the growth within Gemini. Velocity across the bulk network is mid-single digits, driving efficient service for the grain for the strong harvest in Canada and The U.S.

Along with the rest of the bulk franchise, as we continue to drive efficiencies across the network, we expect to further improve in our industry-leading PSR service model, delivering efficient growth and strong customer service. Now turning to safety. While we strive for perfection during the quarter, safety is a continuous journey. Despite a challenging dynamic that occurred in the quarter, I am encouraged that we delivered another quarter with year-over-year improvements in safety. If I look at personal injuries, we landed at 0.95, which is a 3% improvement. Train accident frequency was a 1.15, which is 20% for the quarter. Turning to planning.

As we moved into the end of the quarter, our resources are well aligned with our growth outlook. We have now received 91 of the 100 Tier four scheduled for delivery this year, locomotives, as we deploy these locomotives primarily on a one series transcontinental intermodal service, we are delivering about a 30% reduction in service interruptions compared to a year ago. As we look into the future, we expect to see an additional 70 plus locomotives in 2026 with further support and industry-leading growth outlook. Improve we will also improve the efficiency and reliability of this fleet. In closing, the network is performing well, We are properly resourced to handle the strong grain harvest in Canada and The U.S.

Investments in capital capacity, safety, locomotives are driving strong network performance and we are well-positioned to execute strong this quarter. I will pass it over to John.

John Brooks: All right. Thank you, Mark, good afternoon, everyone. I am pleased with our third quarter performance of this franchise is resilient and our team is producing differentiated growth despite a challenging macro economy. We are laser-focused on the things we can control. Our operations, as Mark said, are delivering strong service that we can sell into and we are pricing to the value of our capacity and our service. Now looking at our third quarter results, This quarter, we delivered freight revenue growth of 4% on 5% increase in RTMs. Both the revenue and RTM all-time Q3 records.

Since for RTM, was down 1%, Our pricing remains strong as the team continues to deliver renewal pricing above our long-term outlook of 3% to 4%. Pricing was offset by mix as we delivered strong growth in bulk and international intermodal, while continuing to leverage our full network and grow our longer length of haul traffic all of which contributed to lower cents per RTM. Now taking a closer look at our third quarter revenue performance, I will speak to the FX adjusted results starting with bulk. Grain revenues were up 4%, on 6% volume growth. U.S. Grain was strong with volumes up 13% over prior year. We continue to see strong growth in the Mexico, and The U.S.

South as our network unlocks new opportunities and we expand our share into these markets. Looking to the end of the year, The U.S. Corn and soybean harvest is going strong. While our P and W export program is impacted by the tariffs on soybeans, our grain team is working with our customers across Canada, The U.S. And Mexico to identify alternative markets and incremental opportunities to backfill a portion of this market shortfall. Canadian grain volumes were down 2% driven by lower carryout stock from the 2024-2025 harvest along with lower demand for canola exports.

Our outlook though is positive for this new crop, and we expect this new crop to be in the range of 78 million to 80 million metric tons ahead of the five-year average and we expect a strong close to the year for our grain franchise. Potash revenues and volumes of 15% strong performance was driven by positive demand fundamentals and strong network performance that supported efficient potash export cycles. While Canpotex is fully committed to the end of the year, compares are more challenging, and we expect growth to moderate as we move through Q4. And to finish out bulk, closed our third quarter with coal revenue up 32% volume growth.

Growth in Canadian met coal was driven by improved production at our mines and continued inventory drawdown. This was partially offset with our U.S. Coal franchise driven by a facility outage that happened during the quarter. Now moving on to merchandise. Energy, Chemicals and Plastics revenue and volume were down 2%. The decline was driven by softer base demand and lower refined fuel volumes due to customs border challenges going into Mexico. These headwinds were partially offset by new wins and increased volumes of LPGs. With LPG volume starting to ramp up, and refined fuel shipments rebounding into Mexico, we expect ECP to improve as we exit the year. Enforced Products, revenues and volumes were down 31%, respectively.

Volumes in this space continue to be by macro softness within our base demand. However, our team continues to outperform the industry by offsetting some of the broader macro impacts to this business with self-help initiatives and extended length of haul. Metals, Minerals and Consumer Products revenues and volumes were up 2%. The growth was driven by frac sand volumes to the Bakken, New Business Wins In The Aggregate Space And In And An Increase In Both U.S. Domestic steel shipments and trade between Canada and Mexico. These efforts helped to offset the impact of tariffs on cross-border steel.

Now looking ahead, we are encouraged by industrial development projects that are coming online along with further growth opportunities from our land bridge shipments. Moving to the automotive area. As Keith said, revenue was up 29% volume growth both are records. I am pleased with the performance and resiliency of our ops franchise. Despite the uncertainty from evolving trade policy. This continues to be an area of unique growth for Canadian Pacific Kansas City Ltd. driven by our advantaged footprint serving both production plants and auto compounds across North America. Despite some of the recent shift in aluminum supply challenges, we are well on our way to producing another record year.

