Q4 2023 Canadian Pacific Kansas City Ltd Earnings Call

Good afternoon, My name is James and I'll be conference operator today.

At this time like to welcome everyone to see Pkc's fourth quarter and full year 2023 conference call.

Slides accompanying today's call are available at Investor Dot C. P K CR dot com.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question and answer session. If you'd like to ask a question simply press Star then the number one on your telephone keypad.

To withdraw your question press Star two.

I'd now like to introduce Christa, Vice President capital markets to begin the conference.

Thank you James Good afternoon, everyone and thank you for joining us today.

Before we begin I want to remind you. This presentation contains forward looking information.

Actual results may differ materially the risks uncertainties and other factors that could influence actual results are described on slide two and in the earnings press release filed with Canadian and U S. Regulators. This presentation also contains non-GAAP measures outlined on slide three. Please note. In addition to our regular quarterly financials their supplemental Q4 and full year.

Combined revenue and operating performance data available at Investor got P. P. T C. Our dot com, which some of today's discussion will focus on.

With me here today is Keith Creel, President and Chief Executive Officer.

<unk>, our executive Vice President and Chief Financial Officer.

John Brooks, our executive Vice President and Chief Marketing Officer, and Mark read our executive Vice President and Chief operating officer. The formal remarks will be followed by Q&A and the interest of time, we'd appreciate it if you could look to take your questions to one.

It's now my pleasure to introduce our president and CEO, Mr. Keith Creel.

Hey, Thanks, Chris and thanks to everyone for joining us today give us a chance as a team to share our fourth quarter results as well as.

Our view for this exciting year ahead in 24 that we have tried to create value for our shareholders for our customers and our CP Casey family.

So with that comment let me start by thinking that she PK. She family 20003 nation strong family of railroad as industry best their body of work enabled the results when we get to talk about today and obviously the work that you're ahead of us as we create value for all of our stakeholders and I can tell you as a leader it's my honor to be able to do with your colleagues.

With me here today to represent their body of work.

Well that's ever speak to the results for the quarter. This team delivered revenues of $3 8 billion, which is up 4%.

Volume growth of 4%.

An operating ratio that represents 220 basis points of improvement versus last year to $58 seven.

Core EPS of $1.18 also up 4% versus last year and for the full year revenues of $13 9 billion up 5%.

Volume growth of 1%, a very unique industry story, an operating ratio of 62% core EPS at $3 84 per cent.

Up 2% versus last year.

So steadily standalone, certainly unique and impressive results.

Even more so when you think about this as a railroad in the early stages of an integration working against the challenging macro environment. All at the same time. So here. We are 10 months into it for every store you see Teekay C and I'm, telling you I'm extremely proud of the progress. This team has made across the organization be it operationally sales in March.

<unk> Finance Oh, yes, all areas of the business. This is a team that's committed to creating value as we said we would be doing exactly what we said we would do that.

I can tell you a tremendous amount of work went into preparing for this merger for this combination and even more so it was gone into executing it.

Leaders I believe this we're not here to.

Sustained performance sit here do they get better here to make an impact to improve upon it and that's exactly what this team has been doing for the last 10 months, we've watched new services market solutions across the industry, but this transaction has uniquely enabled b at a 180 181 service or Mexico, Midwest Express, which.

He is the gold standard in the industry in spite of what anybody else might say trying to imitate it fits best in class delivering fast reliable single line service across a very fluid and always open border closed loop service solution for the automotive industry that provides a differentiated level of service and reliability that the Oems are embracing and recognize that.

How you did that creates and a reliable supply chains are connecting origins and destinations at HCP and then C forest products again with the unique single line service across the all three nations they make gains in operating efficiency service reduced assets with increased velocity.

Well, we've eliminated handles we've also made strong progress I'm very pleased to say on the labor side on the U S Army Big standard a very unique hourly agreements, which I believe gives us unique competitive advantage not only to serve our customers, but also to attract and retain the best railroad in talent in the industry.

And in Mexico.

Status of trust and respect with our one union that they're working towards agreements Ah that it not only improved service, but also benefit the employees. So it's truly a win win for Mexico for employees as well as our customers utilize our service.

Also through the year, while we're doing all that with continued progress on our hydrogen locomotive program. We've now got too low horsepower locomotives that are servicing customers everyday in Calgary come rain.

I'm, Sean kind of snow reliably producing a zero emissions, our calgary customers in that market as well as be fabricated our first high horsepower locomotive, which we completed late last year, which completed its first test movement will be putting that into service later this year and a cold with a tender car, but cycling.

Coal between.

The coal mines in British Columbia in the Tidewater in British Columbia in partnership with our largest customer check co, creating a green corridor.

And above all of that while we're doing that most importantly, we have improved and continue to make vast improvements in our safety performance as a combined company building upon C piece long history of industry, leading safety performance.

So all that to say, if we've entered 2024 and a position of strength industry, leading results and we're going to continue to build upon that and our mother.

Mother nature has troubled us a bit.

First smart that said, it's a challenge it's not an excuse for well positioned to recover we've regained our momentum.

We started the year with.

And we're in a great position to continue that through this quarter and into the balance of the year.

So let me close by saying 23 was a very special year, we bought.

Two great companies together C P and K she has to create a very unique.

Industry, leading most relevant rail network and C. D. K C. The connected economy continent in a way that's never been done before and I would suggest we'll ever be done again three cuts. So it's a combination took effect in April we've seen a steadily built momentum.

I can tell you. We're just getting started 'twenty 'twenty four is shaping up to be an even more exciting more year than 2023. So that said, let me yeah, let me hand, it over to Mark I want him to expand speak to some operational points, yeah, that's going to be some color on the markets and they do more things.

You saw them on the numbers and then we'll open it up for questions. So could you give more right. So first of all thank you Keith good afternoon, I'd like to just first of all I think the operating team for their continued hard work and delivering safe reliable service crosses great network. If I think about bringing two networks together certainly this isn't easy and there's been still a long list of opportunities out there, but I.

With the progress we are collectively making also I'd like to thank the teams effort to combine C. P. Casey that work as we enter 2024 and a place of strength as Keith noted, but while we've been dealt with some weather for the first part of the year, we are well positioned to rebound quickly and have done so.

As I look at safety, I would remind and hum.

Last one railroad studying onto C. DS 17 consecutive years in the industry.

This is an impressive milestone highlights the team's dedication to excellence, while ensuring the safety remains our top priority, but also showcase the strong commitment to safety. The bulk case. He has he brought together in this merger.

Because I look at the operating performance.

Year over year for the quarter, Yeah for a personal injuries landed at 1.10, which is a 15% improvement. Therefore I train accident frequency was a 1.08, which is a 23% improvement if I look at locomotive productivity improved 13% train speed at 6% our fuel is 2% better.

And our average terminal dwell was down 11% strong an indicator of how well our network is performing.

As I talk about the as I think about the dry the backdrop of all time record highs of G. T M, it's 5% year over year and 11% sequentially.

From a safety perspective, I think about twenty-seven subdivisions and around 2600 miles of dark territory now protected with seat Dkc's broken rail detection system, we plan on putting eight more additional subdivisions in 2024.

Yes, the acoustic bearings, we're looking at an additional five across the network because this will expand on our detection capabilities.

So I'm looking at our capital projects for the year 2023 we in service three new sidings and constructed.

We'll construct five more in 2024. This is all part of the $275 million merger commitment that we have.

If I look at the Laredo Bridge, where 45% complete at this point, we remain on target to be done by end of the year.

We're also investing in capital in Mexico, and increased capacity fluidity across the north South corridor between Laredo and San Luis Potosi.

All of these projects will support growth further improvement in our network performance and as I look at 'twenty 'twenty four will continue to build the momentum that we generated in this past year. In 2023, we continue to work strongly Johns team to to provide to provide service to generate industry leading growth that this network.

Can achieve and with that I'll turn it over to John Alright. Thank you Mark and good afternoon, everyone. So having now wrapped up our third quarter as the combined C. P. Casey.

Excited as ever I can tell you about the opportunities that sit in front of this company, it's a unique franchise.

Year and quarter ended on a strong note and we are well positioned to continue delivering differentiated growth in 'twenty 'twenty four.

Now looking at our results on a combined basis, we had record freight revenue up 4% on 4% our T M growth purposes pro forma C. P. K T a year ago in line with exactly what we spoke about during our third quarter call.

That's part of our T M was flat year over year with fuel and other freight offsetting a continued strong pricing environment now.

Now taking a closer look at our fourth quarter revenue performance I'll speak to the FX adjusted results on a comparison versus C. P. Casey had the combination occurred in 2022.

Starting with bulk grain revenues were down 3%.

7% decline in our Tms.

Adrian grain volumes were down 15% year over year, driven by a weaker harvest.

For the 2023 'twenty 'twenty four crop year, particularly in our C. P Casey draw territory.

Additionally, we saw the Canadian farmer be more price sensitive and hold onto more of their crop, which added to the weakness in this volume on the quarter.

While this was a headwind to closing out 2023, ultimately this green will still move and it provides some modest upside into 'twenty 'twenty four now that being said, we still expect to see weakness year over year in Canadian grain to persist until we get to the new crop.

U S screens.

Up 3% as we benefited from a solid harvest steady market demand and growth from synergies as we continue to connect new origination and destination pairs across our new network. Additionally, we continue to see investment in growth in our 8500 foot model.

End of 'twenty 'twenty, 460% of our franchise in Canada will be 8500 foot capable.

All eight of the 8500 foot.

Elevators that Richardson international is developing across our network. We continue to roll out this model and work with customers down in the U S and ultimately down into Mexico to rollout this high efficiency operating model.

Moving out of potash revenues were up 16% and 20% volume growth.

Our volume increase was driven by strong supply chain performance and higher volumes of export potash with Canpotex as we work together to find additional outlets for volume given the Portland terminal outage during the first two quarters two months of the quarter.

In early December the Portland terminal came back online and we're able to quickly return to a full run rate by the end of the year.

We are positioned well for strong potash growth in 'twenty 'twenty four.

And our finished finished out the bulk business coal revenue was up 32% on a 33% volume growth driven by favorable compares following last year's outage at tax out of your mind.

Now moving on to the merchandise franchise E. C. P revenue grew 6% on 3% volume growth.

Refined petroleum products in asphalt group, driven by new market share and growth also within plastics to the Midwest. We will continue to benefit from the new business wins that started up in Q3 and Q4 of last year.

Some of this growth was muted by a facility outage and a slower ramp up.

With solid demand fundamentals ongoing ramp up of this business wins and continued synergy gains we are setting up for a strong 2024 and ECP.

In forest products revenues were up 2% on a 1% increase in volumes.

Despite a softer demand in our base business in this area, we have seen nice synergy wins in this space.

Customers take advantage of our new single line haul network connecting new markets.

The metals minerals and consumer products portfolio was up 3% on flat volumes.

We continue to see strong growth in steel out of our production facilities across their network supporting industrial and infrastructure growth across North America.

This quarter. However, in this area with offset somewhat by weakness in frac sand to the <unk>.

Backing and the also the Permian basin as we saw in earlier seasonal downturn and some growth in in basin sand.

Automotive revenues continued to be strong up 22% and 19% volume growth another record quarter for our automotive franchise.

Our automotive franchise is benefiting from new business solid continued production from our Oems and steady equipment supply driven by improved operations and cycle times, particularly in Mexico.

We are pleased with the new agreements we have developed that enable closed loop service solutions, providing this industry service reliability. It has never had in the past, including the use of our new auto compound in the Dallas Metro area and linking customers traffic between the U S, Canada, and Mexico via our <unk>.

Line haul service.

For automotive 'twenty 'twenty four is positioned to be exciting year as we can.

See a path to a record volume on our franchise.

On the intermodal side revenue was down 11% on flat volumes.

Domestic intermodal intermodal continues to be challenged by lower retail volumes ample truck capacity.

Some general market softness.

Now our M. M X 180, 181 that Keith spoke to cross border service continues to perform very well. This is truck like service with a safer liable border crossing between Mexico and the U S.

We saw growth in this service in the fourth quarter, particularly across our north palm volumes.

While the base demand in domestic intermodal is something that myself and my team are watching closely particularly across Canada.

Opportunity for cross border intermodal will continue to see steady synergy growth from over the road conversion and new customer solutions as we move throughout the year.

As part of those new solutions I'll remind you we are very excited to break ground in February on the new Americold facility co located in our intermodal terminal in Kansas City.

