Q4 2024 Canadian Pacific Kansas City Ltd Earnings Call
Strategic partnerships.
Turning to the commercial team and the operating team that are marketed and executed.
I'm going to say short term things are out there certainly uncertainties from the macro to the trade policies. We've entered into 2025 with a tremendous amount of momentum that we fully expect to build on as we move throughout the year.
<unk> term fundamentals of the North American economy, and trade between three countries network uniquely connects remain unchanged CDK six value proposition is as strong as it ever was.
We're extremely proud of the results we produced in 'twenty four and we're excited about those that lie ahead of us in 'twenty five and beyond so that said I'm going to turn it over Mark Hill elaborate a bit on the ops John to bring some color to the markets and they deem or bring it back to me after elaborates on the numbers.
Mark: <unk> Mark Thank you Keith and good afternoon.
Mark: I'm extremely proud of the performance the operating team delivered this quarter and also throughout 2024 I'd like to thank each and each one of them for their hard work and dedication in delivering best in class service to the customers and their unwavering commitment to safety as I look at the results in the fourth quarter, we continued to drive year over year operating improvements.
Mark: Just looking at train weight linked both improved by 4% locomotive productivity improved by 1%, while our fuel efficiency improved by 2%. These.
Mark: These results speak to the efficiency of the network and they are worth highlighting given the impacts of the work stoppages, we had at port of Vancouver, and also the winter weather, we dealt with in the fourth quarter.
Mark: Despite these challenges we rebounded quickly and had a strong end to the year, while we continued to deal with weather across parts of the network today, our resources are properly sized to meet demand and we are efficiently handling strong startup volumes this year.
Mark: Looking at safety, our FRE personal injuries were zero point 80, 426% year over year improvement for the quarter.
Mark: And our FRE train accident frequency was 1.03, which is a 5% improvement year over year I am very pleased to note that for the second year in a row seat PKC led the industry with the lowest FRE reportable train accident frequency amongst the class one building on our legacy.
Mark: 17 years of consecutive short of industry, leading for CP.
Mark: And although we will never stop striving to do better I am proud of the results.
Mark: So turning to capital in 2024, we made several key investments to drive capacity and efficiency.
Mark: Engineering team is delivering efficient improvements by leverage.
Mark: By leveraging technology to help us more accurately planned maintenance and capital investments across the network.
Mark: During the year, we in service eight new signings as part of our merger our capital commitment to the STB. We also invested in Mexico with new infrastructure targeted toward.
Mark: The Mexico capacity and fluidity. These investments are paying off as performance has been stable throughout the year, we are delivering strong service to our customers.
Mark: Finally, I will share my enthusiasm as well Keith with the opening of the.
Mark: Patrick J optimized bridge the bridge is more than doubling the capacity on what is already the safest and most reliable U S. Mexican border crossing.
Mark: Okay.
The increased capacity is a lot of my team to optimize border crossings and improve the efficiency at the border.
Mark: Now looking at 2025, our plan is to continue to support safe and efficient sustainable growth.
Mark: Pinpointed inefficiencies of capital investments across the network.
Mark: We continue to make upgrades of the legacy KC us locomotive fleet, which will allow more assets to lead trains in Canada.
To improve our flexibility and directing our powered north.
Mark: We're also investing in new capacity, including merger sidings merger CTC, along with targeted investments in Mexico, and Kansas City to improve fluidity in these key corridors.
Mark: Sure Tommy and service. These investments is aligned closely with our growth outlook, ensuring that our network performance and growth in our volume growth are lockstep.
Mark: We also were taking delivery of 100, new tier four locomotives this year and will support our growth improved reliability and fuel efficiency.
Mark: In closing.
Mark: We are carrying positive momentum in 2025.
Mark: Our network is strong and resilient.
Mark: To deliver mid single digit RPM growth along with the efficient reliable service that our customers expect from CPI.
John: With that I'll pass it over to John.
John: Alright, Thank you Mark and good afternoon, everyone.
John: Team overcame certainly several challenges this quarter, including the destruction at the port of Vancouver.
John: Weather impacts that mark spoke to in an uncertain macro to deliver solid growth strong pricing and unique value to our customers with.
John: We closed 2024 out strong in 2025 is off to a good start.
John: Our network is performing well and I feel good about the set up heading into this year and our ability to deliver mid single digit volume growth.
John: Looking at our Q4 results this quarter, we delivered freight revenue growth of 3% on 2% increase in our Tms.
John: For RPM was up 1%.
John: <unk> pricing, continuing partially offset by fuel and mix.
John: Now taking a closer look at our fourth quarter performance I'll speak on an FX adjusted basis.
John: Starting with bulk grain revenues and rpms were up 11% a record Q4 performance Canadian grain volumes were up 18% with increased screen to Vancouver, and Thunder Bay, driven by the improved Canadian grain crop.
John: We also saw higher volumes of Canadian grain move into Mexico as our network continues to deliver on these new synergies.
John: Looking forward our comps the first half of the year remained favorable in this area that coupled with our regulated grain pricing of approximately six 5%.
John: And continued synergies has us well positioned for Canadian grain.
John: U S grain volumes grew 5% over the prior year, our U S. Grain franchise continues to benefit from a solid harvest steady demand and growth in new lanes as we expand our market reach.
In 2024 as an example, we moved over 130 trains from legacy <unk> Green franchise to market South of Kansas City, most of which are completely new markets for these customers.
John: In potash revenues were down 4% on a 7% volume decline now despite solid potash demand in the quarter, our volumes were impacted by the strike and the challenging weather.
John: We moved record levels of potash, though in 2024 and with positive demand fundamentals and Canpotex is fully committed to strong levels through Q1, we are well positioned for another strong year of growth in 2025.
John: And to finish out our bulk business our coal revenue was down 3% on an 8% decline in volume decline was.
John: Mainly driven by U S coal volumes impacted by a specific customer outage, while the work stoppage in weather impacted our Canadian coal shipments.
John: Now moving on to our merchandise franchise.