Closing with Intermodal, revenue was up 7% on 11% volume growth. We delivered strong growth from our domestic intermodal franchise with volumes up 13%. We continue to have a strong line of sight to domestic intermodal growth from multiple areas, including our business growth with Schneider, new auto parts move, volumes out of the Americold Cold Storage Warehouse Co-Located With Us In Kansas City. And our service with CSX connecting shippers in Mexico, Texas and The U.S. Southeast. Moving to International Intermodal. Volumes were up 10% on continued growth from Gemini through our ports at Vancouver, St. John and Lazaro.

While we definitely have seen pull forward volumes in a muted peak season, expect our strong service product and diverse port access to continue to drive opportunities for us in international. In closing, while we are certainly not immune to the many challenges in the freight environment, we continue to drive differentiated growth with our unique and resilient North American franchise. We are delivering mid-single digit volumes while pricing to the value of our capacity and our service. Now looking forward, we continue to be well-positioned to outperform the industry and the macro on the strength of this franchise paired with our unique synergies and self-help. With that, I will pass it to Nadeem.

Nadeem Velani: All right. Thanks, John, and good afternoon. I will be referring to our third quarter results on Slide 12. To start, Canadian Pacific Kansas City Ltd.'s reported operating ratio was 63.5% and the core adjusted operating ratio came in at 60.7%. A 220 basis point improvement over prior year. Diluted earnings per share was $1.01 and core adjusted diluted earnings per share was $1.1 up 11% versus last year. Taking a closer look at our expenses on Slide 13, I will speak to the year-over-year variance on an FX adjusted basis. Comp and benefits expense was $619 million or $615 million adjusted for acquisition costs.

Year-over-year decline was driven by lower stock-based compensation, and efficiency gains from workforce optimization and other productivity actions, including improved train weight, along with lower deadheading held away time. The decline was partially offset by inflation and volume variable increases from higher GTMs. To close the year, we expect our average headcount to continue to be slightly lower year-over-year, driving strong labor productivity gains. Fuel expense was $415 million down 2% year-over-year. The decline was driven primarily by the elimination of the Canadian Federal carbon tax on April 1, partially offset by a volume variable increase from higher GPMs. Overall, changes in fuel prices were a $0.02 headwind to EPS in the quarter.

Materials expense was $114 million up 15% year-over-year. The increase continues to be driven by the long-term parts agreement that was put in place in 2024. Higher materials expense had a favorable offset within PS and O, for net savings in the quarter. The increase in materials expense was partially offset by reduced locomotive maintenance spend from improved fleet performance. Equipment rent expense was $109 million. Increased car hire payments along with inflation impacts from growth in automotive volumes drove the increase. Depreciation and amortization expense was up 6% resulting from a larger asset base. Purchased services and other expense was $565 million or $555 million adjusted for acquisition costs and purchase accounting.

The decline was driven by lower casualty costs, savings from the Longford term parts agreement, as well as other productivity and insourcing initiatives. Overall, we delivered solid financial results despite a $39 million sequential increase in casualty expense was a $0.03 impact on earnings per share. Looking ahead, Mark and his team have our network running well and the volume outlook is solid with strong harvest in both Canada and The U.S. We continue to generate strong labor productivity, and maintain line of sight to solid margin improvement in the fourth quarter. Moving below the line on Slide 14, other components of net periodic benefit recovery was $107 million reflecting the effect of favorable pension plan asset returns in 2024.

Net interest expense was $222 million or $216 million excluding the impact purchase accounting. The year-over-year increase was driven by interest incurred on new debt issued Q1 Q2 of this year. Income tax expense was $296 million or $325 million adjusted for significant items and purchase accounting. We continue to expect Canadian Pacific Kansas City Ltd.'s core adjusted effective tax rate to be at approximately 24.5% in Q4 and for the full year. Turning to Slide 15 and cash flow. Year-to-date cash provided by operating activities increased 6% to $3.8 billion while year-to-date cash used in financing activities was up 45%. Driven primarily by the share repurchase program.

From a CapEx perspective, we have invested $860 million in the quarter and remain on track to invest approximately $2.9 billion in 2025. In line with the outlook we provided in January. Focusing on our share repurchase program, have continued to take advantage of the volatility in the market to reward shareholders with discipline and opportunistic returns. We see strong value in our share price at current levels, and as of the end of the third quarter, we have repurchased 34 million shares or approximately 91% of the program we announced in March. As we look towards the end of the year, our network is running well prime to serve strong harvest in Canada and The U.S.

John and his team are delivering mid-single digit volume growth and strong pricing is in a challenging economic macroeconomic environment. We are controlling our costs, improving the resiliency of our business and the power of our North American network. We remain well-positioned to meet our guidance and leave the industry with another year of double-digit earnings growth. With that, I will turn it back over to Keith to wrap things up.

Keith Creel: Thank you, gentlemen. Why do not we open it up for questions, operator?

Operator: We will take our first question from Fadi Chamoun with BMO Capital Markets. Please go ahead. Your line is open.

Fadi Chamoun: Yes. Thank you. Good evening, everyone. So a question on the M and A topic. If I may. There has been a lot of kind of conversations, discussion out there that if this UP NSC merger ultimately happens, it is going to trigger potentially the end game, which effectively ends up being two North American kind of two major North American railroads, as I understand it. And I was just wondering, Keith, from your perspective, does this have to happen and ultimately does this consist of moving into that scenario in a multiple of one phase or two phases.