This partnership with Americold is another step in creating new rail options for shippers in a market that is dominated by trucks.

Moving over to international intermodal.

After a challenging third quarter. This business has picked back up we ended the quarter with volumes up 2%.

Although we remain cautious on our outlook for 'twenty 'twenty four in this space. We are certainly encouraged by the recent trends. We're also encouraged about the progress we are making at the port of lateral cardenas in 2020 three the terminal thought <unk> growth of 30% while C. P casing volumes grew by <unk>.

35% versus 2022.

Our customers are enthusiastic as we continued to develop this service and educate them on the supply chain alternatives.

When you combine this with our 50% ownership in the Panama Canal Railroad. We are excited about the unique solution C. P. Casey can offer ocean carriers and their beneficial cargo owners.

So in closing despite some early weather challenges in January we are entering the year with strong momentum.

Well, we have a known headwind from Canadian grain in the macro backdrop remains uncertain. We have a strong line of sight to remain uniquely positioned to deliver long term growth.

Our synergies in 'twenty 'twenty, four combined with base self help initiatives and a disciplined pricing approach. We will continue to be an exciting story and differentiator for us in this industry.

With that I'll stop and I'll pass it over to Nadine great. Thanks, John and good afternoon. So first I'd like to thank the C. P. Casey family railroads for working tirelessly throughout the year to bring our two companies together 2023 with truly historic and I'm extremely proud of the hard work and dedication entertainment display.

Looking at the quarter see Pkc's reported operating ratio was 61, 8% and the core adjusted operating ratio led the industry for the second quarter in a row coming in at 58, 7%, which was a 220 basis point improvement versus Q4 2022.

Earnings per share was a dollar and Tencent and core adjusted combined earnings per share was $1 18 up 4%, which was also industry best on a quarter.

On a full year basis see Pkc's reported operating ratio was 65% and the core adjusted combined operating ratio came in at 62%.

Earnings per share was $4 in 'twenty one.

Core adjusted combined earnings per share were $3 84 up 2% year over year.

Now taking a closer look at our income statement reported operating expenses for Q4 and full year are provided on slide 14.

Combined operating expenses for the Q4 are on slide 15.

What we shared last quarter, our combined operating expenses illustrate the estimated effects of the acquisition for the fourth quarter and since the acquisition closed on January 1st 2022.

I will only speak to FX adjusted fourth quarter operating results in these prepared remarks.

We have included full year results in the appendix for reference.

Starting with comp and benefits.

It's expensive.

637 million up 2% when compared to combined comp and benefits expense a year ago.

This includes $7 million of integration related expenses incurred.

The increase was driven primarily by wage inflation increased incentive comp and higher volumes.

Average head count was down slightly sequentially in Q4, what kind of 'twenty 'twenty four we expect head count growth to be below volume growth on a year over year basis.

Partially offsetting the increase was lower current service costs and the DB pension plan, resulting from higher discount rates and lower stock based comp.

Looking at 'twenty 'twenty four we expect to have a $16 million headwind, resulting from lower discount rates, which has more than offset below the line.

Fuel expense was down 8% year over year decline was primarily driven by a 10% decline in combined fuel price along with a 2% improvement in Peru efficiency that Mark mentioned.

Partially offset by a 5% increase year over year.

Materials expense was down 9%.

The decline was largely driven by reduced broker motive maintenance material spend.

For them it rents were $676 million down 1%.

Improvements in efficiency and an increase in receivables drove the improvement.

This is partially offset by an increase from inflation and lower use of C. P. Casey intermodal equipment by other road.

Depreciation and amortization expense was up 6%, resulting from a higher asset base.

Purchased services and other was relatively flat year over year reduction in the casualty expense and gains in efficiency were offset by volume related increases and inflation.

Moving below the line I'll make a couple of comments on inflation.

Last year, we were not able to reprice, our entire book to offset the impact of inflation on our cost structure.

Created a headwind to or throw in 2023.

As we move into 2024, the impact of inflation on our expenses as moderate. Additionally, the pricing environment remains strong and we will re price a portion of our contracts that did not renew during the period of higher cost inflation in 2022 2023.

These together, we should see some catch up in a tailwind to or in 2020 four from inflation dynamics.

Moving below the line other expense without the $12 million in the fourth quarter.

Other components of net periodic benefit benefit recovery decreased $34 million, reflecting higher discount rates compared to 2022.

We expect this line to increase by approximately $23 million in 2024 from $327 million in 2023, offsetting the headwind in comp and benefits from the current service cost.

Net increase in net interest expense of 206 million or $200 million on an adjusted basis. The decline was driven by reduced debt balance.

On the quarter income tax expense of $275 million and 315 14 million on a core adjusted combined basis.

Looking ahead to 2024.

C. P casing four adjustments combined effective tax rate to be approximately 25%.

Turning to slide 17, we continue to generate strong free cash flow with cash provided by operating activities of $1 3 billion in Q4.

First call on capital continues to be the business and growth in the quarter. We reinvested just over 700 million to end the year in line with our outlook to invest $2 7 billion of capital on a combined basis.

Looking at 'twenty 'twenty four.

Main disciplined in our approach to capital allocation and we expect capital spending to be $2 75 billion for the year.

This reinvestment in the business builds off of a record capital investment because the combined company in 2023, and our network is well positioned from a capacity perspective to absorb the growth that we have in front of us this year.

We generated $785 million and adjusted combined free cash flow on the quarter and just under $2 2 billion in 2023.

[noise] adjusted combined leverage was three four times to end the year on our path back to our targeted leverage of two five times, we expect to reach this target late 2024 or early 2025 at which point, we will evaluate shareholder return turns with our board.

Looking ahead, despite a known headwind in grain John mentioned and is still somewhat uncertain macro we expect to deliver double digit core adjusted combined earnings growth from the core business in 2024.

James: Good afternoon. My name is James, and I'll be your conference operator today. At this time, I'd like to welcome everyone to CPKC's fourth quarter and full year 2023 conference call. The five accompanying today's call are available at investor.cpkcr.com. All lines are encased on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question, simply press the star, then the number 1 on your telephone keypad.

We also anticipate generating strong free cash flow, while making record investments in the network to sustain future growth.

And getting back to our targeted leverage.

Putting all this together C. PKC offers a truly differentiated investment profile and I'm excited to continue delivering on the commitments that we've made to our shareholders.

Operator: If you would like to withdraw your question, press star 2. I'd now like to introduce Chris DeBruin, Vice President, Capital Markets, to begin the conference. Thank you, James. Before we begin, I want to remind you this presentation contains forward-looking information, and actual results may differ materially.

Looking back we ended 2023 with strong momentum best in industry earnings results, that's yet to come but network is performing well synergies are ramping and we are well positioned for a strong 2024.

An exciting time to be railroading at C. P. Casey so with that let me turn it back over.

Chris Wetherbee: The risks, uncertainties, and other factors that could influence actual results are described on slide 2 and in the earnings press release filed with Canadian and U.S. regulators. This presentation also contains non-GAAP measures, outlined on slide 3. Please note, in addition to our regular quarterly financials, there is supplemental Q4 and full-year combined revenue and operating performance data available at investors.ppkcr.com, which some of today's discussion will focus on. With me here today is Keith Creel, President and Chief Executive Officer, Nadeem Velani, our Executive Vice President and Chief Financial Officer, John Brooks, our Executive Vice President and Chief Marketing Officer, and Mark Redd, our Executive The formal remarks will be followed by Q&A. In the interest of time, we'd appreciate it if you could limit your questions to one. It's now my pleasure to introduce our President and CEO, Mr. Keith Creel. Hey, thanks Chris and thanks everyone for joining us today.

Thanks, gentlemen, operator, let's open up the line for questions.

Thank you.

I'd like to ask a question simply press Star then the number one on your telephone keypad, if you'd like to withdraw your question Press Star two.

Previously highlighted please limit yourself to one question.

Yeah.

And we'll take our first question from Walter <unk> with RBC capital markets.

Thanks, very much operator, good afternoon, everyone show up on the double digit earnings growth I noted, even when you when you that that's consistent with what you provided at Investor day.

They're in July and I'm just.

During the later in the session.

At that day, you kind of.

Gave us an indication into a doubling of your earnings growth by the end of that multi year period, suggesting kind of a mid teen.

Keith Edward Creel: Give us a chance as a team to share our fourth quarter results as well as... Our view for this exciting year ahead in 24. We have to create value for our shareholders, for our customers, and for our CPKC family. So that comment, let me start by thanking the CPKC family. It's a 1,000 three-nation strong family of railroaders, the industry best.

EPS growth in the early year than perhaps ramping once youre able to kick in the.

The buyback is that still the case that in the early year here in the year one the mid teen cadence is still holding and then ramping after that or is or have a half conditions change that that would cause you to change that that overall view.

Keith Edward Creel: Their body of work enabled the results that we get to talk about today, and obviously, the work that's ahead of us as we create value for all of our stakeholders. And I can tell you, as a leader, it's my honor to be able to be with the colleagues that are with me here today to represent their body of work. So that's how we'll speak to the results. For the quarter, this team delivered revenues of $3.8 billion, which is up 4%, volume growth of 4%, an operating ratio that represents 220 basis points of improvement versus last year, and a 58.7 core EPS of $1.18, also up 4% versus last year. This is a four-year revenue of $13.9 billion, about 5%.

Well you know since we gave our guidance in June.

Walter Nothing has changed other than I pointed out that you know we had a grain crop that came in maybe a bit weaker.

Starting in the grain crop starting in August so that's going to hurt us near term a little bit probably in Q2 of this year other than that the the model remains the same.

To support the business with the phase of organic growth.

We're going to have the benefits of synergies which were.

Ahead of schedule on and then we're going to see continued margin improvement and then the benefit in the outer years of our share buybacks and shareholder return. So nothing has changed on that piece as you know we've guided to double digit for this year, we're obviously not going to get a benefit from buybacks.

Keith Edward Creel: Volume growth of 1%, a very unique industry story, and an operating ratio of 62%; core EPS is $3.84, up 2% versus last year. It's a stand-alone, certainly unique and impressive results, even more so when you think about this is a railroad in the early stages of an integration, working against a challenging macro environment, all at the same time.

Any.

We're not going to buy back stock until we get our target leverage back.

That's right.

As compared to the outer years of that five year outlook.

But that's the only only changes, let's say that the macro environment is probably a little bit weaker still in terms of the intermodal side that John mentioned.

Keith Edward Creel: So here we are, 10 months into our forever story at CPKC, and I'm telling you, I'm extremely proud of the progress this team has made across the organization, be it operationally, sales and marketing, finance. I ask all areas of the business, this is a team that's committed to creating value as we said we would. We're doing exactly what we said we would do. And I can tell you a tremendous amount of work went into preparing for this merger, for this combination, and even more so has gone into executing it. The leaders, I believe this, they're not here to sustain performance; they're here to make it better. They're here to make an impact, to improve a product. And that's exactly what this team has been doing for the last 10 months.

But other than that we're right on track right on our on our plan to that that guidance I gave you.

Okay I'll keep it to one thanks very much.

Thanks Walter.

Our next question will come from Tom Water-witch with UBS.

Keith Edward Creel: We've launched new services, market solutions across the industry that this transaction has uniquely enabled, be it our 180-181 service, or our Mexico Mid-Rex Express, which is the gold standard in the industry, in spite of what anybody else might say, trying to imitate it. It's best in class, delivering fast, reliable, single line service across a very fluid and always open border. A closed loop service solution for the automotive industry that provides a good merge level and service and reliability that the OEMs are embracing and recognize the value that that creates in their reliable supply chains.

The magnitude of improvement in operating ratio that would.

Would fit into a base case. Thank you.

Thomas Wadewitz: No Tom that's a great question I'll tell you. This this is what we're expecting mostly contingent RPM growth.

Double digit EPS and margin improvement now tell me what the back half of the year looks like tell me what the macro is going to do we've taken I believe.

And appropriate conservative approach in the back half surprises and some of those weaknesses that they didn't spoke off the domestic.

Be it a normalized grain crop or maybe a little bit better then there's some upside there, but we've taken a modest.