John: Energy chemicals, and plastics grew 2% on 1% volume growth, we continue to deliver volume growth across multiple commodities in this area few oil LPG biofuels driven from a variety of opportunities self help and synergies.
John: This growth was partially offset by lower crude by rail volumes in the quarter now.
John: Now looking ahead to 2025, we see solid demand fundamentals, coupled with continued wins in plastics, lpg's and renewable diesel delivering another strong year in ECP.
John: Forest products revenues were up 1% on a 5% increase in volume now despite a soft base demand environment, we are delivering unique synergy growth and extended length of haul in this space, including lumber shipments moving from Canada, all the way down to Texas.
John: We continue to work with our customers and supply chain partners in this space to deliver unique service solution that will position this business for accelerated growth as the housing market and broader macro improves.
John: And the metals minerals and consumer products area revenue was down 4% on a 5% volume decline.
John: Softer demand environment, coupled with production challenges at a customer facility impacted our volumes in the quarter.
John: Declines were partially offset with higher volumes of Frac sand.
John: Now similar forest products with our development of two new aggregate trans load terminals and the startup of aluminum dynamics new facilities on our network in Mississippi in Mexico.
John: We're well positioned in MMC to benefit from the strategic network developments, along with further growth as the broader macro continues to improve.
John: Moving to automotive revenue was up 16% on 23% volume growth another record quarter and a record year in automotive.
John: The team continues to raise the bar than I am.
John: Screamingly pleased with our sustained differentiated performance in this space.
John: Benefiting from our unique closed loop service model that Keith spoke to and key network developments and investments such as our Dallas auto compound.
John: Growth and synergies are tracking well ahead of expectation with line of sight to future opportunities.
John: In 2025.
John: Despite increasingly tougher compares we expect our auto franchise to continue delivering steady growth as we benefit from new contracts and the ramp up of market share gains.
John: On the intermodal side of the business revenue was down 6% on 1% volume growth.
John: Starting with domestic intermodal volumes were up 4% driven by growth in our refrigerated business.
John: And our U S Mexico MMX service.
John: Looking to 2025, we have strong line of sight to continued growth in domestic as several opportunities start to take hold.
John: Our business with Schneider and others on the Amex service accelerated to peak levels in Q4, and we expect continued growth in 2025.
John: We add our direct service between Mexico, Texas, and the South East U S with <unk>.
John: Additionally, americold cold storage warehouse co located in our yard in Kansas City will start ramping up mid year.
John: This facility will serve as the anchor.
John: Along with new CP Casey rail served co developments now in Mexico and at the Port of St. John.
John: Which americold announced yesterday.
John: This build these projects build on our strategic collaboration with Americold as we further expand our reach of our unique rail served temp controlled supply chain.
John: On the international intermodal front volumes were down 1%, primarily due to the labor disruption at the port of Vancouver. The decline was partially offset by growth from a new contract that continues to ramp up and higher volumes for the port of St. John.
John: Now looking to 2025, we see a lot of opportunity in this space from increased customer utilization of our CP Casey ports and growth through our differentiated service offerings.
John: So to close we rebounded quickly after the work stoppage and weather impacts our network is performing extremely well and we feel good about delivering mid single digit RPM growth in 2025.
John: And while the macro remains uncertain, we are confident in our unique growth from synergies and self help.
John: Along with our continued ability to achieve pricing that reflects the value of our servicing capacity.
Nadeem: But 25 is going to be an exciting year and I look forward to sharing success in the coming quarters with that I'll pass it over to Nadeem alright, Thanks, John and good afternoon.
Nadeem: To start by thanking the CP Casey family of Railroader for their tremendous effort and execution in our first full year as a combined company.
Nadeem: Our best in class team of railroad, there's continues to rise to the occasion to produce results that are exceptional.
Nadeem: Now turning to our fourth quarter results on slide 12.
Nadeem: Pkc's reported operating ratio was 59, 7% in the core adjusted combined operating ratio came in at 57, 1%.
Nadeem: 100, 160 basis point improvement over prior year.
Nadeem: Diluted earnings per share was $1 28, and core adjusted combined diluted earnings per share was $1 29 up 9% versus last year.
Nadeem: Turning to our full year results on slide 13, CDK six reported operating ratio was 64, 4% and the core adjusted combined operating ratio came in at 61, 3%, a 70 basis point improvement over prior year.
Nadeem: <unk> earnings per share was $3 98 and.
Nadeem: And core adjusted combined diluted earnings per share was $4 25.
Nadeem: An increase of 11% versus last year.
Nadeem: Taking a closer look at our expenses on slide 14, I'll speak to the year over year variances on an FX adjusted basis.
Nadeem: Comp and benefits expense was $619 million or $625 million adjusted for acquisition costs and the tax recovery.
Nadeem: The year over year decline was driven by lower share based compensation and efficiency gains from improved train weights, particularly partially offset by inflation incentive compensation and volume driven increases from higher GTS.
Nadeem: Looking to 2025, we expect our average head count to be up low single digits.
Nadeem: Driving labor productivity gains against the mid single digit RPM growth, we expect to deliver.
Nadeem: Fuel expense was $459 million down 13% year over year the decline.
Nadeem: It was driven by lower fuel price and a 2% improvement in fuel efficiency running longer and heavier trains, which resulted in $6 million in P&L savings for the quarter.
Nadeem: These savings were partially offset by volume driven increases from higher GPM.
Nadeem: Materials expense was $116 million or $115 million adjusted for acquisition costs.
Nadeem: The year over year increase was driven primarily by a long long term purchase agreement that was put in place last quarter.
Nadeem: This agreement is driving higher materials expenses, we have in sourced that subset of our maintenance work, but we are recognizing favorable offset within GSL for net savings in the quarter.
Nadeem: Equipment rents were $94 million.
Nadeem: Year over year increase was driven by inflation and lapping gets pulled equipment credits received in 2023.
Nadeem: Depreciation and amortization expense was up 6% year over year, resulting from a higher asset base.
