Q1 2020 Earnings Call
[music].
[music].
Ladies and gentlemen, today's conference is scheduled to begin shortly please continue to standby. Thank you for your pace.
[music].
My name is key and I'll be your conference operator today.
Hi, I would like to welcome everyone to the Canadian Pacific first quarter 2020 conference call. The slides accompanying today's call are available at Www Dot CP our thoughts C.
All lines have been placed a mute direct any background noise.
The speakers remarks. So your question answer session. If you like to ask a question simply press Star then the number one on your telephone keypad. If he would like to withdraw your question press the pound key I would now like to introduce Megan album Stone age VP Investor Relations and pension to begin the conference.
Thank you Christine.
Good afternoon, everyone and thanks for joining us today, our sincere apologies for the delayed release and start to our earnings call. We ran into a few technical difficulties, but those are now behind us. So we appreciate your your patience in understanding.
Before we begin I want to remind you that this presentation contains forward looking information that actual results may differ materially.
The risks uncertainties and other factors that could influence actual results are described on slide two in the press release and in the ambient either filed the Canadian and U.S. regulators.
His presentation also contains non-GAAP measures, which are outlined on slide three.
With me here today, it's Keith Creel, our president and CEO redeemed the Lanny CFO and John Burns, our Chief marketing officer. The formal remarks today will be followed by Q any any interest of time instead that we can get to as many analysts as possible. We'd appreciate if you could limit your question to one.
It's now my pleasure to introduce Mr. Keith Creel.
Thanks, Mike and then let me start about taking all that are joining us today.
What are certainly unprecedented times.
In fact, better said I would say the right extraordinary times, which happen we'll continue to require extraordinary efforts and sacrifices to endure this battle that we're all facing.
Well that's said.
Before we were review our results I will say thank you.
Thank you to our 13th Alpha Stroll TP family, that's not only enabled these results.
Sure sacrificing day to day out ensuring the central services, we provide continue or something bigger than anyone of us and that's where the health and wellbeing of society. A picture is worth a thousand words, which is exactly why we shared the picture that said our deck today. It was state contracts out in Ontario last week erected by someone in that community the thinks the true here.
Let's see Pea that a risk in their lives day in a day out.
The Sir.
Well, thank and recognize the first responders health care professionals and all other frontline providers for their own dedication to sacrifice.
During the scope and not seen crisis.
I can tell you the leader and is being I'm extremely proud of RCP family.
Professional railroaders for the body of critical work that they're doing right now for the Canadians in Americas alike.
Protect a lies in our livelihood.
The shift in my comments star results, which speak for themselves I'm going to be shorter my comments.
I'm going to spend.
More time speaking to them to highlight what this PSR model is truly capable up in a quarter, where our other railroads experienced negative volume CP grew our teams by 9%.
The first time and see Peach history, we produced a sub 60 or in the first quarter enable us to grow warnings about 58%.
Rest assure the same operating model that produce these results.
It's just as resilient heading to the challenging times are facing it's a model the team that's proven its ability to adapt our resources and our cost in a rapidly changing volume environment.
In respect or updated guidance recognizing there will be volume headwinds ahead, we're now expecting our teams to be down mid single digits for the year that said given the buffer that we built through the first quarter, we felt comfortable guiding to flat earnings.
Not only can we weathered the storm uncontested based on the Street did this team and the power. This operating model, we will come out of that aside a stronger more resilient company.
We're entering the start of the tells what the strong balance sheet and ample liquidity management team is battle tested we're ready to weather. The storm, we're not panic, we're not distracted for prepare for engaged more agile. There's certainly no playbook for times like this but as a leader I know this is where a culture in a disciplined.
That stroll companies and teams apart from the rest we certainly recognize they're gonna be challenging times ahead that said I've never been more confident our companies in our team's ability to succeed in spite of this environment, we're all facing to Nancy unique opportunity, where the uniqueness and the potential of our team and uniqueness of our story cheap.
People showing the broadest for our investors our customers in our employees.
To wrap my comments up I'll leave you with this at CP, we continue to invest in our network, we're going to continue to invest or people.
Tim you look for ways to support and grow closer to our customers. That's what strong companies do and what strong leaderships do we turn our challenges into opportunities will grow stronger well create or on your big success, CP, but that said I'm a charter out when they deem it John.
To cover the balance of our numbers as well as our customer opportunities.
Alright, Thank you Keith and good afternoon, everyone.
Total revenues were up 16% this quarter to a Q1 record of 2 billion.
Our teams as Keith said were up 9%.
FX was up 1% well fuel is flat.
Pricing remains stable landing in our targeted range will mix looks positive.
As we moved lower volumes of Colin potash.
Obviously as Keith said, a lot has changed in a short amount of time.
That's a shirt my team is continuing to work closely with the operating team and our customers.
Sure we stay aligned during these challenging times.
I would now briefly highlight our first quarter performance and provide some color on our outlook for our major lines of business.
I'll speak to the results on a currency adjusted basis.
Starting with grain grain volumes were up 8% on the quarter with revenues up 10%.
I want to start by congratulating, the CP team and our grain customers for delivering an all time Q1 tonnage record for Canadian grain in grain products at approximately 6.4 million metric tons.
Our 8500 foot Green train operating model is enabling new capacity on existing train starts.
And our covered Hopper fleet investment is giving customers the ability to load more grain per car.