Keith Edward Creel: Connecting origins and destinations with ACP, MNC, and Forest Products again, with a unique single line service across three alternate nations. We've made gains in operating efficiency, service, reduced assets, increased velocity, we've reduced dwell, and we've eliminated handles. We've also made strong progress, I'm very pleased to say, on the labor side. On the U.S. side, we've expanded our very unique hourly agreements, which I believe gives us a unique competitive advantage, not only to serve our customers but also to attract and retain the best railroading talent in the industry. And in Mexico, the status, trust, and respect with our one union that's there working towards agreements that it not only improves service but also benefits the employees, so it's truly a win-win for Mexico, for our employees, as well as for our customers that utilize our service.

Thomas Wadewitz: Approach responsible reasonable conservative approach and we expect to hit these results and again, if we get a couple of things that might turn our way then we certainly have an opportunity to exceed them.

Okay, great. Thank you.

Our next question will come from fatty Shimbun with BMO.

Yeah. Good evening. Thank you.

Thomas Wadewitz:

You know at the June Analyst Day, you indicated you had 240 million ounces come out.

Actual annualized revenue synergies and you suggested that our pipeline line of sight to 950 I'm just wondering like as we stand today, what does it look like and how do you feel about the pipeline for 2020 for some of these revenue synergies.

Keith Edward Creel: Also, through the year, while we're doing all that, we've continued progress on our hydrogen locomotive program. We've now got two little horse style hydrogen locomotives that are servicing customers every day in Calgary from rain, come shine, come snow. We're loudly producing zero emissions for our Calgary customers in that market, as well as we fabricated our first high horsepower locomotive, which we completed right last year. It completed its first test movement.

Hey, Paddy if it's John so as I said I feel really really good I think we made great progress in.

In the first 10 months.

I can tell you we've got some contracts and some wins in in 2023 that we haven't realized yet they're just starting to ramp up and I think we're going to see a progression.

Those I still think we got a long tail on on the 180 181 product as we move through <unk>.

Through 2024, and hopefully we see you know some of the domestic intermodal trends macro trends, maybe move in our favor a little bit in and honestly that included the lazaretto also you know it's been a quite of educating process with the steamship lines and the beneficial car.

Keith Edward Creel: We'll be putting that into service later this year in a coal loop with a tender car cycling coal between the Coal Mines in British Columbia and the Tidewater in British Columbia, in partnership with our largest customer, Tech Coal, creating a green corridor. And above all that, while we're doing that, most importantly, we've improved and continue to make vast improvements in our safety performance as a combined company, building upon CP's long history of industry-leading safety performance. So all that to say, we've entered 2024 in a position of strength, with industry-leading results, and we're going to continue to build upon that. You know, mother nature has humbled us a bit in the first month. That said, it's still a challenge. It's not an excuse,

Go owners around what that port potentially could do be honest I would hope that would be a quicker start up but we are starting to gain some some traction. There. So you know I think I did.

We guided to a three we mentioned $350 million, we saw as they are we're very comfortable we're on that pace I would tell you right now that we've we've slightly exceeded that we're ahead of that and well on the way to those numbers, we talked about it at Investor day.

Thank you.

Thanks Betty.

Our next question will come from Chris Wetherbee with Citi.

Yeah, Hey, Thanks, Good afternoon, maybe a question on pricing. So you guys noted that there's a little bit of catch up going on in 'twenty four in terms of some of the contracts that you didn't get a shot at over the last couple of years and you have moderating inflation, that's a little bit different than what we've heard from some of the players in the space, particularly some of the U S. Names. So maybe if you could just put a little bit of color around sort of the pricing environment.

Keith Edward Creel: We're well positioned to recover. We've regained the momentum that we started the year with, and we're in a great position to continue that through this quarter and into the balance of the year. So, let me close by saying 23 was a very special year.

That you're seeing and is this sort of upside opportunity in the U S versus Canada, if theres any sort of difference there kind of what the contract renewals are coming in around that.

Yeah, Chris John a couple a couple of thoughts on that one is I'll tell you Q3, and Q4 were quite strong some of the best rail pricing that I've seen and again I think part of that was us through the year kind of catching up to some of those inflationary numbers.

Keith Edward Creel: Two great companies together, CP and KCS, to create a very unique, industry-leading, most relevant rail network in TPKC. We've connected a continent in a way that's never been done before and, I would suggest, will never be done again, three continents. Since the combination took effect in April, we've seen steadily build momentum, and I can tell you we're just getting started. 2024 is shaping up to be an even more exciting year than 2023. So that said, let me hand it over to Mark.

So we're gonna get a tailwind and that there's there's been a fair amount of repricing and as we've dug into the bulk of the new company.

And in some of those contracts have rolled over there.

There's been opportunities, where we felt that we needed to reprice some of that book.

Yeah, I'll remind you we took control and in April of last year. So a lot of the contracts are you know leading up to that time Tcs Standalone had Ed Hurd had renewed on their own. So I can tell you. My team is kind of getting a first look at a number of those those contracts.

Keith Edward Creel: I want him to expand, speak to some operational points. John's going to bring some color on the markets, and Nadeem will bring us home on the numbers, and then we'll open it up to questions. So, over to you, Mark.

Rolled over to start start this year and and the results I think most importantly are the results in those areas continue I would say on the trajectory of what we saw in Q4.

Mark: Right. So, first of all, thank you, Keith. Good afternoon.

Mark: I'd like to first of all thank the operating team for their continued hard work in delivering safe, allowable service across this great network. I think about when we get two networks together, certainly this isn't easy, and there's still a long list of opportunities out there, but I'm pleased with the progress we're making collectively. Also, I'd like to thank this team's effort to combine CCKC into a place of strength, as Keith noted. So while we've been dealing with some weather for the first part of the year, we're well positioned to rebound quickly and have done so. As I look at Faithy, I would remind them. I'd like to recognize the entire team for the tremendous safety results that we've had.

So again my expectation would be that the first half of this year.

<unk> remained strong on that front end and we'll see what the back half comes when we get there.

Great. Thanks very much.

Yeah.

Our next question will come from Steve Hansen with Raymond James.

Yeah, Good evening guys. Thanks.

Look your network wide improvements in speed and dwell a bit pretty striking over the past several months notwithstanding last week or two.

Just hoping you could point to where these gains have been coming from more specifically on a geographic basis and what that might imply for some of the prior congestion issues you've acknowledged in Mexico, and then I guess ultimately what it means for bringing on the revenue synergies down there as well thanks.

Mark: I'm extremely proud to say again in 2023, we have the lowest ever train accident frequency on Class 1 railroads, building under 50, 17 consecutive years in the industry. This is an impressive milestone, and it highlights the team's dedication to excellence while ensuring that safety remains a top priority. It also showcases the strong commitment to safety that both KCF and CP brought together in this merger. They'll look at the operating performance. Sabes, Gene Espaa, Music, Music, Music for Music, I look at locomotive productivity improved 13 percent, our train speed at 6 percent, and our fuel is cheaper for better.

Steve Great question, Let me, let me say it has not gonna have.

Gentlemen that are driving that lead into separate day, both Mark March part of the store John's part of the store and their teams.

That's the beauty of this is not singular its diversified.

You know what Mark has done in Canada relative to driving well down train speed off for 100, and senior strains that never ran better.

The focus there and the intensity and the opportunity to drive not only train speed, but asset turns and locomotive velocity and fuel efficiency.

Mark and the team are doing a phenomenal job and at the same time.

Part of the task force, we've taken a challenge.

Which comes with growth we've turned it into an opportunity and John take this team and its turned it into an organization that's focused on process focused on <unk>.

Mark: In our average terminal, as well, we're down 11%, a strong indicator of how well our network is fulfilling. As I talk about this, I think about the backdrop of all-time record highs of GTMs, 5% year-over-year, and 11% in subsequent years. From a safety perspective, I think about 27 subdivisions and around 2,600 miles of dark territory are now protected with C.P. Casey's Broken Rail Detection System.

P S. Our principles, where we turn assets, where we get better for our customer we whiteboard with G M. A whiteboard with Atlanta.

Atlanta is we whiteboard with Bartlett, we like both with our customers. So that we can identify what's possible and then we work to strive to achieve the art of the possible and it's all about asset turns speed and velocity, but it is a result of that too although I said I'm gonna. Let these guys talk I get carried away here.

You know part of what we learned that we're super excited about is with a little bit of strategic investment much like in the playbook of peso on the pass this isn't about cutting costs its them.

Mark: We plan on putting eight more additional subdivisions in 2024. So I look at the acoustics there, and we're looking at an additional five across the network, which will just expand our detection capability. So looking at our capital projects for the year 2023, we have serviced three new sidings and constructed, and will construct five more in 2024. This is all part of the $275 million merger commitment that we have. If I look at the Laredo Bridge, we're 45% complete at this point.

About strategically and surgically investing money to create capacity in Brazil.

The resiliency to eliminate bottlenecks turn assets more it's about locomotive productivity. It's about train speed. It's about crew productivity. It's about fewer re crews it's about turning assets greeting cards to <unk>.

Capacity to doing that for our customers. So that we can create more loads with less cars. It's P. S. R. Two pointed out and John has done a masterful job of integrating and starting that evolution in Mexico. Since that task Force was created so you know again a couple of highlights John couple of highlights Mark you guys have got it I guess.

I'm proud guy that gets to talk about it I love it when I see it happened, but let me let me give these guys a chance to share.

Mark: We remain on target to be done by the end of the year. We're also investing in capital in Mexico to increase capacity and fluidity across the north-south corridor between Laredo and San Luis Potos. All of these projects will support growth and further improvement in network performance.

Sure a couple of highlights for you, Steve as well with the rest of our investors to give you some.

The meat on the bone so to speak not just a bunch of rhetoric, but real life examples of the art of the possible.

So if we think about just 100 series in Canada, maybe we've we've shortened some of the trains up just a bit just to get more track speed across the network and that's been.

Mark: And as I look at 2024, we'll continue to build the momentum that we generated in this past year in 2020. We will continue to work closely with John's team to provide service and generate industry-leading growth that this network can provide, and with that, I'll turn it over to John. Alright, thank you Mark, and good afternoon everyone. So having now wrapped up our third quarter as a combined CPKC, I'm as excited as ever to tell you about the opportunities that sit in front of this company. It's a unique franchise.

We've been able to produce locomotives by doing that we've been able to give a product to the two to John is that he can sell to the marketplace. So that's some of the years, we focused on large focus on K CSR property, where we had boots on the ground at the switching yards that we spoke about this in the previous quarters, we spoke about some of the in train.

Payers that we're doing at Kansas City, and really just ramping up mechanical operations. Some of the things we haven't spoke too much about its not train speed is not this other stuff, but it's about working in diesel shops, we're gonna take 'twenty 'twenty four spend some time on the diesel shops, and do our own overhauls, where we've had to do that in the past and give it.

John Brooks: The year and quarter ended on a strong note, and we are well-positioned to continue delivering differentiated growth in 2024. Now looking at our results, on a combined basis, we had record freight revenues of 4% on 4% RTM growth versus pro forma TPKC a year ago, in line with exactly what we spoke about during our third quarter call. Since our RTM was flat year over year with fuel and other freight offsetting a continued strong pricing environment, now taking a closer look at our fourth quarter revenue performance, I'll speak to the APEC suggested results as a comparison for CPKC had the combination occurred in 2022. Starting with bulk, grain revenues were down 3% on a 7% decline in RPM.

Two third parties will do more of that in house. We will also leverage the top plant that we have in Shreveport, Louisiana leverage the wheel shop that we have in Winnipeg and use that cross border to build up to in house, our wheels put the December and the in there right away, where we need to in <unk>.

Hence our engineering gangs as well.

Do some of that head count and engineering gangs, but also this will be the first year that we can.

Our work toward.

System games with Casey's, sorry, and also the salon and with that I'll hand, it over to John to talk a little bit about Mexico, yeah, Thanks, Mark and thanks Keith.

Think of all he used to seeing frame because we've got the same approach we've taken a boots on the ground effort to help stabilize and improve Mexico operations in 2023.

John Brooks: Canadian grain volumes were down 15% year-over-year, driven by a weaker harvest for the 2023-2024 crop year, particularly in our CPKC Draw Territory. Additionally, we saw Canadian farmers be more price sensitive and hold on to more of their crops, which added to the weakness in this volume for the quarter. Well, this was a headwind to closing out 2023. Ultimately, this grain will still move, and it provides some modest upside into 2024. Now that being said, we will still expect to see weakness year over year in Canadian grain prices to persist until we get to the new crop.

John: Force was a tri National task forces railroader.

