Q2 2026 Canadian Pacific Kansas City Ltd Earnings Call

July 29, 2026

Operator 2: Please stand by. Your meeting is about to begin. Good afternoon. My name is Leo, I will be your conference operator today. At this time, I would like to welcome everyone to CPKC's Q2 2026 conference call. The slides accompanying today's call are available at investor.cpkc.com. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question, simply press star one on your telephone keypad. If you would like to withdraw your question, press star two. I would now like to introduce Chris Bruyn, Vice President, Capital Markets, Tax, and Treasurer, to begin the conference call.

Operator: Please stand by. Your meeting is about to begin. Good afternoon. My name is Leo, I will be your conference operator today. At this time, I would like to welcome everyone to CPKC's Q2 2026 conference call. The slides accompanying today's call are available at investor.cpkc.com. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question, simply press star one on your telephone keypad. If you would like to withdraw your question, press star two. I would now like to introduce Chris de Bruyn, Vice President, Capital Markets, Tax, and Treasurer, to begin the conference call.

Speaker #1: At this time, I would like to welcome everyone to CPKC's second quarter 2026 conference call. The slides accompanying today's call are available at investor.cpkcr.com.

Speaker #1: All lines have been placed 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 * then the number 1 on your telephone keypad.

Speaker #1: If you would like to withdraw your question, press *2. I would now like to introduce Chris Bruyn, Vice President, Capital Markets, Tax and Treasurer, to begin the conference call.

Speaker #2: Thank you, Leo. Good afternoon, everyone, and thank you for joining us today. Before we begin, I want to remind you that this presentation contains forward-looking information.

Chris de Bruyn: Thank you, Leo. Good afternoon, everyone, thank you for joining us today. Before we begin, I want to remind you this presentation contains forward-looking information. Actual results may differ. The risks, uncertainties, and other factors that could influence actual results are described on slide two, in the press release, and in the MD&A filed with Canadian and US regulators. This presentation also contains non-GAAP measures, as outlined on slide three. With me here today is Keith Creel, our 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 Vice President and Chief Operating Officer. The formal remarks will be followed by Q&A. In the interest of time, we would appreciate if you limit your questions to one.

Speaker #2: AXA results may differ. The risks, uncertainties, and other factors that could influence actual results are described on slide 2 in the press release, and in the MD&A filed with Canadian and U.S.

Speaker #2: regulators. This presentation also contains non-GAAP measures, as outlined on slide 3. With us here today are Keith Creel, our 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 Vice President and Chief Operating Officer.

Speaker #2: The formal remarks will be followed by Q&A. In the interest of time, we would appreciate it if you limit your questions to one. It is now my pleasure to introduce our President and CEO, Mr. Keith Creel.

Chris de Bruyn: It is now my pleasure to introduce our President and CEO, Mr. Keith Creel.

Speaker #3: Okay, thanks, Chris. And again, thanks to everyone joining us on the call today. As I always do, I'll start by thanking the 20,000-strong team of railroaders we have producing these excellent results.

Keith Creel: Hey, thanks, Chris. Thanks for everyone joining us on the call today. As I always do, I start by thanking the 20,000 strong team of railroads we have producing these excellent results. I remain extremely proud to serve with each one of you, so thank you for your efforts and your sacrifices. On the performance, if you look at it, reflects the strength of the CPKC franchise, the resilience of our business mix, and the continued benefits of uniquely connecting Canada, US, and Mexico through the only single iron rail network that uniquely serves all three countries. When we brought these railroads together just over three years ago to create something unique, a network capable of unlocking new supply chains, expanding market access, increasing competition across North America, and we're doing exactly that. With each passing quarter, that vision is becoming a reality.

Speaker #3: I remain extremely proud to serve with each one of you. So thank you for your efforts and your sacrifices. And on the performance, if you look at it, it reflects the strength of the CPKC franchise, the resilience of our business mix, and the continued benefits of uniquely connecting Canada, the U.S., and Mexico to the only single-line rail network that uniquely serves all three countries.

Speaker #3: You know, we brought these railroads together just over three years ago to create something unique—a network capable of unlocking new supply chains, expanding market access, and increasing competition across North America—and we're doing exactly that.

Speaker #3: With each passing quarter, that vision is becoming a reality. For the results of the quarter, the team delivered volume growth of 4%, revenue growth of 13%, and an operating ratio of 61.6%.