In fact, our high capacity cars alone enabled the movement of an additional 100000 metric tons the grain in Q1.
C. P. PNR Green partners are delivering greater productivity reliability and sustainability into the grain supply chain.
As I look ahead grain will remain a bright spot.
Our Canadian grain market share is approaching 54%.
And with strong demand at both Vancouver, and Thunder Bay, I expect ongoing momentum.
On the potash front volumes were down 10% and revenues decreased 2%.
For export potash, we delivered a strong Q1 for our partners despite market challenges.
And tonnage projections remain solid as I look ahead to Q2 and for full year 2020.
On the domestic side, let's consecutive poor application seasons due to flooding in cold wet weather.
We see upside in the North American markets as the industry looks to replenish nutrients during the spring application season.
So bottom line I remain optimistic about the demand outlook for both domestic and export potash.
In fertilizers and sulfur revenues and volumes were up 21% similar to our domestic potash story, we're seeing strong demand for nitrogen and phosphate from our retail and wholesale outlets across our fertilizer distribution network.
So overall with our bulk sector, making up over 40% of our book I expect our grain coal and fertilizer to provide a level of resiliency looking forward.
The energy chemicals, and plastics portfolio saw revenue growth of 55% well volumes grew 39% with growth across many of our commodities in this area.
And record crude by rail volumes.
Now looking forward.
We feed demand pressures across all these commodities and markets crude volumes are rapidly slowing given the steep decline in demand, resulting from covert 19.
And the impact of oversupply from the Saudi Arabia, Russia production dispute.
Have you seen in the recent days with all the volatility we are expecting low demand environment in North America and globally due to a recovery starts to ramp back up.
As a reminder, we have structured our contracts to provide protection in times like these.
All of our crude contracts are multiyear and have minimum volume commitments and liquidated damages associated with them to help offset some of these declines.
Moving on to forest products were up 8% well on M.C. volumes improved 13%.
The growth in these lines of business for largely driven by strong pulp demand.
Steel and Frac sand shipments to the Bakken.
Looking forward, although segments, such as pulp will continue to be strong.
We are seeing softening across many of the industrial sectors.
Additionally, frac sand volumes have declined and are expected to remain challenged due to the pressures on the energy markets that I've already spoken too.
In automotive.
Revenues were up 13% well volumes were down 3%.
An outstanding outcome, given the pressures on this sector.
The near term outlook for automotive business remains uncertain, given the temporary plant closures.
However, we are staying closer automakers are they assess possible startup timing.
When things do start to ramp back up there are some positives to look forward to in this sector.
Recently, we have entered into a new five year contract with Fiat's Chrysler as they will join for Ford starting in July as a long term partner at our Vancouver auto compound.
Additionally, this agreement with FCTA will expand our partnership where CP is earning new lanes into Calgary Chicago in Minneapolis.
So despite the challenges across the auto industry, the startup of Chrysler and Globus later this year, we expect this new business to help offset industry declines as we continue to leverage our network developments and our strong service model.
Finally on the intermodal side quarterly volumes were up 10% as a result of another record quarter in domestic and double digit growth in international.
On the domestic intermodal front CP is a key partner in the supply chain for a central goods for North America, and we're working closely with customers such as Loblaw Canadian tire Nestle and others.
To fill the critical needs of consumers.
International we have successfully on boarded Yang Ming in Q1.
We closed the quarter with a record March for revenue.
So while we are seeing blank failings in variability in volumes and spec. This to continue as we move through Q2, so far our partners have been less impacted than others.
In this space.
So let me close by saying as the environment has rapidly changed.
We have been closely aligned with our ops and finance teams to ensure that our resources adapt quickly and in lock step.
We have an excellent team of sales professionals that are proven that are working closely with our customers to understand their current needs changes in demand and maybe most importantly.
Oh, we can help customers be successful well we move into recovery.
So although we are all navigating through uncertainty.
I'm confident that this team's proven record and our surgical growth strategy will continue to position us to lead as we emerged from these unprecedented times.
So with that I'll pass it over to Nadeem.
Thanks, John and good afternoon, I'm extremely proud of the record results and team is delivering today, we carried that momentum from 29 team into the first quarter 2020.
No surprise some of you with the 60% or comment I made in January but our team made up of the best Railroad Railroaders in the industry went out and managed to exceed mine high expectations.
Overall, the operating ratio decreased 1010 basis points.
59.2.
This is a new CP record in the first time, you've gone sub 60 in the first quarter.
Simply outstanding performance by the women and men of CP.
Some of the more notable items on the expense side comp and benefits expense was down 2% or 9 million versus last year.
Primary driver the decrease was more stock based compensation of 30 million, primarily as a results of the decrease in the share price.
This was partially offset by increased incentive compensation accruals for Q1 2019.
Fuel expense increased $1 million as a result of higher volume, partially offset by 4% price decrease and record Q1 fuel efficiency.
Depreciation expense was 192 million an increase of 19% as a result of an adjustment in 2019 and a higher asset base.
Purchase services mm 312 million, a decrease of $47 million or 13%. The main driver of the decrease was lapping that normally high Q1, 29 team casualty, but.
Moving below the line other components of net periodic benefit recovery were negatively impacted 12 million or 12%, primarily due to a lower discount rate.
Interest expense was flat it was as a result at the lower effective interest rate offset by higher commercial paper outstanding in Q1 2020.