Nadeem: Purchased services and other expense was $538 million or $517 million adjusted for acquisition costs and purchase accounting.
Nadeem: The year over year decline was driven by savings from the long term parts agreement I mentioned earlier efficiency gains NIF as we consolidate systems and lower casualty expense.
Nadeem: These savings were partially offset by inflation and increased maintenance expense.
Nadeem: Continuing to drive efficiency and cost synergy gains with excellent momentum heading into 2025, we expect these gains along with the impact of lower expected inflation to be sustainable and continue improving our cost structure going forward.
Nadeem: Moving below the line on slide 15, other components of net periodic benefit recovery, where 80 $687 million in Q4, reflecting the lower discount rate compared to 2023.
Nadeem: Full year 2025, we expect this line to increase by $76 million from $352 million in 2024.
Nadeem: Net interest expense was $203 million or $197 million, excluding the impact of purchase accounting.
Nadeem: Year over year decline was driven by our reduced debt balance.
Nadeem: Income tax expense was $246 million or $353 million adjusted for a decrease in Louisiana, Louisiana State.
Nadeem: Tax rate.
Nadeem: <unk> tax and the tax recovery for.
Nadeem: For 2025, we expect to see Pkc's core adjusted effective tax rate to be approximately 24, 5%.
Nadeem: Turning to slide 16, we are generating strong cash flow. This year with cash provided by operating activities of $5 3 billion in 2024 are.
Nadeem: Our commitment to safe and disciplined growth as reflected in our capital investments and in 2024, we reinvested $2 8 billion. This is slightly higher than our outlook to invest approximately $2 75 billion during the year with the increase driven by a higher U S dollar versus Canadian FX rate our.
Nadeem: Our disciplined and strategic investments in safety and in capacity across our network position us to continue efficiently absorbing the growth that this merger has enabled.
Looking to 2025, we expect to invest approximately $2 9 billion in Capex again. This is slightly higher than the outlook provided in our multiyear guide with the increase driven by expected FX impact.
Nadeem: We generated $2 7 billion and adjusted combined free cash flow for the year. We have continued to direct free cash flow after dividends towards repaying debt.
Nadeem: Very pleased to see Moody's recently upgraded us back to our target <unk> credit rating.
Nadeem: We certainly are getting closer to be in a position to return to increasing shareholder returns.
Nadeem: And review of the quarter. The team continues to deliver discipline on price and cost control exceptional execution and industry leading results we have strong momentum entering 2025.
Nadeem: Looking ahead, although the macro and trade policies remain somewhat uncertain, we expect to deliver 12 months to 18% or adjusted earnings growth in 2025 underpinned by mid single digit our Tam growth.
Nadeem: We also anticipate generating strong free cash flow, while investing in the network and reinstating our share buyback program.
Nadeem: Putting all of this together CPE Casey offers a truly different differentiated investment profile.
Nadeem: Combining our unique unique growth opportunities with industry best execution.
Nadeem: Driving the results that we're sharing with you today and I'm excited for the opportunity that we have in 2025 and beyond with that let me turn things back over to Keith Okay. Thanks, gentlemen for the color of what you think the balance for Tom will open up for questions operator over to you.
Speaker Change: Thank you if you'd like to ask a question simply press. The Star Key then the number one on your telephone keypad, if you'd like to withdraw your question. Please press star two as previously highlighted please limit yourself to one question and your first question comes from.
Nadeem: Chris Wetherbee with Wells Fargo. Please go ahead.
Chris Wetherbee: Yeah, Hey, thanks, good afternoon guys.
Speaker Change: Maybe we start on the RPM outlook and so John do you gave us some I think helpful color there, but maybe we can unpack them a little bit more and kind of curious how you think about sort of first half second half cadence of that and if you can break it out how much you might be getting from specific new opportunities case, yes related to our merger related opportunities or what you're seeing kind of in the underlying.
Business with core customers.
Speaker Change: Alright, Chris So couple of comments, maybe on the <unk>.
Speaker Change: Maybe high level.
Speaker Change: Think about it in terms of drill simple, 2% to 3% tied to synergies.
Speaker Change: And I would say, 2% to 3% tied to kind of our base organic business and initiatives tied to the base railroad.
Speaker Change: I can tell you I'm not really counting on the macro.
Speaker Change: And hoping for maybe a second half tailwind if we see something there.
Speaker Change: So it's really about self help.
Speaker Change: I'll tell you.
Probably a little more weighted towards the back half, but I will tell you. This we're off to a really strong start.
Speaker Change: <unk>.
Speaker Change: Not dissimilar to 2024, I think our setup, particularly the first half of the year do you think about our bulk franchise.
Speaker Change: Really good.
Speaker Change: So to be honest with you I'm trying to.
Speaker Change: I see a path to outperform maybe the first half and then we'll see what the second half.
Speaker Change: Of the year brings.
Speaker Change: I think were the comps look pretty good on the grain front as I spoke to you we've got a really strong outlook in potash.
Speaker Change: Elk Valley has got a strong outlook for coal.
Speaker Change: On the initiatives front or the synergy front just to give you a little color on that.
Speaker Change: Continues to be really excited for the international space.
Speaker Change: We're really busy on that front.
Speaker Change: St. John is going to prove to be a nice.
Speaker Change: Dump and improvement for us So of course, we got a miracles new facility that was announced there were going to call out some new services from Gemini.
Speaker Change: At towards the St John and honestly that area.
Combined with what we do on the allowed ROE and growth in.
Speaker Change: In Vancouver.
Speaker Change: I'm pretty positive about that the.
Speaker Change: The automotive sector.
Speaker Change: He has to shine and I know theres a lot of maybe uncertainty.
Speaker Change: Crawling around out there, but you know what.
Speaker Change: I think we feel irregardless of that we're set up well our closed loop system is producing results as Keith spoke to relative to GM and we see some other partners that are coming on in in 2025 that theyre going to help pay dividend.
Speaker Change: And maybe last I'd point to.
Speaker Change: Our intermodal service and specifically our new route with the CFS.