Or also is there a scenario where one merger happened and ultimately the rest of the industry can continue to operate at the status quo.

Keith Creel: Yes, Fadi. That is a really good question and a lot. I mean, obviously, going depend on the details. We have not yet had the benefit of reading EPN and S' merger application. I would say this, I know there is an echo chamber. I read it. I hear it. I sense it. I know there is a lot of invested investors that perhaps want this to be a layup. This is not a layup. Number one. It is not a foregone conclusion that it is going to get approved. What we do know is the hurdle is going to be high. These are rules that have never been tested. There is a public interest test.

Enhancing competition, a review of downstream impacts, which to your point includes the likelihood or potential of additional rail consolidation that those stand out to be met. And this STB is thorough. I am certain of that. I can say that more so than anybody else in this industry because I have walked this walk and experienced this journey in getting our deal approved, which was under the old rules. With the hurdle rate not even remotely close to being the same standard. So again, I think to assume or to expect it is. That being said, it gets approved, that is a big if. But if it does, then to your point, depending on what the conditions are.

Would answer the question. I would make a case to serve and to meet and exceed all those tests. That how could it be approved without significant conditions to protect balance in the industry, to protect competition to enhance competition. Given the market power that size railroad would exert. So I would agree. Mr. Vin and I definitely agree this STB is smart. Maybe what we do not see eye to eye on is or maybe not being recognized, this SPD has experienced the applicants behavior historically in previous mergers from thirty years ago, the integration risk that occurred and most recently the service failures that occurred in The United States rail industry just four years ago.

The applicants were before the STB in a service hearing expressing concerns. The applicants have been SCB relative to the allegations of serious concern on utilizing Embargo embargoes, to regulate their network. So that may be ignored. And I believe that this regulator would set those memories aside in the weight of how they review not only the application but ultimately determine what their conditions might be to protect the overall strength and health of The U.S. Rail network is ultimately, that is what their mandate is. Is to protect The U.S. Rail network. To make sure that their decisions protect the public interest and ultimately lead to, if we have consolidation, an environment that exists.

So if the UP and NS are standalone the others that have to compete have a fair shot at doing that. And it is not competition. Let me be clear, it is not competition that anyone is scared of. I think that is a very assumptive statement to make. It is anti-competitive that we recognize and that we are concerned about, and it will be our mandate and our objective to make sure that if that merger is approved, conditions allow anticompetitive behavior to be minimized or eliminated. So yes, with the right conditions, Fadi, that is a potential outcome. But again, there is so much more to be determined out of this process.

There is a lot of stakeholders that are going to weigh in. There is going to be people that speak loudly and speak boldly, and they are going to be customers, quite frankly, They are strong, hard feelings for fear of intimidation or fear of retaliation, but I am sure that if they are not said publicly, they will be said privately. And all those facts and conditions and stakeholders' views I believe this STP will take seriously.

And I believe their decision if approved, will contain significant conditions or if they do not meet the standard, I believe they have the mandate they have the commitment to get this right, history needs it to be right, our nation needs to be right. If they do not meet the conditions and the standards, I believe they will reject it.

Operator: We will take our next question from Chris Wetherbee with Wells Fargo. Please go ahead. Your line is open.

Chris Wetherbee: Hey, thanks. Good afternoon and appreciate the comments, Keith. I guess maybe just piggybacking on that. As you think about the sort of landscape for now and we do not have the application yet, we do not know ultimately how the STP is going to respond to that. So what is the strategy that you can employ? Are there opportunities for you in the relative near term to leverage other relationships in the space? Guess how do you think about sort of the landscape right at least over the next several quarters?

Keith Creel: Yes. The answer is absolutely yes. And we said when this all started, we are not going to set on our laurels. We have been very engaged with the non-app to look at creating alliances and to leverage as the regulations require us to, to exhaust all avenues to achieve merger-like benefits without the risk that a merger represents. So yes, there are opportunities that we are exploring with the Western competitor to UP. There are opportunities that we are exploring with the Eastern competitor to the NS. And we are starting to connect the dots to create markets.

And I will tell you the strategic piece of our railroad that is becoming even more so critically important is that Meridian Speedway. That Meridian Speedway that what was when we took over the railroad is no longer the same. It has been enhanced with the connection at Meridian with the CSX via Myrtlewood, Alabama through Montgomery to Atlanta. It unlocks a second mainline alternative that gives us unique industry advantage to create markets and bridge traffic between Dallas markets and between Southeast U.S. Markets. I am not talking about just intermodal. I am talking more importantly the industrial heartland.

You think about the industrial development that is being driven to realize President Trump's ambitions, the additional infrastructure that is being put in place for these AI data centers and power centers along that corridor between those southern states, and our network runs straight across it. That transaction that we made, which was a niche acquisition over the last two years, we have been investing heavily in it. I had the opportunity just last month to take an inspection trip with the CSX team that started in Montgomery, Alabama went through Murdoch, went over to Meridian and into Shreveport.