Income tax expense increased 46 million with 33% primarily as a result in higher taxable income.
Rounding out the income statement adjusted diluted EPS grew 50% in the quarter.
The same discipline and construct attention that enabled these results will enable us to adapt in the weeks and months ahead, let's keep noted as powerful as the PSR model is in good times performed even better better in the challenging time in fact bite of record GTM Dennard cans in Q1, we were parking locomotives and happiness.
That said adapting resources real time I've noted the Boston noted how collaborative our finance asset management marketing and operations teams or when they look at demand capacity.
Our team's ability to align our resources.
Less than the industry and are very proactive that becomes particularly evident in times like these.
Your next slide on free cash cash from operations increased 18% on the quarter.
Free cash is down quarter over quarter as a result increased capex capital expenditures in the first quarter.
We're going to continue to reinvest reinvest in the network and remain committed to our Capex guidance of 1.6 billion.
We plan to proactively take advantage of additional track time to do necessary maintenance to be in a position to capitalize when demand normalized.
Sounds like the can provide opportunity to stretch capital dollars further in terms of attractive material costs and production a lot there.
We have a pipeline of high return projects, including the covered Hopper investment and we had our absorbing the headwinds from higher effect in our capital available.
We will continue to evaluate economic conditions, but our disciplined approach and commitment to investing in the business is evident in our just in our adjusted ROI C, 17.4% and industry best.
Turning to the next slide and a comment on the environment, we find ourselves in today.
The cobot 19 situation continues to evolve however, I'm confident that we are very well position to navigate this uncertain time.
From a financial standpoint, we are in a strong liquidity position.
We had two highly successful debt age issuances in Q1 with record low coupon rates that enabled us to pay down the majority of our short term debt.
We don't have any debt maturing until Q2 of 2021.
As of yesterday, our 1.3 billion U.S. revolving line of credit this fully undrawn.
Additionally, the facility can be expanded by an additional 1 billion U.S. should we need to do so.
As previously mentioned the balance sheet remains strong with leverage within our guided range of two to two and a half time adjusted net debt to adjusted EBITDA.
On the shareholder return front, we have been prudent in the near term to protect the strength of our balance sheet in March we temporarily Paul our share buyback program, which is about 40% complete.
We wanted to get clear greater clarity on economic impact of covert 19, and now that would impact our customers and volumes.
Also delayed our dividend increase for the same reason.
So although in the short term, we're sitting on about $400 million in cash once we have comfort around the economy restarting in North America, we plan to revisit both the buyback program and the dividend. We just believe this is the right thing to do given these unprecedented time and our shareholders are being fully supportive of this conservative approach.
We earn an enviable position to whether these uncertain times and will continue to proactively manage our liquidity, we're taking proactive action to control costs in a way that protects it protects us when the volumes return.
With that I'll turn it back over to keep the wrap things up.
Alright, thanks, netting John for that tolerant and I think we'll say the balance part time for the questions. So let's open it up now for Cuban it.
Thank you if he would like to ask a question simply press Star then number one on your telephone keypad. If he would like to withdraw your question press the pound key I previously highlighted please limit yourself to two questions there'll be a brief pause or we can possibly even a roster.
Your first question.
Kind of comes from line of a Chris Wetherbee from Citi.
Your line is open.
Great. Thanks for that going good afternoon, guys.
I wanted to just maybe asking about the guidance I appreciate you, giving us a stab at guidance given the uncertainty that's out there as I look at the RPM guidance versus EPS guidance looks like you're maybe thinking about.
Kind of low double digit declines you're around 10% declines in our teams for the rest of the year and then the U.P.S. guidance for the rest of the year would suggest something down maybe a little bit more than that so can you just sort of walk us through some of the puts and takes and the things you're doing with the network to try to offset some of the potential negative operating leverage obviously you guys did a great job in the first quarter kind of want to understand some of those.
Puts and takes what May drive earnings down more than our cams. If that's ultimately what happens here for the next next three quarters.
That's a Chris let me, let me provide a couple of high level comments and I'll, let they deem at any color that.
I might not cover so.
So I think it's important for everyone to understand and I think the numbers speak for themselves. It's CP. This is unique story in this industry has been the last two years. It continues to be sort of macro level, we got some uniqueness.
Got it take business mix, 40%.
Of our business base or a revenues, obviously, both driven and the various that even in spite of these challenging time.
Its influenced in tempered by the same thing that you're seeing.
Thing, we're all here so its phased in demand it's come down in the second quarter in a major way its going to start to ramp up it's going to be a bit stronger in the third quarter, it's going to be stronger in the fourth quarter and I'd suggest it's probably first quarter of 2021 before normalizes, but again, what you see extra.
Journal.
Overall for the industry CP is getting into that space and that because of our business mix because at the team because of our ability to adjust.
And control costs were eight years into TSR. This isn't something we've just start.
So we've been adjusted controlling and tempering our cost in lockstep with our demand. It's it's in our DNA. It's part of how we do what we do a so again, we're going to continue to do and play to our strengths and this franchise and we're going to play to the strength in our business mix and we're going to adjust our asset base here at cost to match in lock step.
The demand that we see to protect our margins and to protect our earnings as best as we can't do this storm and it's the same time.
Position ourselves to exit strong we're doing unique things not only.
Controlling costs, but with our employee base as well and I've talked about this in the past listen into the day. This is a people business.