Speaker Change: Not only is that going to provide a lot of opportunity in and out of our new auto compound in Dallas for finished vehicles essentially even parts.
Speaker Change: But we're super excited about what it's going to do in terms of our dry van business and refrigerated business in and out of Mexico that we can use on that route.
Speaker Change: So I hope that.
Speaker Change: Gives you a little bit of flavor.
Speaker Change: <unk> sort of high level around the split between synergies and sort of what I consider base based initiatives.
Speaker Change: Yes very helpful. I appreciate the color. Thank you very much.
Speaker Change: Yes.
Speaker Change: Thank you and next we're going to go to <unk> <unk> with BMO capital markets. Please go ahead.
Speaker Change: Thank you.
Paul: Just Paul.
Speaker Change: Maybe follow up on Chris' question.
Speaker Change: The.
Speaker Change: 4% to six performed against volume.
Speaker Change: Kind of a bond that you've highlighted and thats kind of how we should think about the volume.
Speaker Change: Range, where it should be right.
Speaker Change: Thanks.
Paul.
Speaker Change: Yeah.
Speaker Change: What would be required to be at the higher end of the range versus the lower end of the range I wonder if the volume bamboo.
Speaker Change: And really my question.
Speaker Change: Keith can provide some.
Speaker Change: Kind of perspective from your conversations with customer demand.
Speaker Change: Yeah.
Speaker Change: Sorry.
Speaker Change: Policy changes.
Speaker Change: And then.
Speaker Change: Maybe affecting behavior.
Do you feel this mid single digit kind of volume growth this year.
Speaker Change: Quite independent from any single harping on that pump.
Speaker Change: So let me see if I can.
Speaker Change: Let me take a stab at the latter part of your question and then I'll, let John provide some color.
Speaker Change: John and his team has spent a tremendous amount of time as we all have concerns and trying to learn about.
Speaker Change: What may or may not happen to the tariffs and the bottom line is we don't know.
Speaker Change: But what we do know is that in spite of.
Speaker Change: That volatile, perhaps uncertain, perhaps outcome, we still have investment that's not pulling back of settling down.
Speaker Change: I've got one particular customer strategic customer that was only enabled and created as a result of this transaction. This merger single line service, where it's a new product to the market that made a commitment to me.
Speaker Change: And he says commitment many commitment.
Speaker Change: Announced expansions of its facilities to understand this is a long term play. This is a railroad built forever lateral railroad built for 48 months now not to say, we don't have to navigate that and I have to say, we're not going to be close.
Speaker Change: So our customers, but I can tell you. This trade between these three nations has never been in my assessment more critical.
Trump: Resident Trump.
Trump: Drove a hard bargain in the central to renegotiate and U S U S MCA back.
Trump: The beginning of the pandemic I believe that was our final finalized in 2020 than we had the pandemic occur supply chain.
Trump: Security became an amplified issue that didn't exist before and that has really accelerated not only the expansion of near shoring and allies shoring, but the integration of our supply chain.
Trump: And that is true in all spaces, you can talk about automotive I mean, if you really got into the details on my line commodity by commodity have any engines and transmissions are built and in the U S to go to Mexico. So they can produce the vehicle that comes back to the U S that goes to the consumer market, but the fact is we've got.
Trump: 75% of production capacity in the U S and 25% Thats got to come from somewhere else based on what we consume on annual basis. So.
Trump: So that type of.
Trump: Interdependence that type of need is moving into this economy and I think in hand.
Trump: The range was responsible the range makes sense some risk.
Trump: If it's not as volatile as we think it is but don't expect us to be at the 12 expect us to be another number.
Speaker Change: Thats responsible conservatism, we fill up as our responsibility to ensure that our investors understand we don't have our head understand we're not sitting on the sidelines. We're gonna be engaged we're going to be at the table, we're going to be involved I am going to be involved.
Speaker Change: At the table as far as working with the business communities and the government in Canada, I'm going to do so.
Speaker Change: So I'm going to do so in Mexico, we have a vested interest to make sure that.
Speaker Change: Our shareholders our customers' interests are represented and then the and the right thing and Mr. Trump's desires to build a stronger America to bring jobs to America to balance trade I think is going to be accomplished and we are going to see I think exceptional growth between the three nations.
Ed: Thanks, Ed I think the other thing a lot of people get wrapped up in this.
Ed: Tend to listen to what people say.
Ed: And I know that.
Ed: There's things that are said and unsaid, but when I hear a president that I take very seriously say that what I am concerned about Canada, and what I'm concerned about Mexico is that you take action to address immigration concerns and illegal drug trade concerns that are occurring at our borders.
Ed: And what I've seen since he said that.
Ed: Don will impose a very significant number but what I have seen since the end of day very responsible Canada take action I've seen Mexico take action.
Ed: We went down to Mexico city, and that would present shambaugh the week before Christmas we had a very productive discussion with her about all of our business about what our network and sales and how we can align and help her achieved Mexico's ambitions, but at the same time the partnership and the trilateral trade between the three nations and a very extreme.
Ed: Unique way and that resonates that makes too much sense not to resonate so at the end of the day.
Ed: Again, we don't know where to put dependent xactly. We think the range is a responsibility to represent that and I would be extremely surprised.
Ed: If it's not at the higher end versus the lower in unless there is just some crazy on some volatility.
Ed: Certain people stick their head in the sand that I, just don't see that occurring I don't think Thats, an England best interest and I think the pragmatic approach will carry the day and we're going to come out on the high side not on the low side.
Ed: Yeah.
Ed: Barry.
Ed: John So maybe I'd, just add a little bit to that.
Ed: Spoken to 2000.
Ed: Dozens of customers here over the last month, or so and I think the reality is the growth platform and the initiatives that.
Ed: That we have line of sight to <unk>.
Ed: Arent really going to be impacted.
Ed: We're going to be focused on delivering those unique whether it be synergies or base opportunities.
Ed: We're going to be fostering the base railroad demand in our bulk franchise that I spoke to.