She was a central part of Mexico around the automotive hub to really streamline the businesses there.

And unlock the potential of the fluidity in the south of Mexico and worked progressively northward.

Proved our dwell and some are we supposed to see Monterrey and our border terminal at Sanchez yard that all started to really pull together the velocity the resource utilization improvements on locomotive use locomotive productivity and even labor productivity.

John Brooks: U.S. Greens We're up 3% as we benefited from a solid harvest, steady market demand, and growth from synergies as we continue to connect new origination and destination pairs across our new network. Additionally, we continue to see investment and growth in our 8,500-foot model. By the end of 2024, 60% of our franchise in Canada will be 8,500-foot capable, including all eight of the 8,500-foot elevators that Richardson International is developing across our network. We continue to roll out this model and work with customers down in the U.S. and ultimately down into Mexico to roll out this high-efficiency operating model. Moving on to Potash, revenues were up 16% on 20% volume growth.

Since then the task force has worked to embed best practices that we.

Shared or inherited from the C. P. P C merger and now we're turning our attention to you improving cycle times on some of the bulk business or some of the more complex larger customers in the steel and metals sector.

We're we're using the time that we spent boots on the ground to really pinpoint a structural improvements engineering out chokepoints and that's reflected in our 2024 capital allotment as you said, Keith very precise and targeted to continuing the fluidity of the opportunity to grow that.

Business and to continue to to pivot to growth.

And separately you guys. Thanks.

John Brooks: The volume increase was driven by strong supply chain performance and higher volumes of export products with Campitex as we worked together to find additional outlets for volume given the port and terminal outage during the first two months of the quarter. In early December, Portland Terminal came back online, and we were able to quickly return to a full run rate by the end of the year. We are positioned well for strong potash growth in 2024. In the finish off of both businesses, whole revenue was up 32% on a 33% volume growth driven by favorable compares following last year's outage at techs of B-. And moving on to the merchandise franchise, ECP revenue grew 6% on 3% volume growth. Please find petroleum products in the Asphalt Group driven by new market share and growth. Also, listen, plastics to the Midwest.

Our next question will come from Scott Group with Wolfe Research.

Hey, Thanks afternoon.

John with everything going on at Suez in Panama.

I'm curious your thoughts if Vancouver or lives ROE or if one is better positioned than the other two to benefit from that and then just separately Keith I know, we've got the labor negotiations going on up in Canada any any update you can give us on that.

I had to think about that thank you.

Yeah, let me start with that one on labor I'll give you a quick update and maybe still a little bit of John's Thunder, let him add some more color.

On the labor side listen I remain cautiously optimistic I'm a realist we're at the table, we actually read.

Are engaged today.

Through where was the TCR see through the end of this week I believe.

He is doing the same thing and I'm gonna remain optimistic we can get to a negotiated settlement that state if not.

You know as investors are going to have a heads up effectively the way the process works, if you're reaching and Pat impasse either party could fall for conciliation and for the time that happens that need to be very public if it happens where we deserved notice or are they just serve notice. It's the 96 day process before you would at the earliest.

John Brooks: We will continue to benefit from the new business winds that started up in Q3 and Q4 of last year as some of this growth was muted by a facility outage and a slower ramp-up. With solid demand fundamentals, ongoing ramp-up of this business wins, and continued synergy gains, we are setting up for a strong 2024 NECP. For its products, revenues are up 2% on a 1% increase in volume.

Spirits a potential strike.

So again I'm going to give this thing optimism.

I think it's in our best interest and our employees best interest and our customers that central solvency in the nation's best interest to keep everybody working and I hope that's what happens, but again, if not you're going to have quite a bit of heads up in time.

John Brooks: Despite softer demand in our base business in this area, we are seeing nice synergies wins in this space as customers take advantage of our new single line, all network connecting new, The Metals, Minerals, and Consumables product portfolio was up 3% on flat volume. We continue to see strong growth in steel out of our production facilities across our network, supporting industrial and infrastructure growth across North America. This quarter, however, in this area, was offset somewhat by weakness in track fans to the Bakken and also the Permian Basin, as we saw in earlier seasonal downturns and some growth in in-basin fans. However, automotive revenues continue to be strong, up 22%, a 19% volume growth, another record quarter for our automotive franchise.

Two.

Be aware of what's going on in it relative to <unk>.

Suez the Panama Lazar role West Coast U S West Coast, Canada, Let me just say that's now hand, it over to John Lazar role as a whole lot closer to Panama and Prince Rupert It probably is.

Uh huh.

Scott.

Yeah.

Lazaroff Panama.

It's another tool in our toolbox.

Right now like.

Really surprised volumes have recovered.

Pretty strongly and in Vancouver.

And I don't think that has anything to do with that.

That is a whole different issue and I don't see that really being a volume driver Q2, our west coast ports.

But I do see our value proposition of multiple last four outlets the ability to get through the Panama Canal utilizing the railroad down there.

John Brooks: Our automotive franchise is benefiting from new business, solid continued production from our OEMs, and steady equipment supply driven by improved operations and cycle times, particularly in Mexico. We are pleased with the new agreements we have developed that enable closed-loop service solutions, providing this industry service reliability that it never had in the past, including the use of our new auto compound in the Dallas metro area and linking customers' traffic between the U.S., Canada, and Mexico via our single-line haul service. For Automotive, 2024 is positioned to be an exciting year as we see a path to record volume for our franchise. On the intermodal side, revenue was down 11% on flat volume.

Being an opportunity for us it's it's just broaden the discussion with all of these customers.

I fully expect you're going to see us continue to ramp up the volume.

Through that terminal down that allowed Roe.

Honestly, the big thing I'm watching right now is is east coast labor situation and that that's the area that really could present itself from some opportunities for us.

Thank you guys.

Yes.

Our next question will come from Dinoire Poirier with Desjardins capital markets.

Yes. Thank you very much good afternoon, everyone with respect to the situation in Mexico with the decree now being enforce them given the fact that you've submitted your feasibility study to the Mexican government.

John Brooks: Domestic intermodal continues to be challenged by lower retail volumes, ample truck capacity, and some general market softness. However, now our MMX 181 that Keith spoke to, cross-border service continues to perform very well. This is a truck-like service with a safe, reliable border crossing between Mexico and the U.S. We saw growth in this service in the fourth quarter, particularly across our northbound valley. While the base demand for domestic intermodal is something myself and my team are watching closely, particularly across Canada, the opportunity for cross-border intermodal will continue to see steady synergy growth from over-the-road conversion and new customer solutions as we move throughout the year. As part of those new solutions, I'll remind you we are very excited to break ground in February on the new AmeriCold facility co-located at our intermodal terminal in Kansas City. This partnership with AmeriCold is another step in creating new rail options for shippers in a market that is dominated by fraud. Moving over to the International Winter Modal.

What's hard to the next step in if you could talk a little bit about the benefits of the second Bridget Laredo and kind of the benefits and positive impact we should expect on volume dwell and velocity that would be great. Thanks very much.

Okay, great great to hear from you, let me at a high level I'll start with the Laredo Bridge obviously.

Doubling our capacity and the ability to essentially create a double track across the.

The border point that allow strains to pass it not trying to stage it waiting in queue.

Driven a lot of improvement John and team prior to our acquisition and even trust.

John: We took windows, where they used to be in Q12 hours or eight hours cut them down to four hours. So theres been a dramatic improvement.

But four hours in Q versus no hours in Q, it's material I don't know exactly what number to put on it yet we'll see but I can tell it gives us again it adds to the unique structural and strategic advantage that our network represents to our customers the ship over that border.

Shifting to the passenger rail I'm, a bottomline upfront Guy let me say this.

I have zero expectation or belief that mexico's ambitions and intent.

John Brooks: After a challenging third quarter, this business has picked back up. We ended the quarter with volumes up 2%. Although we're being cautious on our outlook for 2024 in this space, we are certainly encouraged by the recent trends. We're also encouraged about the progress we are making in support of lateral cardinates. In 2023, the terminal saw TPU growth of 30% while CPKC volumes grew by 35% versus 2022.

To integrate and initiate passenger rail service in concert with freight rail service.

It will impact our ability to hit our synergies or any of the targets over a multiyear guidance I think that's an important place to start a number two are.

We speak with a bit of experience in it and I'm, saying this from a place of.

Most humility.

We didn't always get this Friday C. P. We made a commitment a shortly after I came to CP.

I don't know probably two or three years into that quite frankly, I got tired of being kicked in the tail by Amtrak complaining about their service and I said listen we can do both.

John Brooks: Our customers are enthusiastic as we continue to develop this service and educate them on this supply chain alternative. When you combine this with our 50% ownership in the Panama Canal Railroad, we are excited about the unique solutions CPKC can offer ocean carriers and their beneficial cargo owners. So in closing, despite some early weather challenges in January, we are entering the year with strong momentum. While we have a known headwind from Canadian grain and the macro backdrop remains uncertain, we have a strong line of sight to remain uniquely positioned to deliver long-term growth. Our synergies in 2024, combined with based self-help initiatives and a disciplined pricing approach, will continue to be an exciting story and differentiator for us in this industry. With that, I'll stop, and I'll pass it over to Nadeem.

As long as you've got the right infrastructure you have a schedule where scheduled railroad those faster trains don't just show up let them on time and get them out of the way and they don't become a problem as long as you have the infrastructure to be able to handle both.

So that said you know when I first.

They came to see all this combined entity I knew that.

Mexico different nation.

Different expectations completely autonomous sovereign reported part for me was to understand and learn but I didn't know about Mexico. So I made it an initiative an important initiative.

John: To get in front of.

The president of Mexico, right out of the Gate, you know Pat and team have done a phenomenal relationship with respect based on performance and.

And years of history, where the Mexican government regulatory environment. So I said, let's go to Mexico, let's meet with President Angelo.

And that initial meeting and I've shared this he told me his vision about.

Creating prosperity in the country and he explained the need.

For passenger service in Mexico, and he also said to me that your concession requires it well, obviously that I've done a little bit of homework I had a lot of time preparing to get this merger I'm never one get it accomplished number to get it approved that did a lot of reading and of course I read about this concession.

Nadeem S. Velani: Great, thanks Johan, and good afternoon. First, I'd like to thank the C.P. Casey family of railrovers for working tirelessly throughout the year to bring our two companies together. 2023 was truly historic, and I'm extremely proud of the hard work and dedication that the team displayed. Looking at the quarter, CPKC's reported operating ratio was 61.8%, and the core adjusted operating ratio led the industry for the second quarter in a row, coming in at 58.7%, which was a 220 basis point improvement versus Q4 2021. Earnings per share was $1.10, and core objectives combined earnings per share was $1.18, up 4%, which was also industry best for the quarter.

It had said that you know that's part of the concession if they say they want to run passenger trains you got to figure it out.

So with that said when he told me that I said listen President I get it I understand it there's a way to do both and be successful we need to define and understand what capacity is needed to be able to succeed at both so we automatically and this is may of last year said you know what.

I'm going to pay for this study I'm going to get an industry expert that knows how to define what capacity is required for both.

I'll, let you know what the results are and we can talk more at a later time when we did that we.

Initiated an RFP, we selected H D R, which are industry experts in determining the rail capacity that's needed.

We engaged in that and started that well before that decree came out in November of 2023. So we were not surprised.

Nadeem S. Velani: On a four-year basis, CPKCs reported an operating ratio of 65%, and the core adjusted combined operating ratio came in at 62%. Earnings per share were $4.21, and core adjusted combined earnings per share were $3.84, up 2% year over year. Now taking a closer look at our income statement, the reported operating expenses for Q4 and full year are provided on slide 14. Combined operating expenses for Q4 are on slide 50. Similar to what we shared last quarter, our combined operating expenses illustrate the estimated effects of the acquisition for the fourth quarter as if the acquisition closed on January 1st, 2022, and I will only speak to FX Adjusted 4th Quarter Operating Results in these prepared remarks. We've included full year results in the appendix for reference. Mr. Chairman, as far as Compton Benefits is concerned, its expense was $637 million, up 2% when compared to combined Compton Benefits expense a year ago. This includes $7 million of immigration-related expenses. This increase is driven primarily by wage inflation, an increase in incentive costs, and higher volume. Average headcount was down slightly from last year.

John: Now the decree expanded scope a bit.

That said it had a day to your point been while we had to submit January 15th what our intentions were in and our intentions were to do exactly what we said we would do we'll work with you Mexican government to identify the capacity needed.