So what was little short line railroad by would say, January, February 2026, is going to be a Class four railroad that allows us to create a time a product option never before possible that is going to connect Atlanta to Dallas in about thirty hours. You think about and people have always thought about the Speedway as being an intermodal product. Yes, it is. Yes, we are going to protect our commitments. To our partners in that in that joint venture in what is now NS and perhaps in the future might be UP but at the same time, it is still railroad that we dispatched, it has tremendous opportunity. It is not exclusive to freight traffic.

So to create a product that allows us to connect the industrial heart line between Atlanta and Dallas is a pretty powerful model the thirty hours, it is truck-like competitive, single truck-like competitive, think it is a unique differentiator. They cannot be replicated in UPNS combination. Allow us to win market share working with our partners in the West and our partners in the East. And I can tell you they are motivated to work.

Operator: We will take our next question from Brian Ossenbeck with JPMorgan. Please go ahead. Your line is open.

Brian Ossenbeck: Hey, good afternoon. Thanks for taking the questions. Maybe just to stick on that topic, Keith, can you give us a little bit of perspective in terms of the headlines you have been seeing around the Meridian Speedway and some of the service disagreements. I do not know if we are going to see anything settled until the government reopens, but would appreciate your perspective there. And then just what is the possibility to put through the big B side of things when you get that track speed up? Is it 2026 when things start to unlock at the beginning of the year? Is that going to be more of a ratable gain we look into next year? Thank you.

Keith Creel: Well, the service product, the actual infrastructure will be done in January. January, yes. We will have track speed to be out there. It is going to be a 49 mile an hour railroad. You are talking about 100 miles transit time from Montgomery to Meridian combined is going to be 3.5, an hour and a half, five hours. So you put that with a six-hour run to Atlanta on the CSX, you got eleven-hour product to Meridian. And I think right now with what the NS does is twelve hours. And there is room to improve that. It just depends on the density that we put over it.

The additional capital investment if we want to unlock some additional speed. So that is not full potential. That is just the right, which we think where the market is at the sweet spot. Now the dispute itself between ourselves and NS, and that is who the dispute is because we have a commercial agreement with the NS. To me, quite frankly, the self-serving narrative that has no merit. We have prepared our response. We will give it to the STB as soon as they open up, and it will lay out the real details. What this is, is a story of two partners that do not like our decision to run the railway the way it was designed.

This railway goes back to 2006. When the E and S invested with ACS to create the Speedway. There was financial consideration given was infrastructure built for 8,500-foot trains. Our predecessors at the KCS allowed the NS to run long trains. Frankly, the way I see it as an operating officer was through the demise of our customers. That is what we stopped and that is what NS and UP does not like. There are provisions within that agreement NS knows what they are. We know what they are. If they want to invest monies to run longer trains, then they need to come to the table and invest the money.

The business today does not justify it, and I am not going to subsidize NES's operation nor am I going to subsidize UP's operation for their operational synergies at the cost of my service to my customers. I have a responsibility to protect my customers as well. And that is kind of what it boils down to. Built to run 8,500-foot trains. That is what we are going to do. Now what we have done out of respect for Mark George and his team, for a temporary time period until we can get an additional crews which we have hired and are in training right now. There is going to be an additional train start that comes on November.

In the meantime, NS has worked out a temporary agreement with us to pay us for the additional delays that were occurring, allowing one long eastbound run. Until that second train start is added in the November and then we are to revert right back to 8,500-foot railroad. And I will tell you this is kind of the proof is in the pudding. When you try to oversubscribe a network and run long trains and the network is not built for it, somebody is going to suffer. Whether it is the communities in the crossings you block, whether it is the yards where you are holding the trains out, which some of the Africans have some history in that.

Or it is our trains that had to take a siding for someone else's train at our demise. We ran the railroad for seven, eight weeks at 8,500 feet. Over the last two months before we allowed this exception to occur. We measured the delay. Our trains were taking over an eleven-hour delay a day. To accommodate a long train. It does not make any sense. It is not the right operating decision. It is not the right commercial decision. It is not the right bottom line decision. We are being fair and reasonable. It is no more than that.

Operator: We will take our next question from Jonathan Chappell with Evercore ISI. Please go ahead. Your line is open.

Jonathan Chappell: Thank you. Good afternoon. Keith, I am going to let you take a little break here. Nadeem and John, we have seen the quarter-to-date volumes trending not at mid-single digits. So I think there was an anticipation just the way that October has been that getting to that mid-single digit full year that double-digit earnings growth full year may be a bit challenging and really frankly off the table. So it is a bit surprising that you have kept it. Can you kind of just help us forge the path over the next eight to nine weeks on how you get that volume up to the mid-single digits, how you get that sub-fifty 7% OR?

Just what do you have line of sight on that is clear to you that is still attainable, with just eight weeks to go?

Nadeem Velani: Yes. No, good question. I would say that if you look at our year-over-year, certainly tough compares as we speak. So that is known to us. So not really any surprises on that front. But we also have some very easy compares in November. Think about some of the labor disruptions a year ago, that impacted our business through some of our customers as well. And so when we look at the opportunity in November and December, we think that we have the ability to continue to deliver the mid-single digit RTMs that will be. I think we have strong visibility.