Ed: And frankly, if you look back to 2018 in 2019 during the last set of.
Ed: Tariffs.
Ed: The reality was that these supply chains are very complex, it's commodity by commodity explained by lane, it's customer by customer.
Ed: And ultimately what happens in and I think what we saw is there wasn't a lot of change it's hard to change these complexities.
Ed: Overnight.
Ed: So we're going to keep laser focused on the opportunities ahead of us.
Ed: Just like any sort of a volatile demand environment. This team will be ready to adapt and react.
Ed: If something material does change in one direction or the other and otherwise and we are going to be laser focused on delivering the growth.
Ed: We just spoke to.
Ed: Appreciate it thank you.
Ed: Yes, Thank you Brian.
Brian: And our next question comes from Brian <unk> with Jpmorgan. Please go ahead.
Speaker Change: Okay. Thanks I appreciate you taking my question, maybe one for <unk>.
Speaker Change: Hey, Damian sitting here looking into next year can you give us some of the.
Speaker Change: Assumptions or maybe your visibility into the inflationary environment.
Speaker Change: Environment or hopefully disinflationary environment on some of the bigger bigger line items and maybe also some commentary.
Speaker Change: Expectations for buyback.
Speaker Change: Buybacks and how we should think about that starting up and at what pace and what time. Thank you.
Speaker Change: Sure Thanks, Brian So.
Speaker Change: Inflation I think its something thats.
Speaker Change: Impacting the industry, a fair bit as far as.
Speaker Change: Absorbing the cost.
Speaker Change: The last two years and not being able to.
Speaker Change: Fully reprice as contracts come up in price above inflation and so.
Speaker Change: We have been.
Speaker Change: We've absorbed a lot of that.
Speaker Change: On the.
Speaker Change: Expense side on labor.
Speaker Change: On purchase services on materials.
Speaker Change: With steel prices commodity prices and of course.
Speaker Change: Tightness in labor market, so that being said we have seen.
Inflation moderate in some areas kind of non labor closer to two 5% the past year, which is a much more normalized.
Speaker Change: We've seen particular, leading Canada inflation come down closer to two and then on the labor side, it's moderated.
Speaker Change: To start with something with a three as opposed to what we faced with the with the <unk>.
Speaker Change: B et cetera. So.
Speaker Change: Much more normalized environment from a inflationary cost side.
Speaker Change: We anticipate getting pricing in that.
Speaker Change: For core 5% range.
Speaker Change: For the year. So certainly we see an opportunity there to see improvements support margin improvement in 2025 from it's from pricing above inflation.
Speaker Change: And on your second part of your question as far as the buyback yes.
Speaker Change: We said, we wanted to get our leverage back down below three closer to two and a half.
Speaker Change: We've accomplished a lot we've paid back by the end of this week it'll be close to $7 billion Canadian dollars of debt.
Speaker Change: Our announced transaction and post our deal so we've been very successful in Delevering.
Speaker Change: Currency hurt us a little bit Canadian dollar depreciating and being at.
Speaker Change: A 52 week low and certainly.
Speaker Change: Our balance sheet and hurt our leverage number, but if you normalize for a more kind of long term average on the Canadian dollar we are closer to that 252 points six level. So.
Speaker Change: All that means is yes, we're excited about being returning to the market you can expect us to.
Speaker Change: Continue to invest back into the network this year about $2 9 billion.
Speaker Change: I think we want to address the the dividend to an extent and our yield is.
Speaker Change: 7%, even lower at this level.
Speaker Change: So we will do something there, but we're going to be balanced in how we return cash to shareholders and then we.
Speaker Change: You can see that the model spits out significant significant amount of cash and we'll use the rest to.
Speaker Change: Buy back shares and so more to come we've talked long term when you looked at our Investor day that range of about 3% to 4% is what the buyback kind of spit. So when you factor in our Capex and dividend approach in getting our dividend closer to 25%, 30% payout. So that's kind of.
Speaker Change: What you should expect from us.
Speaker Change: Okay. Thanks, very much theme.
Speaker Change: Thanks, Brian.
Speaker Change: Thank you and your next question comes from Steve Hansen with Raymond James. Please go ahead.
Steve Hansen: Yeah. Good afternoon, guys. Thanks.
Speaker Change: Look if we think back on to 'twenty. Four you were obviously hit by a whole host of diversions in disruptions across the network.
Speaker Change: Don't need to go through them all here, but if I can stick the tariff issue aside for a minute.
Speaker Change: Do you feel about the repeatability of those types of events.
Speaker Change: Going forward, whether its strike.
Speaker Change: At the ports the terminal.
Speaker Change: Workers themselves on the railroad.
Speaker Change: I guess, we won't break wildfires and things like that but I mean, how do you feel about the normalization of that effect in the 25.
Speaker Change: Well the way I look at it I think they were episodic I think 2024 was especially the multiple strikes we had with the ports.
Speaker Change: Our labor strikes I think it was a very challenging, especially in Canada year.
Speaker Change: With episodic events that I don't see occurring in 2025, reoccurring and I say that because of a couple of things that are extremely encouraging that a distributional and develop.
Speaker Change: Literally this week negotiated.
In agreement with uniforms, we negotiated an agreement with.
Speaker Change: BMW.
Speaker Change: Next week, we'll be with USW.
Speaker Change: Claude Dean and leadership their professionalism, the wisdom, and allowing us to come to an agreement that is good for our customers good for our employees.
Speaker Change: At the same time and the most assuredly.
Speaker Change: Good for reliability, because I can tell you and I've said this publicly in Canada.
Speaker Change: There's been so much strike fatigue, and labor fatigue that Canada's reputation on the world stage as being a reliable supply chain partner has been challenged.
Speaker Change: And put in jeopardy.
Speaker Change: And I am encouraged that those union leaders understand that I am encouraged that our employees understand that our employees want to be treated well paid well and be part of the success store that enables growth and prosperity for their families as well as our customers.
Speaker Change: We're at a place now pending the ratification of those agreements.