So that we can protect our growth today as well as the future growth that is planned for the country of Mexico that brings prosperity to everyone and great paying jobs and our customers are investing in this capacity and we'll figure out what we need to run faster trains successfully.

So that was submitted January the 15th and essentially that's what it says we're going to include in the additional scope.

We finished this initial study those additional lines they'd like to look at but I felt again it was important to make sure that.

By the written word that was submitted by our inner action, whereas the president to make sure that that was represented in its best possible light.

So no better way to do that then again request a meeting with the president.

A week ago yesterday myself, John or Oscar who is the president of our C. P. K C to Mako property, we met with President Angelo.

At the presidential Palace with President of envelope, we had the minister or the Secretary.

[noise] carrier infrastructure S E T.

The secretary.

While the economy.

We had the secretary of the interior I think.

Here overall, so we had three secretaries and the president hour and a half meeting.

Nadeem S. Velani: Looking at 2024, we expect headcount growth to be low volume growth on a year-over-year basis, partially offsetting the increase with lower current service costs in the DB Pension Plan resulting from higher discount rates and lower cost savings. Looking at 2024, we expect to have a $16 million headwind resulting from lower discount rates, more than offset below the line. Fuel expense was down 8% year-over-year; the decline was primarily driven by a 10% decline in combined fuel price, along with a 2% improvement in fuel efficiency in the market, partially offset by 5% Thank you. Material Expense is down 9%. The decline was largely driven by reduced locomotive maintenance materials.

It was our meeting to explain to the president what we intended what we expected. So I gave you an update on the merger and we spend an hour talking about.

What they need it may be in Mexico relative to passenger trains.

What it would take to get it done and I explained to the president that we had engaged into a study gave him. The timeline, we expect results, which will define that infrastructure. It made I explained to him that it's important.

The Mexico to establish faster service, it's also important to Mexico and our customers.

To make sure that we protect freight service and we need to do both and they both well he committed to me that he's along with exactly what my expectations are they want to do well in passenger they wanted to do well and continuing their economic growth and prosperity in the middle class great paying jobs, they are creating and the manufacturing it's come in.

Nadeem S. Velani: Bonus Grants $76,000,000 Down 1% Improvements in efficiency and an increase in receivables throughout the incursion, although partially outstripped by an increase from inflation and lower use of CPKC intermodal equipment by other regulators. The depreciation and amortization expense was up 6% resulting from a higher asset price, which is services and other which relatively fly year over year, a reduction in casualty expense, and gains in efficiency, process by volume. We're moving below the line; I'll make a couple comments on this later. Last year, we were not able to replace our entire group to offset the impact of inflation on our costs.

To Mexico, he does not want to jeopardize any of that so these are two complementing.

Mission is.

That will get executed and that said it on the last point I'll make and I've said that it's the precedent amyloid so not only can we create.

A great passenger service with the right infrastructure right investment.

We also protect that great great service, and you're not only going to get passengers out of cars.

Well in passenger trains you're gonna get trucks off the road.

Oh, the freight trains and I said that is a win win if I could ever put one together for the environment for the people of Mexico for the rail network in general that's serving all stakeholders best interest and that resonates. It resonated with the President then he's committed I'm going to go back and meet with them again, we're going to go back and represent the results of the study.

Nadeem S. Velani: Created the EGWIS-OR throughout 2020. Moving to 2024, the impact of inflation on our expenses in Monterey. Additionally, the pricing environment remains strong, and we will reprice a portion of our, Thank you all for joining us today. 20.

Before.

The administration changes likely in June so again to me, it's just more of what we planned for when not surprised we're gonna be able to do both do both well, we'll protect our customers' interests will protect the nation's interests and we'll get it done and we'll be proud of the results when it's over.

Nadeem S. Velani: Putting these together, we should see some catch-up in the tailwinds to OR in 2024 from inflation. Moving below the line, other expenses were up $12 million and a quarter. Other components of net periodic benefit recovery decreased $34 million, reflecting higher discounts. We expect this line to increase by approximately 23 million in 2024 and $327 million in 2023, offsetting Ed Linden's profit.... Net Increase in Net Interest Expenses $206 million, 200 million on an adjusted basis.

That's a great answer Keith Thanks for the time.

Thank you Pamela.

Our next question will come from Jon Chappell with Evercore ISI.

Thank you good afternoon.

John you mentioned doing a little bit better than the 350 million of revenue synergies I assume that it's not completely linear there's probably some areas where you're doing better than you originally thought and some where maybe there's been a few challenges can you speak to the latter part a win there where there may have been some challenges and do you think you eventually get to you know the initial projections or is there something structural.

Nadeem S. Velani: Finally, driven by a reduced setback. On the quarter income tax expense of $275 million and $314 million on a core adjusted combined basis, Looking ahead to 2024, we expect CPKC's core adjusted combined effective tax rate to be approximately $25,000. Printing slide 17, we continue to generate strong cash flows. This cash is provided by operating activities of $1.3 billion.

That may have kept you from hitting that point or is it more just kind of the macro headwinds that we keep hearing about.

Let me just first say, it's macro and timing Jon I feel good about the synergies.

And hitting them.

You know certainly I think I mentioned earlier I thought we would see a quicker ramp up on on labs are out.

It has been an education process with Athene chip lines.

Nadeem S. Velani: The first call on capital continues to be business and growth, and in the quarter, we reinvested just over $700 million to end the year, in line with our outlook to invest $2.7 billion in capital on the combined. Looking at 2024, we will remain disappointed in our approach to capitalism. We expect capital spend to be $2.75 billion for the year. This reinvestment in the business builds off of record capital investment as a combined company. Thank you all for joining us today for 2020-23. Our network is well positioned from a capacity perspective to absorb the growth that we have in front of us. He generated $785 million in adjusted combined three cash flow on the quarter and just under $2.5 billion in 2020.

It's been an education process with beneficial cargo owners and frankly, it's been a lot of work around making sure that we have a seamless border a seamless product for those shippers I can tell you that it's been a ton of work and I sit here today with a lot of confidence that the team will deliver and you're going to see that.

The build itself in 2024, you know as much as I'm Super proud of the service the state border I'm, 181% 81, the overall environment and the macro.

Trucking spot prices and that.

Made that a little bit more of a challenge and certainly I think we initially anticipated, but again in a really good position.

Schneider National our partner there has had a stronger startup than we ever could have anticipated.

Nadeem S. Velani: Our adjusted combined leverage is 3.4 times and a year. On our past backboards, we were already leveraged at 2.5. We expect to reach this target in late 2024 or early 2025, at which point we will evaluate shareholder concerns with our Looking ahead, despite a known headwind and grain price volatility, John mentioned. So, although somewhat uncertain macro, we expect to deliver double-digit core adjusted combined earnings growth, Corbett. We also anticipate generating strong free cash flow while making record investments in the network to sustain future growth and get back to our target level. Putting all of this together, CPKC offers a truly differentiated investment, and I'm excited to continue delivering on the commitments that we've made to our shareholders. Looking back, the end of 2023 was stronger than ever, and the best in industry earnings results were the best yet. The network is performing well, synergies are ramping, and we are well-positioned for a strong 2020. It's an exciting time to be railroading. With that said, let me turn it back.

Working in some specific areas to introduce some retail products are on that train got some of our.

Partners in Canada, when you think about the growth in reefers and that are beginning to start up on on that service. So.

You know that that intermodal area has been just a little bit tricky, but I'm looking for big things in 2000, 2024 that go along with an area of surprise like the automotive sector that we've we've just seen a lot of success.

Creating as Keith spoke about that the closed loop system in that area. So I hope that's helpful. John.

Yes.

John: Our next question will come from <unk> Gupta with Scotiabank.

Thanks, operator, and good evening everyone.

Wanted to understand if it's new lease synergies you reported in the 2022 things what would 2024 earnings look like.

You say that again.

So I'm thinking in terms of parsing out the double digit EPS growth for 'twenty for maybe multiple nadeem and John.

Operator: Okay, thanks, gentlemen. Operator, let's open up the line for questions. Thank you. If you'd like to ask a question, simply press star and the number 1 on your telephone keypad.

Kris 2022 synergies you realized how much 2020 core earnings would grow without growing synergies.

Operator: If you'd like to withdraw your question, press star 2. As previously highlighted, please limit yourselves to one question, and we'll take our first question from Walter Spracklin with RBC Capital Markets. Thanks very much, Operator. Good afternoon, everyone.

Well, you say you want to understand what our 24 synergy incremental adds versus 23, how much of that of our double digit earnings.

Yes, maybe.

It's a very visible.

Yeah we're.

We're not getting that granular.

Guidance at this point so.

Nadeem S. Velani: So on the double-digit earnings growth, I know, Nadeem, that's consistent with what you provided at Investor Day there in July. And I know later in the session that day, you kind of gave us an indication of a doubling of your earnings growth by the end of that multi-year period, suggesting kind of a mid-team., and Br Naval Academy.

Giving you an indication of where we see our synergies. We told you that you know.

Right.

Kind of a run rate and we're going to ramp up over the course of the next three years.

You guided to $1 billion over the first three years and that we're on pace. So I think you can kind of do the math yourself.

Yeah happy to if you want to follow up with Chris and actually go after the call.

Nadeem S. Velani: Well, you know, since we gave our guidance in June, Walter, nothing has changed other than I'd point out that, you know, we had a grain crop that came in maybe a bit weaker. And we're starting the grain crop again in August, so that's going to turn it near term, a little bit, probably Q2 of this year. Other than that, the model remains the same.

Let me go to your question a bit more karnak.

Thank you.

Our next question will come from Ken <unk> with Bank of America.

Hey, great. Good afternoon, and thanks for the detailed answers so far maybe nadeem if I can follow up on the cost side synergies there they spend a lot of questions to John on the revenue side can you talk about how well you've executed to your your target so far where you you see that going.

You can see some of those synergy goes on the cost side and then.

Nadeem S. Velani: You're going to support the business with basic organic roses. We're going to have the benefits of synergies, which we're... I had a schedule on, and then we're going to see. Thank you all for joining us. Nothing to change on that thesis, you know, we've died as a double digit for this year. We're obviously not going to get a benefit from it.

Thinking about head count how do we think about that going forward relative to your U R. T. M. I think keep throw out there a low mid single digit RPM growth is part of the double digit earnings growth, how does head count play on that thanks.

Great. Ken So you think about what we had guided to on our on the EBITDA synergies on the expense side, we had talked about a $180 million in the first three years.

Nadeem S. Velani: Bye Bye. We're not going to buy back stock until we get our target leverage back. Goodbye. For more information, visit www.fema.gov. The macro environment is probably a little bit weaker still in terms of the mobile signage on.

So it's very much on target.

You know that.

Head count piece of that.

Initially it was a big part of it just given near term attrition in some of the cause of the team combined some people chose not to be a part of the team and so you can imagine that are at.

Nadeem S. Velani: But other than that, we're right on track, right on our plan today. I'll keep it to one. Thanks very much.

Operator: Thank you for watching. Our next question will come from Tom Wadewitz of UBS. Great, thanks, good afternoon. I wanted to see if you could give a little bit of perspective on what's underneath the earnings guidance, just in terms of how you think about RTM growth, do you think of like mid-single digits, kind of what ballparks we should be in, and then how do you think about the magnitude of improvement in operating ratio that would fit into a base case. Thank you. No, Tom, that's a great question. I'll tell you this, this is what we're expecting: low frequencies at RTM growth.

At the more senior level some of those costs were a little higher so so from a G&A type of head count where.

Really on track a little bit ahead of schedule from a from an operating synergies.

Where.

It's good to see that.

Increase in here too.

Some of the challenges on the network, where we're more on the Mexico side that we weren't getting a huge amount of operating synergies near term as kind of day, one but have you seen in the results this quarter and we talked about the huge improvements both of them across the network on the former.

Keith Edward Creel: Double-digit EPS and margin improvement. Now, tell me what the back half of the year looks like. Tell me what the macro's going to do.

Keith Edward Creel: We're taking, I believe, an appropriate conservative approach and if the back half surprises and some of those weaknesses that Nadeem spoke of, be it domestic or at a normalized grain crop or maybe a little bit better, then there's some upside here, but we've taken a modest approach again. If we get a couple of things that might turn our way, then we certainly have an opportunity. Okay, great.

K C. S M. In the case of CSR the synergies on the cost side is really starting to ramp up on that front and that's what's given us the ability there to.