Now there is a chip shortage issue on the auto side that we are that is come up, and we are mindful of that. But we think on the bulk side, there is enough offsets to be able to support our top line view and our guidance from that perspective. From a cost point of view, from an operating leverage point of view, I think we are going to see benefits similar to what we saw Q4 a year ago or the previous year to that. We have had some very strong finishes to the year.

And we have good visibility to the ability to get a sub-fifty seven type of operating ratio or that level plus or minus, depending on what mark to market the stock price is as well. But we are very confident we will be able to achieve at least 10% EPS growth for the year. So we are not backing off of that with eight or nine weeks here left to go.

Operator: We will take our next question from Steven Hansen with Raymond James. Please go ahead. Your line is open.

Steven Hansen: Thanks for the time guys. One. I just wanted to dovetail back on the grain opportunity. I recognize you have described it as being a sizable harvest but do you feel like the customers have given you a sense for whether there is upside opportunity or how that is going to track in terms of timing, just mindful of some of the read issues that is still out there. And pricing on the farm and whether or not farmers are going to be eager to move it through the fourth quarter or going.

John Brooks: Yes. Thanks, Steve. It is John. Yes, certainly it is something we are watching closely. There is no doubt, it feels like the grain companies are having to sort of pull the grain into the elevator a little bit versus maybe that typical push we will see at harvest. Right now, I am pleased with our cycles. I am pleased with the number of sets we have in play. In Canada. And honestly, we have been able to whatever softness we have maybe felt in the North, we have been able to backfill with good opportunities on our Southern franchise. So it is going to be teamwork between the two franchises, Canada and The U.S.

And we are going to need sort of all the markets. At play. But our action is as we described. We are going to run it hard right to the end.

Operator: We will take our next question from Scott Group with Wolfe Research. Please go ahead. Your line is open.

Scott Group: Hey, thanks. So Nadeem, since Part GM have been down a bit the last couple of quarters, can you just talk about underlying pricing trends and when you think this metric turns positive? And then maybe Keith, just bigger picture, when I think back to the Analyst Day, you guys talked about a mid-teens earnings algorithm, and it has been closer to 10%. That is still really good on a relative basis, but not like at the absolute level you talked about. Do you still think mid-teens is the right algorithm? What do we need to unlock it? Is it just macro? Is it more price? Cost? I do not know.

What do you think we need to sort of get back to that mid-teens growth?

Nadeem Velani: All right. Thanks, Scott. So just a reminder that federal carbon tax that was removed in April, that did impact Sense4RTM. But thing is that also the flow through, so it does come out of our expenses. So that has been a big headwind nonsense for RTM the last few quarters. But all that to say, in Q4, we should see positive sense per RTM. So we should see it inflect positive right now as we speak. So that will be supportive. I would say that you will see small low single digits, but it will be positive as we speak. We have also had some mix impacts that have impacted that.

Autos, for example, the length of haul has been up significantly. And the mix of business. But we should see that turn. Pricing has been strong, John and his team have done an exceptional job of being able to keep that above inflation and closer to 4% on a same-store basis. So I would say that, that will continue as we foresee into 2026. To your point on double-digit versus kind of mid-teens, The macro has been challenging. There have been some have also hurt us. Crude this quarter was a significant or casualty with the crude derailment was a significant headwind. Which we did not foresee.

If we did not have that, if we had a more normal casualty expense in the quarter, we would have been sub-sixty for the quarter. That is on us. We put it on the ground, and we have to take those costs. But I would imagine and I expect going forward, we will have a more normal casualty. Our safety numbers have been strong, but the cost of incidents have been high. So that will be supportive. As far as the mid-teens, we will start seeing benefits of share repurchase starting next year, right? We announced the program. We Q1 kind of 2020 of this year. 2026, we will start seeing year-over-year benefits from the lower share count.

And that was part of the algorithm of getting double-digit closer to mid-teens type of growth. We have delivered quite well on volume fronts. But I think we could do more with a better macro environment. So we are still waiting for that turn. But as that inflects and we start seeing it is more supportive economy, we start seeing some of this tariff noise get behind us and more certainty for our customers. We started seeing this benefits of strong bulk volumes, especially with this very strong Canadian grain crop. I think you have a potential in 2026 for that to turn closer to what we highlighted at our Investor Day as mid-teens EPS growth.

That is kind of what we had highlighted as through to 2028. So we are kind of in that sweet spot of 26% to 27 to 28% being in that mid-teens and I still feel that we can achieve that.

Operator: We will take our next question from Konark Gupta with Scotiabank. Please go ahead. Your line is open.

Konark Gupta: Thanks for taking my question. I think maybe it is for John perhaps. If we look into Q4, I guess, you have easier comps coming up in November, December. But any insights into the potash and intermodal traffic, John, so far in October? It seems like pretty low, and I think you flagged some of the comps issues in the potash, but anything else besides the comps that is being on the potash and on the intermodal side, any issues you are seeing with imports coming down on The U.S. Ports?