Keith Creel: The results for the quarter, the team delivered volume growth of 4%, revenue growth of 13%, an operating ratio of 61.6%, earnings of $1.27, which is an increase of 13%. The results are driven by a combination of discipline execution by Mark and the team, strong service performance, and continued growth across many of our key franchises. Operationally, the railroad continues to perform at a very high level. During the quarter, we established new records across a number of the key operating metrics with exact utilization, train velocity, terminal fluidity, all improved year-over-year, demonstrating the ability to safely and efficiently move more freight across the network while creating additional capacity for John to sail into our future growth. On the growth initiative side, what continues to excite us the most is the opportunities ahead. The rationale for combining CP and KCS is pretty simple.

Speaker #3: Earnings of $1.27, which is an increase of 13%. The results are driven by a combination of disciplined execution, my mark, and the team, strong service performance, and continued growth across many of our key franchises.

Speaker #3: Operationally, the railroad continues to perform at a very high level. During the quarter, we established new records across a number of the key operating metrics—whether it’s asset utilization, train velocity, or terminal fluidity. Our improved year-over-year results demonstrate the ability to safely and efficiently move more freight across the network, while creating additional capacity for John to sail into our future growth.

Speaker #3: On the growth initiative side, what continues to excite us the most is the opportunities ahead. The rationale for combining CP and KCS is pretty simple: create the first and only single-line railroad that links Canada, the United States, and Mexico, and leverage the network to generate value for our customers and our shareholders.

Keith Creel: Create the first and only single line railroad that links Canada, the United States, and Mexico. Leverage the network to generate value for our customers and our shareholders. Today, we're seeing the strategy translate into these tangible results. During the quarter, we established volume records in grain, energy, chemicals, plastics, and automotive. We also advanced several important commercial initiatives that reinforce the long-term growth story of our network and franchise. The launch and the momentum behind our enhanced Southeast Mexico Express service, continued growth on the Mexico Midwest Express service, the opening of another Americold facility, this time at the Port of Saint John in Atlantic Canada. We continue to increase traffic flows between Canada and Mexico via the CPKC land bridge that uniquely is enabled by the North American franchise. Perhaps most importantly, as we look forward, our commercial pipeline remains robust.

Speaker #3: Today, we're seeing the strategy translate into these tangible results. During the quarter, we established volume records in grain, energy, chemicals, plastics, and automotive. We also advanced several important commercial initiatives that reinforced the long-term growth story of our network.

Speaker #3: In Franchise, the launch and momentum behind our enhanced South-East Mexico Express service continued, as did growth on the Mexico Midbus Express service and the opening of another AmeriCo facility, this time at the Port of St.

Speaker #3: John in Atlantic Canada, and continued increased traffic flows between Canada and Mexico via the CPKC land bridge that is uniquely enabled by this North American franchise.

Speaker #3: Perhaps most importantly, as we look forward to our commercial pipeline, remains robust. Customers across multiple sectors continue to look for ways to simplify supply chains, reduce friction at borders, increase resiliency, improve transit performance.

Keith Creel: Customers across multiple sectors continue to look for ways to simplify supply chains, reduce friction at borders, increase resiliency, improve transit performance. CPKC is uniquely positioned to help them achieve those objectives. In closing, as we enter the H2 of the year, we do so from a position of strength. Our network is performing extremely well. Our service product is strong. Our growth pipeline continues to expand. While uncertainty remains in parts of the macroeconomic environment, we're encouraged by the improving market conditions across several markets. It's a growth story. Growth in cross-border traffic, growth in new supply chains, growth enabled by a network that is uniquely

Speaker #3: CPKC is uniquely positioned to help them achieve those objectives. Showing closing as we enter the second half of the year, we do so from a position of strength.

Speaker #3: Our network is performing extremely well. Our service product is strong. Our growth pipeline continues to expand. And while uncertainty remains in parts of the macroeconomic environment, we're encouraged by the improving market conditions across several markets.

Speaker #3: It's a growth story—growth in cross-border traffic, growth in new supply chains, growth enabled by a network that is uniquely created in North America by CPKC.

John Brooks: Created in North America by CPKC. We're still in the early chapters of this story, realizing the full potential of this franchise. We've led the industry in revenue and earnings growth the last 2 years, and we're well-positioned to deliver another year of double-digit earnings growth in 2026. With that said, I'm going to turn it over to Mark, who can elaborate a bit on operations, John will bring some color on the markets, Nadeem on the numbers, and we look forward to the Q&A session. Mark, over to you.