Speaker Change: We're going to have an award from capita on the TCR C. C. A 2025 with a positive outcome from that route those ratification votes with no work stoppages.
Speaker Change: Labour reliability, whatever what a refreshing thing.
Speaker Change: To be able to say not only the mark He said the best professional but John go sell this business to the customer it's going to be a fluid railroad.
Speaker Change: The success enabler help them win in their markets. So we can win with them. That's a pretty good place to D C. But in all honesty. It hasn't been this way across the board for some time and the last thing I'll say about that from <unk>.
Speaker Change: Our reliability standpoint, the terms of those agreements supporting returns they're not short your terms. So we're talking about four years of labor stability with a clean platform in sleep.
Speaker Change: Nothing but positive railroading on growth and I think that's a great place to be and especially in light of 2024.
Speaker Change: I appreciate the time.
Speaker Change: Thanks, Steve.
Speaker Change: Your next question comes from Daniel <unk> with Stephens, Inc. Please go ahead.
Daniel: Hey, good evening, everybody. Thanks for taking my questions.
Speaker Change: Maybe to follow up on earlier topics that you mentioned in the script you are well ahead on synergy capture you have line of sight into some more opportunity.
Speaker Change: You mentioned, 2% to represent extra growth of growth. This year from synergies, but can you just expand on what's running better than plan, where are you seeing these opportunities may be increasing.
Speaker Change: And then we will not be providing a more formal outlook for these topline and cost synergies continue into 'twenty and beyond.
Speaker Change: I expect that there is more than you initially thought or are we just finding with <unk> earlier in the process.
Speaker Change: Yes Daniels of John So.
Speaker Change: I think first of all the opportunity pipeline, we had identified at Investor day.
Speaker Change: Hasnt, let up I feel really good about what's out there and I think hence you've seen us deliver on that and Youre right. We are we are ahead of where we thought we were going to be at this point in the journey.
Speaker Change: I think we're pretty open around closing out 2024 in excess of $800 million.
Speaker Change: Type run rate and I'm Super pleased we've delivered and in a little bit beyond that.
Speaker Change: As I think about 2025, I see no reason with what I have teed up out there and the team at Pete up out there.
Speaker Change: That we can't deliver.
Speaker Change: Another $300 million on on top of that.
Speaker Change: And its across really all the lines of business and that's what makes us unique and frankly fun.
Speaker Change: I'm just thinking about as I said, we've got a lot of success in our in our automotive business.
Speaker Change: But I'm, telling you we're still early to mid innings on that and I see a number of opportunities that exist not only with the Oems.
Speaker Change: In leveraging some of the capacity in new routes that we've added but also in the auto parts side of that we've just scratched the surface there.
Speaker Change: I already talked about our MMX service and the gross debt Schneider has seen on our franchise, but I fully expect that to continue and we really haven't been able yet to develop because we are waiting on the americold facility in Kansas City, our reefer business than ever.
Speaker Change: You recall, that's a significant opportunity with eight out at Investor day that is really targeted at a at a market that's dominated by trucks.
Speaker Change: Take the combination of our facility in Kansas City.
Speaker Change: Our route into Atlanta, a route and facility with Americold.
Speaker Change: They will work on in 2025, and Mexico combined with the new facility in Port St. John increases this ecosystem that we've talked about in the reefer space that again, we really haven't scratched the surface on that yet.
Speaker Change: And then maybe the other piece that I think towards mentioning and I say this because it helps lends itself to that future that you spoke to and sort of how long. These these opportunities that are out there for I talked about in my remarks, the new facility with aluminum dynamics.
Speaker Change: In Columbus, Mississippi, and also down in Mexico.
Speaker Change: That is an opportunity with both of those that are going to open up.
Speaker Change: And for Middle of Q3 of this year that are not only going to present sort of base railroad new opportunities.
Speaker Change: In the steel and aluminum side of the business for us, but also tremendous synergies linking some of our production.
Canada and also our production in Mexico up into the into the U S. So it makes us excited about that and then maybe last the team.
Speaker Change: And more to come on this but.
Speaker Change: The team has worked hard in the Dallas market to continue to develop our relationships with the customers in that area.
Speaker Change: We've got a number of trans load facilities currently in that market, but I think the opportunity to expand ourselves and our footprint there.
Speaker Change: But it's about them again that'll be more of a second half of this year story.
Speaker Change: But one I think that lends itself into linking.
Speaker Change: These franchises in three countries and delivering.
Speaker Change: More goods in and out of the fastest growing really U S city in the United States, but hope that provides a little color or more color.
Speaker Change: Yes, I appreciate all the detail best of luck.
Tom <unk>: And your next question comes from Tom <unk> with UBS. Please go ahead.
Tom <unk>: Yes, good afternoon. So.
Speaker Change: I think nadeem, you talked a bit about.
Speaker Change: Inflation easing a bit I think you also mentioned pricing outlook is constructive may I don't know, maybe if that's kind of similar to the 45% similar to last year. How do you think about the pace of or improvement in kind of.
Speaker Change: Are we getting like $58 59, and then <unk>.
Speaker Change: I guess, if you say beyond 25% sets up pretty well do you think that keeps going at there's kind of a runway for further.
Speaker Change: 100 basis points, a year or something like that or is there.
Speaker Change: Kind of slows down a bit when you get to $57 58, So I guess, you're really looking for some of our comments. Thank you.
Speaker Change: Sure. So I mean, obviously, we're coming off a <unk> 57 in Q4. There is there is some seasonality of course as you know.
Speaker Change: In Q1, and especially up North and then you've got some some.
Speaker Change: Compensation incentive compensation accruals and you've got you don't have as much capital work available in Q1. So there is sensitivity around that but that being said we had a fairly cheap.
Speaker Change: Challenging first quarter a year ago.
Speaker Change: So much.
Speaker Change: Much.
Speaker Change: More conducive operating environment. So I think there's more snow in Florida than we've had in Calgary. This year. So overall I think it's.
Speaker Change: That's supportive to seeing a continuing some benefits as far as they are.