John Brooks: Yes. So yes, the potash is all driven around the compares. We just we had some surge testing and some different things we did last year that made October awfully strong. Now I do expect CanvaTec, as I said, is sold out to close the year. We are going to run that and push that as hard as we can. In the intermodal front, I expect a really strong close on our domestic intermodal. We have got continued good line of sight, as I mentioned in my prepared remarks. To a number of pieces of business that are going to start up in the quarter. And frankly, we are just starting to see the ramp up of our reefer business.

In out of Mexico with Americold. So continue to be and frankly, our transload business across Canada continues to be strong. So I see pretty good numbers on our domestic intermodal side. The international has been a challenge relative to the third quarter. Some of the maybe the pull ahead volumes in muted peak. But that being said, I am not seeing the blank sailings. I am not seeing additional challenges. Can tell you we are kind of foreseeing the current run rate to persist as we move through November. And December.

Operator: We will take our next question from Walter Spracklin with RBC Capital Markets. Please go ahead.

Walter Spracklin: Yes. Thanks very much, David. Good afternoon, everyone. I would like to come back to you, John, on volumes. And I know Norfolk Southern in their call flagged that they were seeing some diversions in volume away from them as a result of the proposed merger. And I think most would see CSX as the beneficiary of that. But I am curious to see if you are seeing any customers being making decisions along those lines that would favor you and seeing in terms of volumes over to your line currently? Or could you see that as contract negotiations come up?

Do you see any opportunity to take advantage of that if that is indeed a trend we are seeing into 2026?

John Brooks: Well, to emphasize what Keith said. There is certainly a lot of dialogue going on, on that front and what sort of products we can partner and create to leverage the strengths of some of those other franchises. Those are things that maybe we have looked at in the past, but are certainly maybe coming to the forefront in terms of opportunities. Do believe that narrative becomes part of what our 2026 growth platform could look like in Ad. There Is No Doubt About We are Already Seeing Opportunities Shift On To Our Meridian Speedway route with the CSX As Keith mentioned, the product design is to be up and running in 2026.

But it is not a bad product as we sit here today. And there are certain customers that certainly want the optionality. Or have been willing to test that product. So Atlanta in those marketplaces, but there is and that we talk a lot about maybe in and out of Texas there is an awful lot of freight that is just really conducive to our network into the Southeast that flows out of Mexico. And that is frankly an area whether it is competing against the short sea today. Or taking trucks off the road that we have been able to key on with the CSX team. And frankly, lot of that is new growth opportunities.

It is not taken freight off of NS or another competitor. It is new opportunities we are bringing to roost. But in the same vein, are those opportunities where customers are looking for optionality. And we will give them that. And John, I would add from an operating side, I mean, the M and B connection that we have through Myrtlewood, it is Mike Corey and team, CSX team has been they have been really energized us on the operating side to make that happen. To get the speed of the network up and just make the good positive connection that Myrtlewood itself. It certainly is promising.

Operator: We will take our next question from Ken Hoexter with Bank of America. Please go ahead. Your line is open.

Ken Hoexter: Hey, great. Good afternoon. Mark, first time in a while, I think we have heard you break out kind of the KCS network versus the CP network. And performance. Can you delve into maybe what is left to get KCS to CP operating levels? I do not know, Nadeem, if you want to talk about the cost synergies or go back to the synergies of what you have achieved and where we are trending on those. And then Keith, just an M and A quick one. But do you think political pressure to get the M and A process moving faster can have an effect? Or will this take the full sixteen, seventeen months of a normal process?

Keith Creel: Yes, let me I will answer that one before Mark. I think there is no way in the world for this to have a thorough review that it occurs in less than sixteen to seventeen months. I think that is efficient. If you think about our review, review took a lot longer than that. You have got an STB that quite frankly, Chair of the STB has signaled, and I believe I will hold him to his word, that he is going to take the statutes from the timeline seriously. And that means do not exceed him. And I also think it means, especially with the gravity of this transaction, also means do not cut them short.

You have got a lot of people that deserve and want and will need to take ample time to review the application, ample time to respond. And I think that is the only way you get to a place where the STB can make a fulsome, thorough decision is if all the facts have been shared and heard and understood. And then they will ultimately decide, does it or does it not? Meet the public interest test? Does it or does it not enhance competition? And if so, what conditions are required for that to be true? And again, I get back to not going to put odds on it, It is not a layup.

I am going stick with basketball. It is not a half-quarter shot, it is three-quarter shot the way I see it. So we will see how efficient the applicants are to navigate that.

Mark Redd: So from the Ken, from the operating I would say three things. One is just getting that operating system behind us. I mean, that just in itself helps us. We made those steps. I talked about it in my noted remarks. Bargaining with some of the unions that we have down on the KCS property. We continue to do that as we leverage some of the agreements, some of the stuff that we can do with customers to streamline some of the crude districts, which we have done and we will continue to do that. Those are opportunities. I think probably one of the biggest ones is just next week.