And we're all having to sacrifice, we all have things I'd.
No we are.
About the I know, but one thing I do know and I believe firmly this economy is going to come back. The strength is there. This business mix. The strength is there and when it comes back we need our people their minds and their hearts and their commitment. So we're doing things above and beyond for our employees.
To make sure that when we come back into the business bounces back to their there they're available and they're ready to return to work.
Giving them in sending them and paying them in ways that contractually, we don't have too, but it's the right thing to do number one and number two is going to submit and let them know how much they mean to us and how much they need to our business.
So that we can't appropriate response, when the business bounced back. So I know that's a long answer to your question, but I think to understand that killed on the context is important and they deem let me turn it over to you feel to fill in any of the colors relative specific numbers or anything I missed.
Yeah, Chris I'd, just say in Q2 likely you'll see a more pronounced kind of you know negative operating leverage versus Q3 in Q4, which should be a <unk> will be better position and that's just given the rapid a decline in volumes that that John mentioned.
So I think you'll see as the economy restart so whether that later in may or june or or beyond that.
We'll be in a better position, but but certainly when you have a significant drop just in Q2 no matter how proactive we've we've been you're gonna have certain kind of fixed costs like like depreciation year over year that are going to be headwinds and so forth, but oh, but for the most part you know the expectation for the.
We are still assumes that we're going to be able to improve our operating ratio, which I think it's a testament to how we can protect earning even with a negative volume.
Got it that's very helpful. Thanks for the time appreciate it.
Thanks, Chris Thanks for it.
Your next question comes from line of Allison Landry from Credit Suisse. Your line is open. Please go ahead.
Thanks, Good afternoon, and since I've asked about that the capital allocation I know you reiterated the 1.8 billion Capex this year, but how much room. If any do you have to scale back if the environment. It's acetate and then if you need to preserve cash would you prioritize delay.
Hi, I'm gonna funding or over the top again.
I will tell us and I'll, let a they deem fill in the numbers, but I can tell you.
From our approach we're protecting this capital because this is long term game. You know this is a marathon it's not a spread this business is going to come back the money that we're spending.
Surgically and strategically it so that we can accommodate growth and protect our margins and protect our fluidity and protect sort of the magic that center operating model asset turns matter safety matters velocity matters. All those things. So when this business comes back given that we're investing in offers that make us more a fish.
It more reliable it plays to our margins it plays to our capacity given that we're investing strategically at archrock and the spaces that we need infrastructure to make sure that we can protect our fluidity. Its business comes back and in fact improved not not slipped back I'm not one that says we need to cut our capital I think.
About this from an opportunity standpoint.
We have the ability we have the need we had the business case to invest in the business.
Oh, we have an ability now with demand day on it with business down to actually do more with less to take that capital spent and put in more ties morrell more ballast more surfacing more grinding all those things that and then the Dave in the business comes back when you need the capacity. The most not only is what we had.
There it's increased so to me the last thing to do right now unless financially we need to to protect the strength of the company, which uniquely we dealt I'm not going to cut back on our capital expenses that said, we do have an envelope of if necessary, we can but we're not anywhere close to getting to that point.
So the name I don't know if you go to add to that but that philosophically and fundamentally I'm convinced that that's where we stand on this company.
Yeah, and I, just I would just add that you know between John and his team on the sales and marketing side, you know leading the industry in growth last several years.
Having no short kind of construction season that we have up north.
You have less of a window to do some of the work and so you you are not as productive as you'd like to be so on one hand, you know, we don't like seeing negative volumes, but it but it does create for us an opportunity to to be a lot more productive inefficient as Keith highlighted and so it's an opportunity for us and certainly.
We look at this is as you know being able to pull forward even some some work from from 2021, if we can be more productive and and do it more efficiently and cost effective then we're going to do that from a financial position. Yeah. I mean, I, we we still see free cash flow in excess of billion dollar.
Third we still plan on completing our share buyback, we still plan on on revisiting the dividend and an increasing that we've talked about a payout ratio closer to 25, 30% range. So I don't think any of that is at risk given.
The financial strength that I mentioned in terms of our balance sheet. The fact that we have $400 million cash in hand.
We're just being prudent in how we return cash to shareholders in the near term now I will also say we've done effectively 40% of the program that we announced December Twentyth. So we're ahead of pace on the buyback, it's not like where.
We're we're slowing it down materially in anyway.
Okay that was not helpful guys. Thank you so much.
Thanks Al.
Your next question comes from Fine Walter Spracklin from RBC capital markets. Please go ahead.
Good afternoon, everyone.
Just wanted to focus on your your mid single digit decline volume guidance. Just wondering if you could decompose that a little bit John you you certainly indicated.
Suggested that bulk is doing well and it is likely going to continue to do well. So perhaps just to put it simply or are you expecting bulk.
The balance of this year.
To see your your growth in that segment.
Yeah, I I think there is the opportunity out there Walter in the bulk space.
Given away this the Canadian grain crop has set up itself I.
I think our expectation or see that potential through Q2 in and all expectations are you know certainly another strong crop coming out of Canada towards the back half for the year. So I think that presents an opportunity.
You know potash is is.
They're an interesting one tampa tax on the export side has done a really good job of to some extent deleveraging China.
As part of their book now it's not a it's not perfect then it's not certainly complete.
But we think given soft compares that we had the back half of last year and the potash front end.