The the orders that we have in the back half of the year in and lead the industry. So I'm really bullish on where we see the the operating synergies coming in.

John Brooks: Thank you. Our next question will come from Fadi Chamoun with BMO. Yeah, good evening.

[noise] about some of the procurement some of the sourcing synergies.

Take time as contracts come up and you can negotiate with your vendors.

Operator: Thank you. Thank you. You know, as it should now say, you indicated you had 240 million scans out. As we stand today, what does it look like, and how do you feel about the pipeline for 2024 in terms of these revenue synergies? Hey, Patty, it's John.

On track in the first year or actually slightly ahead of pace. This.

This year, we'll start seeing additional synergies on that front it is additional contracts.

Come to the come to the table. So all in all we're slightly ahead of schedule on that on the expense side again, it's a smaller piece of the total synergy pie, but where we're slightly ahead of pace and I think this year, we're gonna see more of the value come in.

John Brooks: So, as I said, I feel really good. I think we made great progress in the first 10 months. I can tell you we've got some contracts and some wins in 2023 that we haven't realized yet. They're just starting to ramp up, and I think we're going to see progress with those.

As we run this network as well as it is it can so very excited about that.

And saw it on the head count versus the volumes don't hedge.

John Brooks: I still think we've got a long tail on the 180-181 product as we move through, through 2024, and hopefully, we see some of the domestic intermodal trends, macro trends, maybe move in our favor a little bit, and honestly, that includes Lazaro also. It's been quite an education process with the steamship lines and the beneficial cargo owners around what that port potentially could do. To be honest, I'd hope that it'd be a quicker startup, but we are starting to gain some traction there.

Head count.

We're talking low single digit type of our Tam assumption.

I see a flattish type of head count for the year.

Okay I appreciate that.

Thanks.

Our next question will come from Justin long with Stephens.

Thanks, and good afternoon, and Nadeem you mentioned the assumption for low single digit R. T. M growth. This year I'm, assuming that includes a benefit from synergies. So is there a way to think about the organic volume growth that you're assuming for the business and then nadeem. It would also be helpful to get a little.

John Brooks: So you know, we got it to three. We mentioned 350 million. We saw it as a very comfortable number. We were very comfortable that we were on that pace. I would tell you right now that we've slightly exceeded that or ahead of that, and we are well on the way to those numbers we talked about at investor day. Thanks for having me.

Bit of color on first quarter or if you can just given some of the weather disruption we've seen thus far I know you said you could make up a good bit of it but curious how you expect that to net out to margins.

Yeah, So thinking about this year you know the headwind on on grain.

Operator: Our next question will come from Chris Wetherbee with Citi. Hey, thanks, good afternoon. Maybe a question on pricing, because you guys noted that there's a little bit of catch-up going on in 24 in terms of some of the contracts that you didn't get a shot at over the last couple of years, and you have moderate inflation. It's a little bit different than what we've heard from some of the players in the space, particularly some of the US names. So maybe if you could just put a little bit of color around sort of the pricing environment that you're seeing, and is there sort of an upside opportunity in the US versus Canada? If there's any sort of difference there, kind of what the contract renewals are coming in at.

The Canadian grain side is gonna be made up on kind of base growth. So I'd say all.

Almost flattish on that on the base organic side from a volume point of view and then the synergies driving a low single digit and Keith mentioned, we're being conservative and I think that's appropriate at this point in the macro and at this point not knowing what what specifically what intermodal looks like in the back half.

And where the grain crop comes in so that's our view.

Thank you know more of the the growth on the revenue side, we feel very good about the pricing and that just you know.

John Brooks: Yeah, Chris, John, a couple of thoughts on that. One is, I'll tell you, Q3 and Q4 were quite strong. Some of the best rail pricing that I've seen. And again, I think part of that was us through the year kind of catching up to some of those inflationary numbers. We're going to get a tailwind on that.

I think a good output as far as what that brings to the earnings cadence.

As far as of Q1 or Yeah, you know January started off great.

Great.

And then winter hit and you know some of these are challenges that we had in minus 40 minus 45 ambient temperature without even the windshield. So you know the network is recovering our networks recovered quite well, there's a lot of business could be moved and and dependent on what February looked like and how we close.

John Brooks: There's been a fair amount of repricing. And as we've dug into the books of the new company, and some of those contracts have rolled over, there have been opportunities where we felt that we needed to reprice some of that book. You know, I'll remind you, we took control in April of last year. So, a lot of the contracts, you know, leading up to that time, KCF standalone had renewed on their own

March in Q1 on the weather side we.

We think we can make up a lot of that volume and get back to two kind of a more normal environment in Q1 as far as whether that that's going to help us kind of deliver I think a better year over year or.

John Brooks: So, I can tell you my team is kind of getting a first look at a number of those contracts that have rolled over to start this year. And the results, I think most importantly, the results in those areas continue, I would say, on the trajectory of what we saw in Q4. So, again, my expectation would be that the first half of this year remains strong on that front, and we'll see what the back half brings when we get there. Great, thanks very much.

And and strong earnings growth so more to come I think we'll have to see how winter plays out but demand is there. The network is there and we plan on executing.

Yeah.

Helpful. Thank you.

Yeah.

Our next question will come from Cherilyn Radbourne with TD Colin.

Thanks, very much good afternoon, I was wondering if you could give us some color on crude by rail volumes in Q4, and whether you think that's an area, which could have some upside for you just that the completion that they can't X expansion running into another issue here.

Operator: Our next question will come from Steve Hansen with Raven James. Yeah, good to see you guys. Thanks.

Mark: Look, your network-wide improvements in speed and dwell have been pretty striking over the past several months, notwithstanding the last week or two. I'm just hoping you could point to where these gains have been coming from more specifically on a geographic basis and what that might imply for some of the prior congestion issues you've acknowledged in Mexico, and then, I guess ultimately, what it means for bringing on the revenue synergies down there as well. Steve, a great question.

Yeah. Thanks, Cherilyn, it's John.

I think our Q4 numbers are a little bit we had some facility issues.

John: That really drove that I can tell you. We've got a 24 plan that is stronger and the crude by rail space.

Keith Edward Creel: Let me say this, and I'm going to have the two gentlemen that are driving and leading us here today, both Mark's part of the story, John's part of the story, and their team. That's the beauty of this, it's not singular, it's diversified. You know, what Mark has done in Canada relative to driving well down, train speed up, 100cc trains that never ran better. The focus there and the intensity and the opportunity to drive not only train speed but asset turns, locomotive velocity, and fuel efficiency. Mark and his team are doing a phenomenal job. And at the same time, you know, as part of the task force, we've taken a challenge, John Tipton's team has turned it into an organization that's focused on process, focused on PSR principles, where we turn assets, where we get better for our customers. We whiteboard with GM, we whiteboard with Stellantis, we whiteboard with Bartlett, we whiteboard with our customers so that we can identify what's And it's all about asset turn, speed, and velocity.

We expect our D. R. U business continues strong and we've picked up a couple of other business opportunity. The phones are ringing a fair amount trailing around <unk>.

And those issues.

But I'm.

It's just really not an area, where we're chasing if the right opportunity presents itself.

Well, we'll go after it so I think all of that you put that into the mix is probably a little bit of upside in 2024, but.

But not massive.

Thank you.

Yeah.

John: Yeah.

Our next question will come from Brian Austin Beck with J P. Morgan.

Yeah.

Hey, good afternoon, thanks for taking the questions.

Just wanted to see if you could give us an update on the coface. They saw the headlines a little while ago I'm not sure. If we've seen the final scope of their review yet.

It's something that case, yes went through a few years ago didn't have much of an impact. So I just wanted to see get an updated thoughts on that.

Keith Edward Creel: And as a result of that too, although I said I'm going to let these guys talk, I did a little spare the way here, you know, part of what we learned that we're super excited about is with a little bit of strategic investment, much like in the playbook of PSR in the past, this isn't about setting costs, it's about strategically and surgically investing money to create capacity and resilience, to eliminate bottlenecks Capacity to do that for our customers so that we can create more loads with less cars. It's PXR 2.0, and John has done a masterful job of integrating and starting that evolution in Mexico since that task force was created. So again, a couple highlights, John, a couple more highlights if you guys have done it. I'm the proud guy that gets to talk about it. I love it when I see it happen, but let me give these guys a chance.

And then John maybe you can give some update on just the fluidity of the border crossing you mentioned that a couple of times with the 180 181 is that actually showing up in conversions are shippers willing to move some freight, especially as they see the second bridge in Laredo coming on towards the latter part of this year.

Thanks.

Again bottom line up front you answered the question the Copa C piece to me, it's the government.

The government regulatory body, that's charged in Mexico, with protecting and making sure our competition exist.

There've been two different historical Copa see engagements with K C. S. Do Mako nothing has came out of those I can tell you. This one is not targeted at CP Casey we've not been served.

This is an industry wide review.

And in our case I know this the facts don't support anything but pro competitive we said, we're going to create competition, we've done nothing but create competition I can also say that now that we have control I've looked at the rates, we might be guilty of not charging enough for this premium service, but certainly not guilty of charging too much.

Mark: This is Eric at the hotline for you, state, as well as for our investors to give you some, The meat on the bone, so to speak, not just a bunch of rhetoric, but real-life examples of the art of the pop. Yeah, so if we think about this 100 series in Canada, I mean, we've shortened some of the trains up just a bit, just to get more truck speed across the network, and that's been, we've been able to produce locomotives by doing that, we've been able to give a product to the, to John, that he can sell to the market place, so that's some of the areas we focus, large focus on KTSR property where we've got boots on the ground at the switching yards that we spoke about this in the previous quarters we spoke about some of the in-train repairs that we're doing at Kansas City and really just ramping up mechanical operations, Some of the things we haven't spoke too much about, it's not train speed, it's not this other stuff, but it's about working in diesel shops.

So again whenever that.

Scope is whatever that review is I have nothing to tell me, but any indication that we're going to do anything but be supportive of our case.

Not dilutive of our case.

And let me be quick about the border as well.

In the interest of everybody's time as far as the way we've executed.

<unk> that.

That borders being fluid at borders not been shut down not just because it's the best route going into Mexico, but also because it's the most secure route and that didn't happen because of.

C P that happened because of the hard work and effort over many many years of investment multiple layers of security by the Casey's team that have established a very secure borders it's only getting more secure as we progress into this you build a second bridge you got more capacity, it's even more secure more reliable more fluid in spite of what.

Mark: We're going to take 2024, spend some time in the diesel shops, and do our own overhauls, where we've had to do that in the past and give it to third parties. We'll do more of that in-house. We'll also leverage the top plant that we have in Shreveport, Louisiana, leverage the wheel shop that we have in Winnipeg, and use that cross-border to in-house our wheels, put the timber in the right-of-way where we need to, and enhance our engineering gains as well. We'll do some of that headcount and engineering gains, but also, this will be the first year that we can work toward that. System Games with KPSR and also over the sea line.

Having happening at other borders that don't represent the same value propositions are securities Els.

John: Elsewhere coming into Mexico between Mexico, and the United States. So again.

They're very accretive unique value, creating opportunity for us to go to the marketplace.

Kind of look at it this way and I've said this action was talking to my board, obviously to ask them the same questions.

What is this all of this mean and I I say I look at it this way there's a lot of trucks every day, there's 1.8 million. It was 10000 a day. However, you do the math.

There's gonna be truck capacity going to cross that border.

Border, there's gonna be train capacity.

John Brooks: And with that, I'll turn it over to John to talk a little bit about Mexico. Yeah, thanks Mark, and thanks Keith. I think I'll use the same phrase because we've got the same approach. We've made a boots on the ground effort to help stabilize and improve Mexico's operations in 2020. And the task force was a tri-national task force of railroaders who went to the central part of Mexico around the automotive hub to really streamline the businesses there and unlock the potential of the fluidity in the south of Mexico and worked progressively northward and improved our depot in San Luis Potos, Monterrey, and our border terminal at Sanchez Yard.

And you've got a choice, it's a value proposition.

You know you can ride the Falcon.

You can ride the.

The Gemini whatever you want to call. The other alternative services, there's a value proposition.

If you are prepared to.

Risk some of those very obvious and at Apple experiences that our shippers.

Pacific experience and price doesn't matter then you know what I kind of look at that as that's your value proposition, but that's not ours, we're going to provide a reliable.

Premium service that warrants and commands and we're never going to apologize.