I mean, as we walk into year three of GM meetings, in Calgary that I lead with the GMs, we look for opportunities specifically on KCS of how we can look at CapEx that we put in the ground how we can leverage those saddings, leverage those locomotives the crude districts that we have that we can redefine the deadheading, the recrews, all of that type of stuff that we could just do a better job of at because we know more of than we did from day one. Some of the car fleets that we can interchange and spend faster from John's group selling the service that we could do something differently.

I mean all that conversations I will have next week that will probably expose tens of millions of dollars that we can pull out just from the operating expense side that we will look at. And certainly put that right back in our annual budget because it is budgeting time for us.

Nadeem Velani: And Ken, just on your third question, we had about $165 million of synergies on the expense side that we have achieved year to date. I would bucket that in operational benefits, operational improvements some of things that Mark just talked about. I would say that from a sourcing point of view, so utilizing kind of merging contracts with both companies and being able to look at our procurement practices and being able to benefit on our contract spend is a big part of it. And then I would say that the operating efficiencies and now that we are past the day in on the IT cutover, we have been able to reduce headcount on the G and A side.

By about almost 300 people. Total with the combined entity. So those are the three buckets I would highlight as leading to the majority of the expense benefits on the synergies. And highlight that, that is significantly higher than what we had initially thought we had achieved as part of the combination.

Operator: We will take our next question from Thomas Richard Wadewitz with UBS. Please go ahead. Your line is open.

Thomas Richard Wadewitz: Yes, good afternoon. So I wanted to ask you and then a bit more on the kind of views on the deal and how your commentary how you look at it than what we have heard from Jim Vena? His characterization is, hey, it is less than it is maybe ten specific production plants that are dual served. Your commentary is like, hey, it is a number of large terminal areas or city areas that have a lot of overlap.

And I guess the other thing I want to ask about is there is a bit of a paradox in the sense of you are saying there is really not risk for Canadian Pacific Kansas City Ltd. that is north to south flows. But at the same time the kind of market power of such a large railroad, UPNS, would really be something of concern. So I do not know if that market power or the risk is like bundling, like they take some plants you serve and they serve a lot more plants of a chemical customer, and they somehow rest in business away from you?

Or just how we ought to think about the risk and why from a rail perspective it is a concern to have such a big competitor. Just wanted to ask see if you could offer more on how you framed it in terms of overlap and risk.

Keith Creel: Yes. I think sheer size and scale market power is something you have to be aware of. Historically, you can protect gateways, but if you have got enough reach and scale, it is not the gateway traffic that gets impacted, it is the captive traffic. So will or will not the applicants utilize and leverage that market power to take prices up on captive if they not rewarded with traffic over the gateways. And that is their question to answer, not mine. Those would be the things that I would look at.

And then the other thing I think about is minimize it to only a few people that are impacted, enhancing competition, number one, it is not there is no precedence on what that definition standard is yet. But I would argue that just considering a two:one as the definition of reducing competition, and that is the only concern that need to be addressed, is a very minimalistic ill-fated definition. I just do not think that is going to meet the STB standard. And that is quite frankly the way it has been presented. You have got overlap in key markets. You have got customers going to have fewer options.

I do not say you are enhancing competition if you reduce options. So again, all that has got to be worked out in the application. The other thing I want to be true and I want to make sure conditions exist is that the applicants are held to their commitments and held to kind of teeth so they do not behave in anti-competitive behavior. So I do not take it lightly with our experience since our merger. With what happened in the battle that we had to fight just over an existing condition that was given to the KCS that we inherited by way of the UPSC merger. The Southend rights. Lot of people have forgotten about that.

I have not. UP decided once we came together by sake of name change along, what historically had been acceptable South End rights traffic that CP would interchange to KCS to go to the Houston marketplace was cut off by the UP. They said, you know what, you are not CP interchange into KCS anymore. My name alone your shippers are not entitled to that market anymore. That is anti-competitive. You cut off a market. They knew it was wrong. We knew it was wrong. We took them to the SDB. The facts were heard. It took two years to get to a decision. Just because you can.

I do not think it is right for any railroad or any business just because they can to try to impose their will that has an adverse impact in the marketplace. So when you want to talk about what we are concerned about, that is the kind of behavior we are concerned about. And I hope and I hope that I am surprised, and I hope that Mr. Vena and team submit the conditions and the assurances in their application that makes us all rest easily. I do not know.

All I know is what has happened in the past and what has happened in the past is not a very warm thought about what might happen in the future without the right conditions and the right teeth to I guess, make sure that those conditions are enforced. In a decision. If a decision comes, it is favorable so we can protect and enhance competition for this nation's freight shippers.

Operator: We will take our next question from Brandon Robert Oglenski with Barclays. Please go ahead. Your line is open.

Brandon Robert Oglenski: Hey, good evening, everyone. Thanks for taking the question. John, as you look into next year, especially with all the ups and downs of trade, can you talk to maybe some of the business wins that you have that support the longer-term growth profile of this business? And maybe if you could give us some early insight to maybe where you see volumes next year too? If you are willing to go there?

John Brooks: Brandon, I do not know if I am quite ready to go there yet. But I am sure that will be a topic in January. I know it will. Look, I fully expect we will outperform do what we do. We outperform our peers. We outperform the macro. I fully expect that in 2026. I do not see the recipe right now changing a whole lot. If some of this grain, whether it be soybeans or the Canadian crop rolls, out of Q4 and into next year, it is that is going to be an area of strength for us. There is a sizable crop on both sides of the border.