And you know what our expectations are with them for a potential movements [noise] their presents itself a an opportunity. There a you know the end and beyond potash is as I said the other fertilizers.
You know North America and in particular has been.
Quite depressed in terms of returning those nutrients in the soil and I think our teams pretty excited about what we're seeing on that front.
Tech well, we'll see you know I think there's and in some of the coal there's [noise].
Probably a likelihood we see a little decline year over year in that space, but you know I can tell you right right now as it is it stands with there's been some challenges through Q1, we got some make up to do I think a in that space as we look forward. So I'm not counting that went out either Walter.
Okay. That's my one thanks very much.
Thanks to all of.
Your next question comes from line of Steve Hansen from Raymond James.
Please go ahead.
Oh, Yeah, Hey, guys. Thanks for the time.
Curious about your new five year contract with a fee a it sounds like it's always win a the way you described it I'm just wondering perhaps if you give us some sort of a sense of magnitude.
First part and second part it just curious if this is really it sounds like this is a broader extension of the land strategy you laid out a couple of years back now I believe at least 18 at Investor day, and I'm trying to understand what anywhere in the broader strategy as it relates to new contract wins and opportunities you see as you roll this out thanks.
I think you nailed it Steve it absolutely is part of the broader strategy. You know I think we were pretty clear from day. One week, we were confident that Vancouver auto compound was going to be a home run in terms of bringing customers to Canadian Pacific a it just makes too much sense in that marketplace.
And and you know certainly we've got in full forward in NFC. A are are gonna be long term partners. You know at that terminal you know that that contract I'm I think we could expect 40 to 50 million.
But you don't you add globe assigned to that.
And and in that almost doubles that type of number. So yeah. There was a pretty significant chunk of business.
Ah that's going to layer into our franchise in the auto sector as we move into the second half for the year that that we're also excited about.
You know my other common as [noise] around round the the network development.
Yeah, we've been pretty clear that it's it is what makes you need or Canadian Pacifics a growth strategy unique in the industry. If you go across our network.
Via the ability to take the land holdings, we have in convert those with our partners into these types of opportunities is unmatched.
And so you saw in Vancouver, we've got some exciting things in the auto space.
Under development in the Chicago land.
But it's not it's not just the auto sector. It's it's what we've been able to do and our inner trans load space. You know those volumes for Q1 in for our Transload business enabled revenue were up 30%. We set an all time record for our trans load business. We're just scratching the surface. There you know we've got the the new facility.
It's going to be opening up in Montreal here in the in the coming back on and we think Theres an opportunity to put that data on the map and replicated in a few places across our network again utilizing existing land existing terminals.
That would come redundant and frankly, a lot of UBS sat vacant for years and it's it's the strength of the marketing team understanding what those opportunities look like and in combining it with the strength of our service model. Steve. That's it has created with what I consider just again unmet.
Trouble growth opportunities.
At this property.
Let me I can vary quite a bit [laughter], Steve let me handle a couple of that's everything that John said you take that.
When you add on.
The seem to property.
Just enhances it now we've got reach to the East coast, if we didnt have for that transaction.
For us strategically made kinds of sense to give us east coast access and now as we approach the STB approval, we anticipate an approval we should hear something made the fourth we take control that railroad completely during the fourth now we've got a route from.
Todd water on the east coast into Montreal, Toronto, the Midwest into feeding those facilities, where we have capacity, that's 200 miles shorter than our competition.
That's better than truck that struck by competitive and truck like reliable you had that on top and it's a powerful powerful unique differentiator that allows us to grow that's a 40 million U.S. revenue railroad that were taken over that has the potential and we see lot of side within 24 to 36 months I've taken 40 million revenue.
Making that 100, plus you asked with CP like margins, that's the needle mover.
Okay.
Very helpful. Thanks.
Your next question comes from line of Brandon Oglenski from Barclays. Please go ahead.
Hey, Thanks, Good afternoon, everyone. I appreciate the question here John So can you talk to us a little bit about you know what has changed though on the negative side than the forecast I mean, you did mention the auto compound mean autos are in a pretty difficult because this right now and I think you know energy when we think about crude and Frac sand makes up a pretty big share of your book of business.
So what's the outlook for maybe some of these more challenged segments through 2020.
Yeah, Brandon certain certainly like we're not insulated in in some of those industrial and LNG markets for sure.
You know as you stated we set a record for crude by rail volumes in Q1 over 36000 carloads, but.
You know frankly in this is built into our our guidance I'm just not inconceivable to me given the volatility we're seeing that [noise].
That can move to zero.
You couple that with I think some of the downstream pressures related to the fuel markets. The deal you once the just the once the LPG.
And you know I, obviously, we're not seeing equal type of crude by rail pressures on those markets, but but certainly.
Down down double digits for sure.
You know the Frac sand business, we've done a good job of of diversifying our book as we've talked about in the past away from from the Texas markets into the Bakken.
We've seen a certainly again, a nice quarter in in those movements, but but those pressures that are on the energy markets or are certainly putting a.
A lot of pressure on on those volumes also.
No.
The industrial sectors, just like you're seeing a discrepancy steel products no certainly non essential domestic intermodal.
Products.
We're seeing the blank sailings.
As others are in the international space in in as I said that that's going to continue.
And now I think our international carriers that we partnered with our our you know leased so far to date or are outperforming maybe maybe some of their competitors in the market place. So that's given us a little bit of a tailwind you.