Speaker Change: Year over year in Q1 I think.
Speaker Change: If you think about all the one offs, we had a year ago.
Speaker Change: So described death by 1000 cuts with all the stoppages and outages.
Speaker Change: Casualty costs et cetera. So.
Speaker Change: Not planning on those occurring youre always going to have something but not to that extent. So I think there's some opportunities on that front. So I certainly see to your point on pricing above inflation, and just operating execution, Mark and team running continuing to continually improving the network velocity.
Speaker Change: And productivity across the network Mexico in particular, that's all going to be supportive of operating leverage we started getting the volume that we're talking about bringing that to the bottom line I think we can see.
Speaker Change: That sub 60 operating.
Speaker Change: <unk> ratio again, and then if you factor in going forward, we've talked about 100 basis point type of improvement.
Speaker Change: As part of our Investor Day, and that's just again operating more effectively always continuous improvement that's kind of a cornerstone of how Keith has taught us to lead in this organization.
Speaker Change: And so 100 basis points over time, each year should be the goal and should be.
Speaker Change: Product of the outcome of running efficiently and safely and as.
As far as our long term goal I mean.
Speaker Change: I'll leave that for you.
Speaker Change: Let's get some 61st and then.
Speaker Change: We'll go from there.
Speaker Change: Okay, great. Thank you.
Walter: So your next question comes from Walter <unk> with RBC capital markets. Please go ahead, yes, thanks very much operator, good afternoon, everyone.
Walter: I want to come to automotive.
Walter: You've seen really strong growth in your automotive youre at about 2024.
Walter: Just curious now as going forward do you see potential tariffs.
Walter: Impacting your business, there and I know wildly has been a big part of your growth in automotive do you have any perspectives that you can share with us on the on the Norfolk Southern purchase option in the wildly terminal.
Walter: But I'll take that.
Walter: I'll take a shot at it.
Walter: But my view is one.
Speaker Change: The widely option and I'll, let John maybe touch on the tariffs in the automotive side Walter.
Speaker Change: I think just for perspective, everyone understands what we're talking about back in 2006, and the Meridian LLC was created in partnership with Acs.
Speaker Change: And then S.
Speaker Change: There was an option to purchase.
Speaker Change: The Dallas intermodal terminal, which at that time as a place called Zika junction.
Speaker Change: And that was conceptualized and baked into the agreement. It was a one time one year window that opened up in 24 that closes in April.
Speaker Change: This year.
Speaker Change: It's a one and done kind of thing.
Speaker Change: To purchase just that terminal now it's important to understand that it's just that terminal. So many of you have been too are wildly terminal, where we opened up our new automotive terminal, it's adjacent to the intermodal terminal south of the main line.
Speaker Change: About a 500 acre footprint, that's about 90, some odd acres of the 500.
Speaker Change: Essentially that's.
Speaker Change: So if it were to be purchased if they were to exercise the option.
Speaker Change: Essentially lack of a better term is in Ireland.
Speaker Change: Today, we own it we operate it.
Speaker Change: The customer.
Speaker Change: Slip rates, where their agent if they buy when they take their money they've got to pay a fair price. That's all kind of work out in the agreement we can redeploy the capital in and make money with it and we become the customer and were treated in apparel equitable way the same way, we treat them today so to me.
Speaker Change: It's nothing to be concerned about at all because it's truly the true value of it is the Italian package and how you create the total value for the customer because stand alone. If you think about it historically and this is the way I look at things.
Speaker Change: Sorry that was not the growth engine for NFS and Acs.
Speaker Change: For whatever reason you go back and look at the data.
Speaker Change: I went back as far as 2018 number 195% of the business.
Speaker Change: Originates terminates outside of that terminal that was coming from U S ports.
So essentially with an S terminal always has been and then S terminal as far as the destination standpoint that we've changed a little bit of that but theres been no runaway and growth because the <unk> competitor in that lane for that terminal. If you look at it standalone.
Speaker Change: Interstate so has the ebbs and flows go trucking capacity oversupply under supply rates go up rates go down it's going to ebb and flow. So im not saying it doesn't have some value, but the true values. When you package it with an automotive compound and you create an ecosystem that complement this automotive closed loop system.
Speaker Change: Where you have the possibility now to shift.
Speaker Change: Automotive parts that play a role in the production of those finished vehicles that go to those auto racks that operating that closed loop system and when you can do that around our entire network. The strongest automotive network. That's been created in an industry. That's when you start to move the needle.
Speaker Change: So again, my guess is and Ive heard the same saber rattling and I know that.
Speaker Change: In <unk> <unk>.
Speaker Change: In a recent challenges where their shareholders. Some of those shareholders have strong views that there's a lot of untapped or loss value there.
Speaker Change: Quite frankly I've been doing this a long time and I hope that they can unlock that I hope that they can unlock some growth because the reality is this railroad's built to grow with both railroads.
Speaker Change: The traffic that goes to and from on the rail is going to come over or route.
Speaker Change: We control it we dispatch it just kind of go perhaps in this case to their island, which they share with us and how to service and so we're going to compete.
Speaker Change: To that Alan we're going to work hard with NFS as well as with.
Speaker Change: They are a competitor in the east the growth on the southeast markets into the Dallas market in the triangle down to the Mexican markets.
Speaker Change: So I hope that if they do buy Walter that they're motivated and they want to grow I hope that they do what they haven't done in the past because guess, what we get to be part of that and we'll work closely with them and at the same time, whether they do or they don't one thing if you invest your money on this answering if renewal team. These hunters that we have in Johns.
Speaker Change: The marketing team are going to work closely with all strategic partners at Schneider.
Speaker Change: Sex, but any other player wants to bring traffic to the table to take trucks off the road and utilize this unique network to leverage that trial.
Speaker Change: We're going to grow into Dallas, we're going to go into Mexico are going to Mexico into the southeast and a very unique way.
Speaker Change: So again.
Speaker Change: What I will say that they do.