If we do not get it now, we are going to get it next year. So I see that as an opportunity. We exceeded my $300 million target this year for where I saw new synergies. I fully expect our self-help initiatives and synergies whether it be continuing to grow our MMX, our intermodal route, our 180, 181, The reefer business that I spoke to continued growth down at Lazaro with Gemini. I fully expect the synergy area to produce another $300 million of opportunity for this franchise. We will continue that price discipline that Keith spoke to.

And maybe two areas that are a little unique to next year that I see is we have got a really strong industrial development pipeline shaping up. These are French new facilities that are being built on our railroad that will be up and running here in Q4 and early in 2020. And frankly, that is $200 million plus opportunity of again just new business that going to start up on the railroad. And then you combine that finally with stuff we already talked to relative to some of these partnerships and opportunities with our connecting roads. And that is sort of what recipe looks like, Brandon.

Operator: We will take our next question from Ravi Shanker with Morgan Stanley. Please go ahead. Your line is open.

Ravi Shanker: Good. Thanks. Good evening, everyone. So just on pricing, know you kind of commented on the kind of pricing being above the long-term target of 3% to 4%. I think it has been for a few quarters now. I am wondering if there is any opportunity to maybe take up that long-term target. Or do you think that you guys are just over-performing now for whatever reasons and maybe that kind of comes back down to 3% to 4% over.

John Brooks: I do not Ravi, I do not see it really. Inflation has certainly come down and those pressures I think we have felt them kind of through the year. We knew they were going play out that way. Again, it is all around pricing, the value of the service and capacity. And frankly, that is a discipline that being said, I am super pleased with the team's efforts down there. I will tell you, we are definitely outperforming our peer railroads on that front. And we are going to push hard those targets for my sales team are going to continue to be in that neighborhood as I look to 2026.

So yes, those I fully expect those pressures to be out there, but going to fight for every quarter point based on the service and the capacity this railroad provides.

Nadeem Velani: Ravi, if we had a stronger macro as I commented earlier, I think that would be supportive of some incremental pricing, but I do not think that is something that we have been able to benefit from in the past, say, ten months or past year.

Operator: Take our next question from Ariel Luis Rosa with Citigroup. Please go ahead. Your line is open.

Ariel Luis Rosa: Hi, good afternoon. Keith, you mentioned that maybe some shippers or various stakeholders might be reluctant to speak up. For various reasons. I am just curious behind the scenes, what kind of conversations you are having and where do the fears lie in terms of what the risk the UPNS proposal? And then not to be overly cynical, but is there any dimension in which you worry that by virtue of being a Canadian rail your voice might not be listened to as carefully or kind of, you will not get the same weight that a US rail might have as the kind of merger process moves forward?

Keith Creel: Guess the way I would answer the second question first is we are North American company. We are uniquely the only rail that connects all three nations. 40% of our revenue, 40% of our business is in The United States. The monies we invest are significant. One-third of our employees live and work. And our taxpaying members of The United States, taxpayer citizens, We are undeniably wrapped in the American flag, and we care as much about America as we equally care about Canada as we equally care about Mexico. We have that responsibility. So I cannot decide if someone is going to dismiss our impact. I think it is material. I think it is meaningful. Meaningful.

I think we have invested heavily into this nation as we will continue to do that. And we are going to have a voice. It is up to those that listen to decide if they want to diminish it. I think it is relevant and I think it is truth-based. And I think it is facts that truly cannot be denied. The part about the customers, I cannot reveal the specific discussions but other than I believe there is a common theme and concern about retaliation. People are reluctant to speak up, publicly Yes, you hear associations. I heard Mr. Venice say they do not have a direct commercial relationship with UP, I would agree.

So to be so dismissive, I think, is a bit irresponsible. But again, that is my view, not obviously Jim's. But in time, we will see. There will be private discussions. There will be public discussions. You are going to hear the associations speak out in the end. I am sure that some customers will take that step their application and their comments. Will bear their concerns, and I will best bear their concerns better than I can. But I think a powerful thought I hear this word. There have been 400 customers that have offered letters of support. And I am not saying that does not matter. Their voice matters. But how many more have said nothing?

Salon says a lot.

Operator: And we have reached our allotted time for Q and A. I would now like to turn the call back over to Mr. Keith Creel.

Keith Creel: Okay. Well, listen, thank you. Let me wrap up with where I started. Thank you for your time this afternoon. It has been some thought discussion. I know this is an industry that, quite frankly, seems to be continually in a state of change regardless how those changes may roll out, this company you can believe, is going to be focused on safely and efficiently delivering for our customers and delivering on the growth opportunities that this unique network has created that enables the value creation that we have committed to for our shareholders and for those that have trusted us with their capital dollars.

We look forward to executing a strong fourth quarter, and we look forward in the first quarter sharing those results with you. Everyone have a blessed holiday. Until then, we will talk soon. Thank you.

Operator: This concludes today's conference call. You may now disconnect.

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