No.
Let me just close on one more comment around this.
I've talked a lot about over the past couple of years the power of picking your partners in this in this business in the surgical approach on on how we want to grow and the right partners in the up markets are certainly provide a lot of tailwind in and look good but.
Equally or maybe more in part is picking the right partners in the down markets.
Our partners are resilient the customers in the auto space.
Our the vehicles that that consumers want to buy.
In the food space is to grocery stores that consumers want to go to so so look good. There's there's no doubt you can read the news the bio fuels in the Ethanols and and all these products a there's going to be a ton of pressure on them over the coming months.
But but I do take a fair amount of solved.
I will then come back we're going to we're going to.
Property he.
Yes.
Pursuit for response.
Sure.
From BMO capital markets.
Go ahead.
[laughter] poker.
<unk> <unk> or read burden would be going Oh.
<unk>.
The <unk>, who oh.
Sure.
HM.
Drones are minimal Andrew.
And one third world.
Okay, and durable Oh, gosh waterborne warm crumble promote.
Oh.
Warm.
<unk>.
Yes.
Yeah.
Well over 30 for older move.
The room.
One.
Yeah, [laughter] really on <unk>.
Forward rebuild.
Good for.
Not inconceivable.
We're seeing it ramped down.
Good to hear.
Good morning.
Probably could determine your low.
They don't improve or no.
Girls encouraging 40.
30 food from Q1.
I'm sure you read about order of magnitude or think <unk> even.
[noise] Warner improved <unk>.
Every broker pretty good gone.
If we look forward to build for <unk>.
What work from home liquidated damages.
HM.
Good morning, corn one.
I'm comfortable crowded brokered around a little bit.
Sure compensating the most prudent but little conquered floor.
Okay.
And one for.
<unk>.
Performing well <unk> performing.
Good thank you.
Mhm.
Your next question comes from the line Paul.
Good.
Yeah.
And.
<unk>.
Great.
[music].
No we can go to the Middle Board.
<unk>.
Okay.
Brent Ward.
Mm Hmm.
No.
Sure.
Yeah.
Well good luck.
But.
Hello.
No growth from <unk> Morgan.
Good morning.
The book or kind of little or.
No.
Good morning World.
[laughter] looked at it.
Sure.
[noise] 40, plus percent number bid.
Mm Hmm non energy and I've talked about better color fuel for good about it.
Sure.
Good morning, <unk>, 30% the drew up your automotive.
Normally group.
And again.
We're going to date, we do already looked everybody often enough.
The bank Burp Ardmore Darryl.
Okay.
Okay.
Sure for growth.
The general made all of them.
In the international three for growing <unk> immigrants from talked about <unk>.
Or crude they're real book.
<unk> very short.
<unk>.
Thanks, Rob.
Roughly.
No look.
Maybe you embark moved barrel or <unk> above and beyond.
HM.
Older.
[laughter] Overmolding trade for refining broader.
Mm Hmm.
And then <unk> preferred for southern crude.
Maybe first from the.
Probably were well we're very much.
[noise] no.
Mm Hmm go Robert.
We are pretty closely.
From a recovery.
And your for your from Merrill Lynch.
If you're going to both before.
We're going up or Florida.
<unk>.
Oh I'm sorry.
So.
When are we talk about ER for the full.
Core.
The Moon terminal is still HM.
[laughter] referrals.
Moving forward.
Hey.
<unk> <unk>, we're going to repeat.
Merger in the near term, but everybody pretty good move.
[noise] waterworks, we waited <unk> looks great.
<unk> Goldberg.
Loan recovery.
Yes.
Okay.
<unk>.
A role.
Sure.
Hi, good morning.
Gordon.
Merck recalled.
Or you were border.
Right.
Or <unk>.
<unk>.
Okay.
Hey, good waterborne.
I'm sorry.
Okay.
[laughter].
[laughter] prominently drift away were to what are your.
Okay great.
No.
Your next question comes online.
Group from Scotiabank. Please go ahead.
Thank you have though.
Or so one question on though.
Good.
Well the conditions.
<unk>.
We'll move a little more.
Good.
Walter.
Thank you quote mortgages.
Don't build and do a.
A little more.
Okay. So both will be called growth.
Okay.
Good [laughter].
Overall, we have a weekly basis.
Just bring.
For the <unk> corporate.
First quarter sporting goods would it.
I wouldn't read from month to date numbers don't unscrupulous <unk> Peter.
You know.
[laughter] <unk> in terms of Orca you're.
Let me talk model.
The leader pretty similar we want.
So most people more today number.
Or can you burn on.
Rob number Cooper.
Dan Coker baby reimbursement.
No that's still a little crew costs are down in some more numbers.
<unk>.
Year to date.
Overall, we see drawer.
Working on sort of on drill <unk>.
<unk> crude gross written premium.
No more than doubled.
For in store there are more than doubled from month to date or train starts to feel good thing.
Or York restore their almost 33%.
Great.
Uh huh.
Put all.
The new store to [laughter] deal.
We could do a reduction.
Sure we've drift to reform.
[laughter] work, there's no secret.
<unk>.
Keeping your finger over both north worsen do that at all.
The merger.
We wouldn't backlog <unk> reduction.
That's cool.
That's helpful to restrict or more to be with today would be a good work.
Okay.
Okay.
We're not calling card reader.
[laughter] our marketing.