Keith Creel: Created in North America by CPKC. We're still in the early chapters of this story, realizing the full potential of this franchise. We've led the industry in revenue and earnings growth the last 2 years, and we're well-positioned to deliver another year of double-digit earnings growth in 2026. With that said, I'm going to turn it over to Mark, who can elaborate a bit on operations, John will bring some color on the markets, Nadeem on the numbers, and we look forward to the Q&A session. Mark, over to you.

Speaker #3: We're still in the early chapters of this story, realizing the full potential of this franchise. We've led the industry in revenue and earnings growth the last two years, and we're well positioned to deliver another year of double-digit earnings growth in 2026.

Speaker #3: So, with that said, I'm going to turn it over to Mark. He can elaborate a bit on operations. John will bring some color on the markets.

Speaker #3: Nadeem, on the numbers, and we look forward to the Q&A session. Mark, over to you.

Speaker #2: Yeah. Thank you, Keith, and good afternoon. I want to begin by recognizing our team of railroaders across North America for another outstanding quarter of execution.

Mark Redd: Yeah. Thank you, Keith, and good afternoon. I want to begin by recognizing our team of railroaders across North America for another outstanding quarter of execution. The commitment, discipline, and focus enabled CPKC to deliver record levels of operating performance while continuing to provide customers with safe and reliable service. During the quarter, we set Q2 records across a number of key productivity metrics, including train speed, dwell, locomotive productivity, and fuel efficiency. These results reflect the strength of our operating model and, most importantly, the dedication of our railroaders who continue to execute at a very high level every day. As we mark 1 year since completing the consolidation of our US and Canadian operating systems, the benefits of that work continue to be realized across the network. Our teams are aligned around common processes, sharing performance measures, and real-time visibility across the network.

Speaker #2: The commitment, discipline, and focus enable CPKC to deliver record-level operating performance while continuing to provide customers with safe and reliable service. During the quarter, we set second quarter records across a number of key productivity metrics, including train speed, dwell, locomotive productivity, and fuel efficiencies.

Speaker #2: These results reflect the strength of our operating model and, most importantly, the dedication of our railroaders to continue to execute at a very high level every day.

Speaker #2: As we mark one year since completing the consolidation of our U.S. and Canadian operating systems, the benefits of that work continue to be realized across the network.

Speaker #2: Our teams are aligned around common processes, sharing performance measures, and real-time visibility across the network. This is allowing us to identify opportunities quicker and resolve issues faster and make better decisions.

Mark Redd: This is allowing us to identify opportunities quicker, resolve issues faster, and make better decisions. As we continue to realize the benefits of the operations as 1 railroad, operating performance remains a critical focus area. The visibility and coordination created through the integration of our Canadian and US operating systems allow us to manage train execution across the network with greater precision and consistency than ever before. The result is a more fluid, efficient, and consistent railroad delivering even stronger service and asset utilization across the 3-nation system. Now turning to safety, this remains our top priority. During the quarter, both personal injury frequency and train accidents increased versus 1 year ago, but still remain 1.0 for FRA train accidents and 0.96 for FRA personal injuries. While we are disappointed by these results, we remain fully committed to continuous improvement.

Speaker #2: As we continue to realize the benefits of operating as one railroad, operating performance remains a critical focus area. The visibility and coordination created through the integrated integration of our Canadian and U.S. operations...

Speaker #2: Operating systems allow us to manage train execution across the network with greater precision and consistency than ever before. The result is a more fluid, efficient, and consistent railroad, delivering even stronger service and asset utilization across the three-nation system.

Speaker #2: Now, turning to safety, this remains our top priority. During the quarter, both personal injury frequency and train accidents increased versus a year ago, but still remain at 1.0 for FRA train accidents and 0.96 for FRA personal injuries.

Speaker #2: While we are disappointed by these results, we remain fully committed to continuous improvement. Safety is a journey that requires constant diligence, learning, and engagement.