Expects a premium price.

Cost a lot of money to provide the reliable service our customers that have rewarded us with business demonstrated it matters and I can tell you. This last one what's the sort of challenges that are the border has experienced ours has not experienced the same thing and as a result, those customers that have chosen to move with us have expressed their deep appreciation.

John Brooks: That all started to really pull together the velocity, the resource utilization, the improvement in locomotive use, locomotive productivity, and even labor productivity. Since then, the task force has worked to embed best practices that we shared or inherited from the CPTC merger, and now we're turning our attention to improving cycle times on some of the bulk business or some of the more complex, larger customers in the steel and metals sectors. And we're using the time that we spent boots on the ground to really pinpoint structural improvements, engineering out choke points. And that's reflected in our 2024 capital allotment.

<unk> and a rewarding it with the business.

So again I'll make a choice every day of my products Gotta get from point a to point B.

I've got a a radar can pay off I want to put it U S postal and I'm, saying this in American terms and I've got a rate if I'm gonna pay Fedex or EPS, you've got to decide what matters to you and your value proposition and where you choose to put your afraid to make your decision and I believe that this value proposition matters, even more so than it ever has.

Understood. Thanks Keith.

Well, we've got one more.

John Brooks: As you said, Keith, very precise and targeted to continuing the fluidity, the opportunity to grow the business, and to continue to pivot to grow. That's brilliant, guys. Our next question will come from Scott Group with Wolf Research. Hey, thanks, afternoon.

The next question will come from Brandon No glinski with Barclays.

Hey.

Thanks, Keith for letting me sneak my question in here and John maybe I'll close out with you on the low single digit growth outlook. This year.

There's a lot of uncertainty in the macro and obviously you've talked about intermodal and grain, but I think the commentary was pretty upbeat on merchandize can you talk about the incremental customer opportunities you see there.

Keith Edward Creel: John, with everything going on in Suez and Panama, just curious about your thoughts on Vancouver or Lazaro, or if one is better positioned than the other to benefit from that. And then, separately, Keith, I know we've got the labor negotiations going on up in Canada. Any update you can give us on how to think about that? Thank you. Scott, let me start with that one on labor. I'll give you a quick update and maybe still include a little bit of John Sunder and let him add more color.

John: Out in 'twenty, 'twenty, four and maybe where you see positive variance to where the industry is going to see a growth rate in merchandise.

Yeah Brandon.

Historically, the legacy CEB franchise.

With.

Particularly the strongest merchandise ETP franchise, but the new combination is it's a it's an area of strength and I'm Super pleased with what the team has been able to deliver in that space. Early in 2023 honestly. If you think about the synergies we've talked about that that that's been an overweight area.

Keith Edward Creel: So on the labor side, listen. I remain cautiously optimistic. I'm a realist. We're at the table. We actually re-engaged today.

Keith Edward Creel: We're with the TCRC through the end of this week, I believe, and I'm going to remain optimistic that we can get to a negotiated settlement. That said, if not... As investors, you're going to have a heads-up, effectively, the way the process works. If you reach an impasse, either party could file for conciliation. And for the time that that happens, and it would be very public if it happens, where we deserve notice, or they deserve notice. It's a 96-day process before you would, at the earliest, experience a potential strike.

That's that's an area that we've achieved more and it's on the backs of strong trip plan. Good local service getting those cars and in steel car cycles.

And tank car cycle.

So as I said, we had some good wins the back half of the year in terms of share and synergies in that merchandise ETP space.

Haven't even felt the benefits of the bulk of those agreements were gonna see that ramp up and I'm really bullish on our steel franchise between not only our Mexico production facilities.

Supporting the growth down there in the automotive industry and other industries, but also our steel facilities in the U S and Canada. So that's an area to keep an eye on it I think youre going to see some strong growth. Thanks branda.

Keith Edward Creel: So again, I'm going to give this thing my optimism. I think it's in our best interest, it's in our employees' best interest, it's in our customers' best interest, obviously, and the nation's best interest to keep everybody working, and I hope that's what happens. But again, if not, you're going to have quite a bit of a heads up in time to be aware of what's going on. The Sioux have the Panama, Lazaro, West Coast Sioux, West Coast Canada, let me just say that now and hand it over to John. Lazaro is a whole lot closer to Panama than Prince Rupert is.

Thank you.

We have reached our allotted time for Q&A I would now like to turn the call back over to Mr. Keith Creel.

Okay. Thanks, Thanks, operator, and listen again, thanks for joining us. This afternoon I hope that you leave this call understanding will be set from the very beginning we've.

We're in the middle of creating history, we've created a very unique network.

Keith Edward Creel: Over to you, John. I've got, um, look, uh, Lesbrough, Panama... another tool in our toolbox. I'll tell you right now, I'm really surprised volumes have recovered pretty strongly in Vancouver, and I don't think that has anything to do with the... That is a whole different issue, and I don't see that really being a volume driver due to our west coast ports, but I do see our value proposition of multiple west port outlets, the ability to get through the Panama Canal, utilizing the railroad down there, being an opportunity for us. It just You know, honestly, the big thing I'm watching right now is the East Coast labor situation, and that's an area that could really present itself with some opportunities. Thank you, guys. Our next question will come from Benoit Poirier with Desjardins Capital Markets. Yes, thank you very much. Good afternoon, everyone.

These two wonderful companies together.

We've got a unique value, creating opportunity that it's got approve the test of time.

And our hard macro environment.

We've shown growth in the middle of integration, we've shown growth and when I say growth I'm not talking about just our Tam growth our team growth earnings growth and we've shown an ability to improve margins at the same time, but we've never invested more to create more supply chain resiliency at a time all three nations have never needed it more.

This formula works.

Standing the test of time, it's going to be here for generations to come we're on a journey with the best railroad in this industry, a very unique value, creating story for our employees our communities our shareholders all stakeholders.

John: That again.

We will become.

In time, the most relevant rail network in North America. We thank you for your trust, we fully intend to reward you for it.

Those they trust us and make your investment decisions with us have a safe and productive day and we look forward to sharing our first quarter results are in the months ahead.

Keith Edward Creel: With respect to the situation in Mexico with the decree now being enforced, and given the fact that you submitted your feasibility study to the Mexican government, what are the next steps? And if you could talk a little bit about the benefits of the second bridge in Laredo and the kind of benefits and positive impact we should expect on volume, wealth, and velocity, that would be great. Thanks very much.

Yeah.

This does conclude today's conference call you may now disconnect.

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Keith Edward Creel: Thank you, Benoit. Great to hear from you. Let me, at a high level, start with Laredo Bridge. Obviously, Doubling our capacity and the ability to essentially create a double track across the Border Point that allows trains to pass and not trains to stage and wait in queue. We've driven a lot of improvements, John and team, prior to our acquisition and even in trust. We took one of those where they used to have to be in queue for 12 hours or 8 hours, cut them down to 4 hours, so there's been a dramatic improvement, but 4 hours in queue versus no hours in queue, it's material. I don't know exactly what number to put on it yet; we'll see, but I can tell you it gives us again adds to the unique structural and strategic advantage that our network represents to our customers that Shipping to the passenger rail, I'm a bottom line, up front guy. Let me say this.

Yeah.

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Keith Edward Creel: I have zero expectation or belief that Mexico's ambitions and intent to integrate and initiate passenger rail service in concert with freight rail service will impact our ability to hit our synergies or any of the targets of our multi-year guidance. I think that's an important place to start. Number two, we speak with a bit of experience, and I'm saying this from a place of the utmost humility. We didn't always get this right at CP. We made a commitment shortly after I came to CP. I don't know, probably two, three years into it, quite frankly, I got tired of being kicked in the tail by Amtrak for complaining about their service, and I said, listen, we can do both. As long as you've got the right infrastructure, you have a schedule, we're a scheduled railroad, those passenger trains don't just show up; let them on time and get them out of the way, and they don't become a problem as long as you have the infrastructure to be able to handle both.

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Keith Edward Creel: So that said, you know, when I first, Thank you all for joining us today. Different Expectations, Completely Autonomous, Sovereign. The important part to me was to understand and learn what I didn't know about Mexico. So I made it an initiative, an important initiative, to get in front of...

Keith Edward Creel: The President of Mexico, right out of the gate, you know, attempting to build a phenomenal relationship of respect based on performance. In that initial meeting, and I shared this, he told me his vision about, you know, creating prosperity in the country, and he explained the need for Passenger Service in Mexico, and he also said to me that your concession requires it. Well, obviously, I've done a little bit of homework. I spent a lot of time preparing to get this merger, number one, accomplished; number two, get it approved. I did a lot of reading, and, of course, I read about this concession. And it's said that, you know, that's part of the concession. If they say they want to run faster trains, you've got to figure it out.

Keith Edward Creel: So with that said, when you told me that, I said, listen, President. I get it. I understand it. There's a way to do both and be successful.

Keith Edward Creel: We need to define and understand what capacities we need to be able to succeed at both. So we automatically, and this was May of last year, said, you know what? I'm going to pay for the study, I'm going to get an industry expert that knows how to define what capacity is required for both, and I'll let you know what the results are, and we can talk more at a later time. We initiated an RFP. We selected HCR, which are industry experts in determining the rail capacity that's needed. We engaged in that and started that well before that decree came out in November of 2023, so we were not surprised.

Keith Edward Creel: Now the decree expanded the scope a bit, that said it had a date, to your point Benoit, we had to submit on January 15th what our intentions were, and our intentions were to do exactly what we said we would do. We'll work with the Mexican government to identify the capacity needed so that we can protect our growth today as well as the future growth that's planned for the country of Mexico that brings prosperity to everyone and great paying jobs, and our So that was submitted on January 15th, and essentially, that's what it says. We're going to include in the additional scope after we finish this initial study those additional lines they'd like to look at, but I felt, again, it was important to make sure that not only through the written word that was submitted, but our interaction with the President, to make sure that that was represented in its best possible light.

Keith Edward Creel: So no better way to do that than again request a meeting with the President. A week ago yesterday, myself, John Orr, Oscar, who is the president of our CPKC D'Amico property, we met with President Amlow. At the Presidential Palace with President Amlow, we have the Minister, the Secretary of Interior and Infrastructure, SET. We have the Secretary of LinkedIn. What it would take to get it done, and I explained to the President that we had engaged in a study, we gave him the timeline, and we expect results, which will define that infrastructure in May. I explained to him that it's important. The Mexico to establish passenger service.

Keith Edward Creel: It's also important to Mexico and our customers to make sure that we protect freight service, and we need to do both and do both well. He committed to me that he's aligned with exactly what my expectations are. They want to do well in fast food, they want to do well in continuing their economic growth and prosperity and the middle class, great-paying jobs they're creating, the manufacturing that's coming to Mexico. He does not want to jeopardize any of that. So these are two complementary initiatives. That will get us... And that said, one of the last points I'll make, and I said this to President Amaral, I said not only can we create... A great passenger service with the right infrastructure and the right investment.

Keith Edward Creel: We also protect that great freight service, and you're not only going to get passengers out of cars and on passenger trains, you're going to get trucks off the road. , Chris Wetherbee, Thomas Wadewitz, Brandon Oglenski, Kenneth Hoexter, Brandon Oglenski, Ken Hoexter, David Vernon, Benoit Poliniak, Jonathan Chappell, Jonathan Chappell, Ken Hoexter, The Administration changes likely in June, so again, to me, it's just more of what we planned for.

Keith Edward Creel: We're not surprised. We're going to be able to do both, do both well. We'll protect our customers' interests, we'll protect the nation's interests, and we'll get it done, and we'll be proud of the results when it's done.

Keith Edward Creel: Thank you very much. Our next question will come from John Chappell with Evercore ISI. Thank you. Good afternoon, John. John, you mentioned doing a little bit better than 350 million in revenue synergies. I assume that's not completely linear.

John Brooks: There's probably some areas where you're doing better than you recently thought and some where maybe there's been a few challenges. Can you speak to the latter part where there may have been some challenges? And do you think you'll eventually get to the initial projections? Is there something structural that may have kept you from hitting that point?

John Brooks: Or is it more just kind of the macro headwinds that we keep hearing about? Let me just first say on macro and timing, John, I feel good about the synergies in hitting. You know, certainly, I think I mentioned earlier that I thought we would see a quicker ramp-up on Lazaro, but it has been an education process with the team ship lines, it's been an education process with beneficial cargo owners, and frankly, it's been a lot of work around making sure that we have a seamless border, I can tell you it's been a ton of work, and I sit here today with a lot of confidence that the team will deliver, and you're going to see that begin to build.