[laughter] spring.
It would be beneficial bond.
Operating model.
But no go to you.
<unk>.
And that's where a world Kirker award for a while ago.
Exactly.
<unk>.
Stroke or under we're pretty pleased today in a world personal <unk> you know there.
Good.
Good morning waited for sure.
Your next question comes from what I have Scott group.
[laughter]. Please go ahead.
<unk>.
Yes.
HM.
Due to both from faults on how to think about current quarter or more.
For all burden Albert.
Any thoughts on how to profitable growth.
Great.
Recall that hurdle person or <unk> first quarter.
Okay, <unk> soft rubone anymore.
[music].
Well go Oh, Yeah, we're not going to war garden.
No.
I'm not very good color you're.
<unk>.
<unk>.
HM.
No.
Oh.
<unk>.
Sure.
Morning.
<unk>.
Right.
Norm.
Okay.
<unk>.
Yeah.
[noise] rule.
Yeah.
Right.
Oh Youre right.
All.
Well.
<unk>.
Following the close on the portfolio Berman.
[noise] indoor or outdoor.
But remember we're required for patients.
<unk> or <unk>.
Hello.
Okay.
Probably dramatically.
No were.
<unk>.
For the third we will grow for your number for you.
[noise] Kirklees era warfare up today across boardroom read grew up with team.
For sure.
Yeah.
Mhm person, there, but it doesn't change or promotion.
Okay.
Yes.
Thank you George.
Youre paying off.
Your next question I'm somewhat.
<unk> from Deutsche Bank. Please go ahead.
Hey, good question.
Following a bundle Bob's question offer good.
HM.
Good morning through your but how should we think about <unk>.
Who either the decline maybe what sort of.
Good.
What should the quandary, considering a downside scenarios for the worst worst quarter scenario.
Good morning.
No.
<unk>.
Most recon.
No.
Well go <unk> <unk> North American girl.
Right.
Colin.
They are on plan you all know Oh.
But.
The bottom.
Equally important <unk> right.
Uh huh.
HM.
Okay.
No one an old or <unk>.
<unk>.
Good.
I mean part.
Right.
I will.
No.
For our mobile Bureau.
No.
Okay.
<unk>.
All right.
Oh, the or mark or at all.
Oh, sorry.
Oh boy or girl.
HM.
Oh.
<unk>.
Oh boy.
Born ruble.
Well I appreciate that group.
Okay.
Next question comes from one Brian.
Morgan. Please go ahead.
Hi, good question.
Can you give some color on.
For example.
[laughter] commentary on.
We are going.
Oh.
Okay.
Born lumber.
Right.
<unk>.
Little bit more Walker was more group.
Any conflict.
Oh no.
Well multiple okay.
Hey, Bob will all of it.
Okay.
Oh walkable workable.
Well.
Yeah.
But.
Overall.
Okay.
Okay.
So we're now when we roll.
Okay.
Hey, good afternoon.
Great.
Okay.
We recognize we're in a storm we've always made adjustments here. So it's not new news our employee certainly understand and respect that in those loans we communicate.
The greater need to do that at the end of the day. That's the best we can do and Thats exactly what we're doing now what we're doing unique to our ingest proteonomic at our numbers now.
Order of magnitude.
As of next week with with the reductions or the adjustments were making now as we tweak down.
Running trades wise.
Were down around 800 employees.
Thats, a big number and Thats, a big impact, but at the same time, we've got.
12200, other employees that we Ole.
And appropriate response to to make sure we protect the health of the company in those 800 I want to back as quickly as we can so what we've done proactively.
Again to ensure that they understand how much they mean to us we're doing things.
On our own aggressively.
To give them benefits to make sure that we ensure they continue to get their insurance to make sure that they have benefits above and beyond what unemployment insurance gives them.
And in response, our employees have given us commitment to come back sooner than they would have otherwise typically in these agreements, especially where they're running traits employees.
Standard is normally existing day call back times.
We still for an extended ourselves for our employees in our employees in turn working with our Union leaders.
They have committed to us if they're going to come back in many cases in 72 hours or less so that we can bounce back and so again, it's a given take situation, it's not a situation or decision that we take lightly, but we feel compelled and obligated to make sure. We continue to adjust in lockstep with our demand. That's what we have done this will will continue to do.
Do so these changes as east tweaks are not shocking its something thats expected and in fact as tough as it is and I think its respected by our overall employment base.
So can you just so I understand when when they go on furlough when you call them back there is no delay of any.
Sensing or anything else that has to be done they come right back in and step right back into those engineers conductors you don't lose any timeframe and reinvestment right.
That's correct 72 hours, we should happen back on the property ready to pull Frank for our customers.
Alright, great thanks for that.
Your next question comes from line Dorgan Algea from Goldman Sachs. Please go ahead.
Yes, hi, right.
For you.
Michael I know there's lot of puts and takes the volumes. So can you talk a little bit about.
Mix effects since you sort of taking into consideration, obviously yields or revenue per ton mile were up six or 7% in the first quarter.
How do you think about that various volumes that you're looking at for the balance of the year. Thank you.
Well I think you see you know maybe what.
Similarly, what we faced in Q1, depending on potash coal in crude volumes. All those are long long haul you'd probably see slightly miles it.
Positive mix.
As you move into.
Q2 in Q3 again, we'll continue to see.
Positive other revenues along sort of the.