Mark Redd: Safety is a journey that requires constant diligence, learning, and engagement. We're taking action to address the underlying trends and remain focused on ensuring every employee returns home safe at every shift, while continuing to improve the safety of our operations. Now turning to our locomotive fleet. We have now received all 70 Wabtec locomotives scheduled for delivery in 2026. We remain on track to begin receiving Progress Rail locomotives in H2. Building on the 100 locomotives received from Wabtec last year, we continue to make significant improvements or investments in fleet modernization to support the long-term growth and efficiency of our CP network. These investments are already supporting improved reliability and efficiency across the network, particularly on our Transcon operations in Canada, where the new units have been deployed.

Speaker #2: We are taking action to address the underlying trends and remain focused on ensuring every employee returns home safe after every shift, while continuing to improve the safety of our operations.

Speaker #2: Now, turning to our locomotive fleet, we have now received all 70 WAVTEC locomotives scheduled for delivery in 2026. We will remain on track to begin receiving Progress Rail locomotives in the second half.

Speaker #2: Building on the 100 locomotives received from WAVTEC last year, we continue to make significant improvements and investments in fleet modernization to support the long-term growth and efficiency of our CP network.

Speaker #2: These investments are already supporting improved reliability and efficiency across the network, particularly on our Transcontinental, TransCont operations in Canada, where the new units have been deployed.

Speaker #2: As additional locomotives enter service, we expect further benefits through improved asset availability, network resilience, and operating performance. Finally, the engineering team has been consistently delivering exceptional productivity.

Mark Redd: As additional locomotives enter service, we expect further benefit through the improved asset availability, network resilience, and operating performance. Finally, the engineering team has been consistently delivering exceptional productivity. Their work has supported record grain loadings while maintaining strong network performance. Importantly, rail and tie replacement continues to progress ahead of schedule. Our rails and tie crews have increased year-over-year installation productivity by 18% and 59%, respectively. We fully expect to be off the main line in Western Canada well before the start of the fall harvest season, positioning us to support customer demand during one of the busiest periods of the year. In closing, our railway continues to perform at an extremely high level. As a note, Keith, John, and I spent some time out on the railroad last week, and we came away pleased with what we accomplished while also identifying the areas of further opportunity.

Speaker #2: Their work has supported record grain loadings while maintaining strong network performance. Importantly, rail and tie replacement continues to progress ahead of schedule. Our rail and tie crews have increased year-over-year installation productivity by 18 percent and 59 percent, respectively.

Speaker #2: We fully expect to be off the main line in western Canada well before the start of the fall harvest season positioning us to support customer demand during one of the busiest periods of the year.

Speaker #2: In closing, our railroad continues to perform at an extremely high level. As a note, Keith, John, and I spent some time on the railroad last week, and we continue.

Speaker #2: We came away pleased with what we accomplished, while also identifying areas of further opportunity. That's what true PSR looks like. I always remember: a plus today is a B-minus tomorrow, as we continue to drive for continuous improvement.

Mark Redd: That's what true PSR looks like. Always remember, "Be less today and be modest tomorrow," as we continue to drive for continuous improvement. Strong execution by our employees, the benefits of strengthening our integration, disciplined focus on service performance, strategic investments, and continued productivity improvements across the business will position us well in H2. With that, I'll turn it over to John.

Speaker #2: Strong execution by our employees, the benefits of strengthening our integration, disciplined focus on service performance, strategic investments, and continued productivity improvements across the business will position us well in the second half.

Speaker #2: With that, I'll turn it over to John.

Speaker #1: All right. Thank you, Mark, and good afternoon. Our second quarter results reflect the strength of CPKC's unique franchise and the benefits of our three-nation network.

John Brooks: All right. Thank you, Mark, and good afternoon. Our Q2 results reflect the strength of CPKC's unique franchise and the benefits of our three-nation network. This quarter is another great example of how we continue to stack up growth from synergies and new business wins, while realizing strong price for the value of the service and our capacity. Now looking at our Q2 results, we delivered Q2 record freight revenues excluding fuel, and all-time record GTMs, up 13% and 4% respectively. Cents per RTM increased 9%, reflecting higher fuel surcharge revenue, sustained pricing strength, and moderating mix headwinds. Based on our current outlook for fuel and FX, we expect continued strength in yields in H2. Moving on to the next slide, before discussing the lines of business, I'd like to spend a moment on the consistency of our growth.

Speaker #1: This quarter is another great example of how we continue to stack up growth from synergies and new business wins. We're realizing strong price for the value of the service and our capacity.

Speaker #1: Now, looking at our Q2 results, we delivered Q2 record freight revenues excluding fuel, and all-time record GTMs—up 13 percent and 4 percent, respectively.