John Brooks: You know, as much as I'm super proud of the service, the safe border on 180 and 181, the overall environment on the Mack Road, trucking spots, prices, and that have made that a little bit more of a challenge than I think we initially anticipated, but again, in a really good position. You know, Schneider National, our partner there, has had a stronger startup than we ever could have anticipated. We're working in some specific areas to test some retail products on that train, got some of our partners in Canada, when you think about gross and reefers in that, beginning the startup on that service.

John Brooks: So you know, that intermodal area has been just a little bit tricky, but I'm looking for big things in 2020-24 to go along with an area of supply, like the automotive sector, that we've seen a lot of success with. Thank you all for participating as Keith spoke about that closed loop system in that area. Yeah, very.

Operator: Thank you, Jeff. Our next question will come from Kunar Gupta with Scotiabank. Inc. Good evening, everyone. I just wanted to understand if new flea synergies will be reported within the 2023 earnings, what would 2024 earnings look like? Say that again.

Operator: So I'm thinking, in terms of passing out the WGPS growth for 24, maybe it's more for Nadeem or John, but if you freeze 2023 synergies, you realize how much 2024 earnings would grow without growing synergies. Uh, so you want to understand what our twenty-fourth century... This is out of our couple digits. Yes, ma'am.

Nadeem S. Velani: That's what I said right at the beginning. We're not getting that granular. Guidance at this point, giving you an indication of where we see our synergies. We told you that. We're at a 400 kind of run rate, and we're going to ramp up over the course of the next three years. We are going to continue to be guided through a billion dollars over those first three years. And we are gonna be working hard for that, and if you can match yourself, I'm happy if you want to follow up with Chris and Ashley after the call.

Nadeem S. Velani: Thank you for your questions. Thank you. Our next question will come from Ken Hoexter with Bank of America. Hey, great. Good afternoon.

Nadeem S. Velani: And thanks for the detailed answers so far. Maybe, Nadeem, I can follow up on the cost side synergies there. There were a lot of questions for John on the revenue side. Can you talk about how well you've executed on your target so far, where you see that going, and where you can see some of those synergy goals on the cost side? And then thinking about headcount, how do we think about that going forward relative to your RTM? I think Keith threw out there a low-mid single-digit RTM growth rate. Part of the double-digit RTM growth. How does headcount play a role in that?

Nadeem S. Velani: Thanks. Thanks for attending. We think about what we have dived into on the EBITDA synergies on the expense side. We've talked about $180 million in the first three years. So it's very much on target.

Nadeem S. Velani: You know, the headcount piece of that, initially, was a big part of it, as the team combined. Some people chose not to be a part of the team and so you can imagine that at the more senior level some of those costs were a little higher so from a GNA type of headcount Fully on track, a little bit ahead of schedule, from an operating synergies, we're, You're going to see that increase in year two. Certainly, that's going to ramp up if you think about it. Early on, focused on the U.S. part of the network, think about where some of the challenges on the network were on the Mexico side, so we weren't getting a huge amount of operating synergies near term as kind of day one, but as you've seen the results this quarter, and we've talked about the huge improvements both across the network on the former KCSM and the KCSR, the synergies and the cost side is really starting to ramp up on that front, and that's what's given us the ability to deliver the ORs that we have in the back half of the year and meet the industry, so I'm really bullish on where we see the operating synergies coming in, you think about some of the procurement, some of the sourcing synergies, those take time as contracts come up and you can negotiate with your vendors, we're on track in the first year, actually slightly ahead of pace, this year we'll start seeing additional synergies on that front as additional contracts come to the table, so all in all, we're slightly ahead of schedule on the expense side, again it's a smaller piece of the total synergy pie, but we're slightly ahead of pace and I think this year we're going to see more of the value come in as we run this network as well as it can, so very excited about that. Headcount, you know, we're talking low single digit type of RTM assumptions, you know, I see a flat-ish type of headcount for the year.

Nadeem S. Velani: Thank you. Thank you. Our next question will come from Justin Long with Stevens. Thanks and good afternoon. And Nadeem, you mentioned the assumption for low single-digit RTM growth this year. I'm assuming that includes a benefit from Synergy.

Nadeem S. Velani: So is there a way to think about the organic volume growth that you're assuming for the business? And then Nadeem, it would also be helpful to get a little bit of color on the first quarter OR, if you can, just given some of the weather disruption we've seen thus far. I know you said you could make up a good bit of it, but I'm curious how you expect that to net out in the margins. Yeah, so think about this year, you know, the headwind on grain, and the Canadian grain side is going to be made up of kind of base growth. So I'd say,

Nadeem S. Velani: Keith Creel, John Vice, Nadeem Velani, Kevin Chiang, Nadeem Vice, Nadeem Ltd, Kevin Chiang, that's appropriate at this point in the macro and in this point not knowing what what specifically what intermodal looks like in the back half and and where the grain crop comes in products our view I think you know more of the the growth on the revenue side we feel very good about the pricing and that's just you know it's a, Good output as far as what that brings to the earnings case, um, As far as the Q1 OR, yeah, you know, January started off great and then winter hit and, you know, some of these challenges that we had in minus 40, minus 45 ambient temperature without even the wind chill. So, you know, the network is recovering, the network's recovered quite well.

Nadeem S. Velani: There's a lot of business to be moved and dependent on what February looks like and how we close March and Q1 on the weather side. We think we can make up a lot of that volume and get back to kind of a more normal environment in Q1 as far as weather is concerned. That's going to help us kind of deliver, I think, a better year-over-year OR and strong earnings growth. So, more to come. I think we'll have to see how winter plays out, but demand is there, the network is there, and we plan on it. Very helpful

Operator: Thank you. Our next question will come from Cherilyn Radbourne with TD Coling. Thanks very much, good afternoon.

John Brooks: I was wondering if you could give us some color on crude by rail volumes in Q4 and whether you think that's an area which could have some upside for you just with the completion of the TMX expansion running into another issue here. I think our Q4 numbers are off a little bit. I can tell you we've got a 24 plan that is stronger in the crew-by-rail space.

John Brooks: We expect our DRU business to continue strong, and we've picked up a couple other business opportunities. The phones are ringing a fair amount, Cherilyn, around CMX and those issues, but it's really not an area we're chasing. If the right opportunity presents itself, we'll go after it. So I think all that, you put that into the mix, it's probably a little bit offside in 2024, but not massive.

Operator: Thank you. Yes. Our next question will come from Brian Ossenbeck with J.P. Morgan. Hey, good afternoon.

Operator: Thanks for taking questions. I just wanted to see if you could give us an update on the Tophese. I saw the headlines a little while ago.

Keith Edward Creel: I'm not sure if we've seen the final scope of that review yet. Obviously, something that JCS went through a few years ago didn't have much of an impact. So I just wanted to see if you had updated thoughts on that. And then, John, maybe give us an update on just the fluidity of the border crossing. You mentioned that a couple of times with the 180-181. Is that actually showing up in conversions?

Keith Edward Creel: Are shippers willing to move some freight, especially as they see the second bridge at Laredo coming on toward the end part of this year? Thanks. Again, the bottom line up front: you answered the question. The COPA TPs, to me, are the government. The Government Regulatory Body that's charged in Mexico with protecting and making sure competition exists. There have been two different historical COPA-C engagements with KCS Domenico, but nothing has come out of those.

Keith Edward Creel: I can tell you this one is not targeted at CPKC; we've not been served. This is an industry-wide review. And in our case, I know this, the facts don't support anything but pro-competitive.

Keith Edward Creel: We said we'd create competition. We've done nothing but create competition. I can also say this, now that we have control, I've looked at the rates. We might be guilty of not charging enough for this premium service, but certainly not guilty of charging too much. So again, whatever that scope is, whatever that review is, I have nothing to tell me with any indication that we're going to do anything but be supportive of our change. I'm not the leader of the party.

Keith Edward Creel: Let me be quick about the border as well, in the interest of everybody's time as far as the way we've executed it. That border's been fluid. That border's not been shut down, not just because it's the best route going into Mexico but also because it's the most secure route, and that didn't happen because of... on Line. You've got more capacities, even more secure, more liable, more fluid in spite of what might be happening at other borders that don't represent those same value propositions or security elsewhere coming into Mexico, between Mexico and the United States.

Keith Edward Creel: So again, another very accretive, unique value-creating opportunity for us to go to the marketplace. And when I kind of look at it this way, and I've said this, I actually talked to my board, obviously, to ask some of the same questions, you know, what does all this mean? And I say, look at it this way: there are a lot of trucks every day. There are 1.8 million. There are 10,000 a day. How can you do the math? There's going to be truck capacity going across that border. There's Thank you for watching. Keep it right.

Keith Edward Creel: The Gemini, whatever you want to call the other alternative services, there's a value. If you're prepared to risk some of those very obvious unavailable experiences that our shippers, their shippers have experienced, and price doesn't matter, then, you know what? I kinda look at that as, that's your value proposition. But that's not all, we're going to provide an allowable, Premium Service that warrants and commands, and we're never going to apologize, expect the premium price. It costs a lot of money to provide a reliable service.

Keith Edward Creel: Our customers have rewarded us with business that has demonstrated it matters. And I can tell you this last little episode of challenges that the border has experienced; ours has not experienced the same thing. And as a result, those customers that have chosen to move with us have expressed their deep appreciation, and they're rewarding it with business. So again, I make a choice every day if my product's got to get from point A to point B. I've got a rate I can pay if I want to put it in the U.S. Postal service, and I'm saying this in American terms.

Keith Edward Creel: And I've got a rate if I want to pay FedEx or UPS. You've got to decide what matters to you and your value proposition and where you choose to put your freight and make your decision, and I believe that this value proposition matters even more than it ever has. Thank you.

Operator: Our next question will come from Brandon Oglenski with Barclays. Hey, thanks Keith for letting me sneak my question in here. And John, maybe just I'll close out with you on the low single-digit growth outlook this year. I mean, I get it. There's a lot of uncertainty in the macro. And obviously, you've talked about intermodal and grain.

John Brooks: But I think that this commentary is pretty upbeat on merchandise. Can you talk about the incremental customer opportunities you see there, you know, playing out in 2024, and maybe where you see positive variance to where the industry is going to see growth rates in merchandise? Yeah Brandon, so, you know, historically, the Legacy CD franchise was involved with, I don't know of a particular strongest merchandise EPP franchise, but this new combination is an area of strength, and I'm super pleased with what the team has been able to deliver in that space early in 2023. Economically, if you think about the synergies we've talked about, that's been an overweight area. That's an area that we've achieved more, and it's on the back of a strong trip plan, good local service, and getting those cars.

John Brooks: Thank you all for joining us today. We haven't felt the benefits of the bulk of those agreements yet, but we're going to see that ramp up, and I'm really bullish on our steel franchise between not only our Mexico production facilities supporting the growth down there in the automotive industry and other industries but also our, Thank you all so much for tuning in today on In annoying speech at the US video facilities in Canada. But scenario keep an eye on it. I think you're going to see the strong draw things Brandon. Thank you.

Keith Edward Creel: We have reached our allotted time for Q&A. I would now like to turn the call back over to Mr. Keith Creel. Thank you, Operator, and listen again.

Keith Edward Creel: Thanks for joining us this afternoon. I hope that you leave this call understanding that we'll be set from the very beginning. We're in the middle of creating history. We've created a very unique network, bringing these two wonderful companies together. We've got a unique value-creating opportunity that's going to stand the test of time, you know, in a hard macro environment. We've shown growth. In the middle of integration, we've shown growth. And when I say growth, I'm not talking about just RTM growth, RTM growth, or earnings growth.

Keith Edward Creel: And we've shown an ability to improve margins all at the same time, but we've never invested more to create more supply chain resiliency at a time when our three nations never needed it. Disclaimer of work. Standing the test of time, it's going to be here for generations to come. We're on a journey with the best railroaders in this industry, a very unique, value-creating story for our employees, our communities, our shareholders, all stakeholders, a bit again. In time, it became the most relevant rail network in North America.

Operator: Thank you for your trust. We fully intend to reward you for it. Those that trust us and make your investment decisions with us, have a safe and productive day, and we look forward to sharing our first quarter results in the months ahead. This does conclude today's conference call. You may now disconnect.