Similar.
Run rate that we saw in Q4 in Q1, but I'd say, so finally positive.
Thank you.
Yep.
Your next question comes from the line drawn Chapelle from Evercore ISI. Please go ahead.
Thank you good afternoon.
John You mentioned partnering with the right customers is that you're bringing on on boarding these people summers books in the early part of this year in the back half. This year is there enough shifts to the way that they've talked about the equipment necessary to meet their commitments and any other or commentary from your customers on whether there's kind of where we see mode until there's a good work transparency on the economy.
Or any signs of optimism maybe going into the end of second quarter.
Yeah. So look those those as you can imagine those customer discussions over the past six eight weeks I've been pretty dynamic and really honestly our focus on the front end of this has been around rightsizing our assets working closely with names team and the operating team and.
Those customers to try to get that is right it's possible.
You know certainly I think those customers in the energy space It may be control their assets.
Are thinking about that differently and trying to understand what their their future demands are but there's no magic rubik cube, but in terms of figuring. This out. This is a I think as Keith said, that's it's diameter dynamic its day today, it's a it's critical that were.
We're communicating in staying in lock step that the I think the positive is a again, we believe with the right partners in the right level of of relationships and transparency that you create.
Oh, you said given taken in trying to create that.
Perfect model. So we can we can.
Run their business.
In the downtime and then be prepared or they have the resources back as needed as the volumes continue to ramp up.
Thank you.
Your next question comes from line of David Wright from Bernstein. Please go ahead.
Hi, Thanks for the time, so John just a kind of took a little bit more in a couple of commodities. You mentioned the bulk is gonna be pretty resilient I'm. Just wondering if you could talk little bit about the export coal I look what's your maybe hearing from Tac.
And whether you see any sort of policy changes I'm, making any government side to maybe to help the Canadian economy, a couple of quick or whether it's obviously download interest rate cuts, but even maybe I'm looking at at that pricing approach to it took a regulated product like green.
What do you think that the economic situation severe enough so to consider to its I think that there's some outside risk that you made maybe haven't seen before coming down the road.
Yeah. So you know on Tech I'll, just a you know I think we're modeling in the.
23 million metric ton range for 2020 right now.
It has not provided any any formal guidance that's our number.
It's slightly down you know if they if they said earlier, we saw some challenges with the supply chain in in Q1, and actually think Theres. Some some opportunity to do sort of build up and do some recovery as we move into Q2 and forward.
You know what it's hard to speculate in terms of stimulus I think.
Obviously, the in the U.S. theres been a lot done I think anything that can be done.
In in Canada, the Canadian government, I'm, not going to speculate, but but could only help.
I think the number one thing my team and we can do right now they have it is is to.
To work with these customers to understand what we can do to get them positioned right for recovery and that means aggressively working with them to understand what they're moving on truck that means working with them to understand if there's opportunities that.
That that we can leverage our advantage franchise to help them ramp back up quicker.
I can tell you have got my team laser focused on that.
Type of discussion and it's a shift it's a it's a shift as this thing was the merging it with understanding you know frankly, how we right size our assets with them and now it's a shift to what we can do in the marketplace to as this does recover.
That that we're positioned to.
To to the lead the way with them in their recovery.
Right. Thank you.
Mhm.
Your last question comes from line of Bascome majors from Susquehanna. Please go ahead.
Bascom Research. Your line is open. Please go ahead.
Yeah. Thanks for taking my question did you can you comment and see if you guys should I've heard any request from customers on relaxing payment terms and it may be just generally how you're assessing credit risk both within and beyond the energy markets, where customers may have been disproportionately impacted by what's happening today.
Thanks.
Sure.
So yes, I mean, we have had some requests which as you would expect in this kind of environment I think our team.
That said that manages our credit terms and so forth with a with our customer service facility in Winnipeg does an excellent job of.
Onboarding customers.
The right way, so setting the right payment terms, that's associated with their risk now as things evolve we do monitor.
Payment or on an ongoing basis and to make sure we're not so taken on undue risk.
So uncomfortable we're comfortable at this point in terms of where we are how were you know.
Managing through that how we're keeping an eye and communicating with customers.
Don't see material risk whatsoever.
There are could be opportunities even to help customers that are in need I think the two one of the previous questions or I think that David Vernon have interest around what's the government doing the government is doing something to to support customers and their their credit and ER, which I think directly does.
Support us as well and and helped out that relationship with Oh.
With our customers. So I think it's something that we're managing and we're watching closely.
Thank you.
Thanks Buck.
We are out of time and I will turn the call back over to Mr. Keith Yeah.
Okay, well, let me.
Let me finish with where I started taking good second time to spend with us today. It during these unprecedented times.
Let me say, yes.
It CP were real must we understand we're in for a bumpy ride we're in the store and we're not denying that.
At the same time.
We think it's our responsibility to provide.
The most transparency in the best inside if we can we've got a unique business mix.
We've got unique opportunities.
Not only with a mix, but with our self help initiatives that we've been working on for many years leading into this didn't just start today.
Benefited by very unique first quarter result in this industry.
Fueling our unique audits.
We want to thank our investors for the competition the trust they put or not.
Through this store before and after we certainly intend to reward you for that confidence.
We look forward to sharing your results after the next quarter.
One of wish everyone. The best stay healthy and we'll talk soon thank you.
This concludes today's conference call you may now disconnect.
[music].