Speaker #1: Since RTM increased 9 percent, reflecting higher fuel surcharge revenue, sustained pricing strength, and moderating mix headwinds. Based on our current outlook for fuel and FX, we expect continued strength in yields in the second half of the year.

Speaker #1: Moving on to the next slide, and before discussing the lines of business, I'd like to spend a moment on the consistency of our growth.

Speaker #1: Reflecting on Q2 since 2023, we've delivered 17% RTM growth, or 22% excluding fuel. This performance, despite a challenging macro backdrop, is a result of laser-focused commercial execution, unlocked through the strength of our service product, network efficiency, and the capacity we can offer into the marketplace.

John Brooks: Reflecting on Q2 since 2023, we've delivered 17% RTM growth or 22% excluding fuel. This performance, despite a challenging macro backdrop, is a result of laser-focused commercial execution unlocked through the strength of our service product, network efficiency, and the capacity we can offer into the marketplace. Now taking a closer look at our Q2 revenue performance, I'll speak to FX-adjusted results. Starting with bulk, Q2 was another record quarter for grain in revenue, RTMs, and carloads, with revenue increasing 24% on 19% volume growth. Canadian grain volumes increased 24%, driven by record harvest and continued growth in the markets such as Mexico. US grain volumes increased 14%, also driven by strong demand into Mexico and also to the PNW markets.

Speaker #1: Now, taking a closer look at our second quarter revenue performance, I'll speak to FX-adjusted results. Starting with bulk, Q2 was another record quarter for grain in revenue, RTMs, and carloads, with revenue increasing 24 percent on 19 percent volume growth.

Speaker #1: Canadian grain volumes increased 24 percent, driven by a record harvest and continued growth in markets such as Mexico. U.S. grain volumes increased 14 percent, also driven by strong demand in Mexico and in the P&W markets.

Speaker #1: Looking ahead, we remain optimistic that both supply and demand will remain solid through Q3. And although it's still early to tell, the new crop across our network is off to a pretty good start.

John Brooks: Looking ahead, we remain optimistic that both supply and demand will remain solid through Q3, and although it is still early to tell, the new crop across our network is off to a pretty good start. Potash revenues were up 10% on a 2% decline in volume, reflecting the impact of port maintenance and lower mine production. Looking ahead, while we continue to expect the impact from port maintenance, export demand fundamentals remain healthy, and we are working closely with our customers in this space to maximize our potash volumes into the second half of the year. To round out bulk, coal revenue declined 18% on a 29% reduction in volumes, reducing our total RTM growth by approximately 3% on the quarter. This decline was driven by ongoing production-related challenges at our customer mines, which impacted shipments throughout the quarter.

Speaker #1: Potash revenues were up 10 percent on a 2 percent decline in volume, reflecting the impact of port maintenance and lower mine production. Looking ahead, while we continue to expect impacts from port maintenance, export demand fundamentals remain healthy, and we are working closely with our customers in this space to maximize our potash volumes into the second half of the year.

Speaker #1: To round out bulk, coal revenue declined 18 percent on a 29 percent reduction in volumes, reducing our total RTM growth by approximately 3 percent in the quarter.

Speaker #1: This decline is driven by ongoing production-related challenges at our mines and our customer mines, which impacted shipments throughout the quarter. While run rates have stabilized and shipment levels are improving, we expect coal to continue to be a headwind in the second half of the year.

John Brooks: While run rates have stabilized and the shipment levels are improving, we expect coal to continue to be a headwind in the second half of the year. Moving on to merchandise. Energy, chemicals, and plastics revenue increased 8% on 6% volume growth. The volume growth was driven primarily by higher VRU and conventional crude shipments, partially offset by lower fuel oil shipments into Mexico. Looking ahead, we expect continued growth in ECP, driven by improved market fundamentals and new business wins. Forest Products revenue increased 2% on 2% lower volumes. Despite the decline in volumes, we are encouraged to see continued strength in synergies led by lumber shipments into our Southern US markets, highlighting our unique ability to connect supply and demand across North America. In fact, despite higher interest rates and lower housing starts, June marked a record month for lumber synergy shipments across our network.

Speaker #1: Moving on to merchandise, energy chemicals and plastics revenue increased 8 percent on 6 percent volume growth. The volume growth was driven primarily by higher BRU and conventional crude shipments, partially offset by lower fuel oil shipments in the Mexico.