Speaker Change: Yes, I do I will shake their hand will take their money, we'll redeploy it will make a great return with the sizable amount of money, they're going to have to pay us to buy it out and we will still compete.
Speaker Change: Against them and partner with them nothing changes, we still grow we still net net we're in a beautiful position of strengths, however that shakes out.
Walter.
Speaker Change: So just a couple of comments maybe on the first part of your question, but I would maybe start by just amplify on Keith's comments the real growth.
Speaker Change: Cross that Meridian speedway and into the southeast as in and out of Mexico, and it is an untapped lane and <unk>.
Speaker Change: The speedway and our route.
Speaker Change: With both of those carriers.
Speaker Change: Can compete everyday against trucks, when it's marketed and sold the right way.
Speaker Change: And also the amount of vehicles that are being short feed out of Mexico.
Speaker Change: And in customers looking for solutions against that.
Speaker Change: Going to be also a big part of that growth over that railroad.
Speaker Change: As you think about the tariffs.
And again, we're staying very close to the Oems I am looking at the opportunities we have in 2025, and 2026 and very much isolation right now relative to.
Speaker Change: A lot of the tariff costs and we're laser focused with those folks on delivering solutions.
Speaker Change: Fact of the matter is we've had significant uptake in this product because it's giving the customers a world class product that frankly, they have not enjoyed for other routes.
Speaker Change: And they can count on the car supply and that matters.
Speaker Change: So I have a lot of conviction.
Speaker Change: That will continue to deliver these opportunities and projects.
Speaker Change: At the end of the day.
Speaker Change: North American sales.
Speaker Change: Are what they are they are 16 17 million vehicles a year.
Speaker Change: Reality is.
Speaker Change: As production capability as we sit here today, and maybe $10 million of of that or the demand to fulfill the need in the United States for vehicles has got to come from from somewhere and whether it's the European market. The Mexican market the Canadian market, we're going to be there to <unk>.
Speaker Change: Provider solution.
Speaker Change: And that's what we're going to continue to be laser focused on.
Speaker Change: That's right that's I appreciate the color.
Walter: Yes, Thank you Walter.
Speaker Change: And your next question comes from Scott Group with Wolfe Research. Please go ahead.
Speaker Change: Hey, Thanks afternoon guys.
Speaker Change: Couple of things.
Speaker Change: Really big Carload artyem spread in <unk>.
Speaker Change: 24, how are you thinking about that this year and then maybe Keith longer term on the on the operating ratio I totally get the deems point, let's get the sub 60, and then we'll sort of.
Speaker Change: Figure out where we go but.
Speaker Change: When we started this.
Speaker Change: Journey, we were thinking mid fifties, even some people may be thinking low <unk> on or is that just the wrong way to think about.
Speaker Change: Where we can go over time or is that still somewhat.
Speaker Change: Over time still in the cards.
Speaker Change: Well, let me I'll take the first part of that Scott I haven't envisioned the low fifty's number.
Speaker Change: Again, the operating ratio was an outcome. So if we grow the revenues right way.
Speaker Change: Continue to run a fluid railroad and we get to.
The potential of this network over time beyond.
Speaker Change: That 2028 timeframe as low fifties possibility sure. It is I'm not planning for it but yes, it's within the realm of possibility.
Speaker Change: But as far as the other guidelines that youre talking about.
That path to.
Speaker Change: So that double nickel is something that is certainly real now theres a lot of uncertainty between now and then we've got volatility in the marketplace, but again.
Unless things get really crazy, we do a good job we continue to execute the way we are executing will grow with our customer strategically we don't oversubscribed the network.
Speaker Change: This thing this networks built to.
Speaker Change: So run very efficiently.
Speaker Change: Do it at a low cost sustainable way and produce not only strong industry, leading earnings growth, but at industry best if that industry best or.
Speaker Change: Scott if I could if I could just make a comment on them as well and think about things we do in operating.
Speaker Change: We have our meeting once a year at the end of the quarter over quarter, and we pull out the double digit millions of dollars within the operating department to sign up for certain things to reduce costs. Those are the things that we add to the operating ratio to drop it and if I think about just deploying your capital I'll tell you. When you look at the some of the metrics of tap.
Speaker Change: Turning in Mexico today with double digit speed increases all of this is because we are deploying the capital in the right bottleneck areas to get the locals off the mainline. So trains can travel down to maybe we can switch the customer we can be satisfied with customer satisfaction, but also get everything we need with fuel efficiency all of these locomotives.
Speaker Change: Heavier trains longer trains, we don't want to start and stop and then when we talk about deploying capital with some new locomotives that were bringing on board this year very fuel efficient.
Speaker Change: And again on the.
Speaker Change: The fuel of excellence that we have when we deployed the Dana team is just bringing the cash register with some of the fuel efficiency, we're getting and those are things that are bringing it down and we were exceptional right now what we're doing with.
Speaker Change: Savings of dwell with.
Speaker Change: Locomotives in Mexico.
Speaker Change: I think you're being modest Scott I'll share with you just just to kind of sneak peek here, if I look at legacy <unk> network.
Speaker Change: Network year over year, we're all networks fee.
Speaker Change: Improved 22% dwell.
Speaker Change: <unk>, 8% <unk> for operating horsepower, almost 24% car miles per car day, almost 13% and thats without the full benefit of the.
Speaker Change: <unk> six but I call productivity infrastructure projects that we executed in 2024 that literally just came online towards the end of the year.
So things are moving more fluidly. The culture is evolving we got a tremendous amount of pride were.
Speaker Change: Driving capacity, we're becoming better railroad is every day they are the.
Speaker Change: Possible in Mexico.
Speaker Change: Such an untapped.
Speaker Change: Dominant in the raw state is evolving every day to become.
Speaker Change: Better and better and I would say all of those improvements.
Speaker Change: If you look at like GTS for operating.
Speaker Change: Horsepower.
Speaker Change: Our standard legacy.
Speaker Change: C P.
Speaker Change: We want to go close to 200 is.
Speaker Change: Is the number.
Speaker Change: No.