Speaker #1: Looking ahead, we expect continued growth in ECP, driven by improved market fundamentals and new business wins. Forest products revenue increased 2 percent on 2 percent lower volumes.

Speaker #1: Despite the decline in volumes, we are encouraged to see continued strength and synergies led by lumber shipments into our southern U.S. markets, highlighting our unique ability to connect supply and demand across North America.

Speaker #1: In fact, despite higher interest rates and lower housing starts, June marked a record month for lumber synergy shipments across our network. Metals, minerals, and consumer products revenue increased 16% on 7% volume growth.

John Brooks: Metals, minerals, and consumer products revenue increased 16% on 7% volume growth. Growth was driven by improving steel volumes across both domestic and land bridge lanes, along with continued strength in aggregate shipments, supported by new construction activity in the southern part of our network. Moving on to automotive, revenue increased 19% on 8% volume growth, representing another record quarter. Growth was driven by new business wins and extended length of haul as automotive continues to be a compelling example of the value of our three-nation network. Closing with our intermodal franchise, revenue increased 11% on flat volumes. Domestic intermodal volumes increased 3% in the quarter. We are encouraged by the early success of our SMX service with CSX, with volumes increasing more than 30% from Q1. We are seeing signs of improving truck-to-rail conversion opportunities, supported by higher fuel prices, tighter regulatory enforcement, and reduced trucking capacity.

Speaker #1: Growth was driven by improving steel volumes across both domestic and land bridge lanes, along with continued strength in aggregate shipments supported by new construction activity in the southern part of our network.

Speaker #1: Moving on to automotive, revenue increased 19 percent on 8 percent volume growth, representing another record quarter. Growth was driven by new business wins and extended length of haul as automotive continues to be a compelling example of the value of our three-nation network.

Speaker #1: Closing with our intermodal franchise, revenue increased 11 percent on flat volumes. Domestic intermodal volumes increased 3 percent in the quarter. We are encouraged by the early success of our SMX service with CSX, with volumes increasing more than 30 percent from Q1.

Speaker #1: We are seeing signs of improving truck-to-rail conversion opportunities, supported by higher fuel prices and tighter regulatory enforcement and reduced trucking capacity. Both our MMX and SMX services are well-positioned to capitalize on these favorable market dynamics.

John Brooks: Both our MMX and SMX services are well-positioned to capitalize on these favorable market dynamics. In international, volumes declined 2% as we lapped strong pull ahead on prior year comparisons. Looking ahead, we expect to return to growth in international, supported by our strong service products from the Port of Vancouver and as we execute specific growth initiatives at Port of Saint John and also Lázaro Cárdenas. In summary, the pipeline of unique growth opportunities is strong, and we continue to capture pricing momentum across our book of business. With improvements in the freight demand trends, continued synergy realization, and a growing pipeline of new business wins, I remain very confident in our ability to deliver mid-single-digit volume growth in 2026. With that, I will pass it over to Sunny Nadeem.

Speaker #1: In International, volumes declined 2 percent as we lapped strong pull-ahead on prior-year comparisons. Looking ahead, we expect a return to growth in International, supported by our strong service products from the Port of Vancouver, and as we execute specific growth initiatives at the Port of St.

Speaker #1: John, and also Lázaro Cárdenas. So, in summary, the pipeline of unique growth opportunities is strong, and we continue to capture pricing momentum across our book of business.

Speaker #1: With improvements in freight demand trends, continued synergy realization, and a growing pipeline of new business wins, I remain very confident in our ability to deliver mid-single-digit volume growth in 2026.

Speaker #1: With that, I'll pass it over to Nadeem.

Speaker #2: All right. Thanks, John, and good afternoon. We delivered another quarter of strong volume growth, disciplined execution, and effective cost control. These results underscore the strength of our franchise and our ability to translate our unique opportunities into earnings and cash flow growth.

Nadeem Velani: All right. Thanks, John, and good afternoon. We delivered another quarter of strong volume growth, disciplined execution, and effective cost control. These results underscore the strength of our franchise and our ability to translate our unique opportunities into earnings and cash flow growth. We continue to realize merger synergies while Mark and his team are delivering excellent operating performance and customer service. I am very pleased with the underlying performance of the business and the momentum we are carrying into the H2 of the year. Now turning to our Q2 on slide 15. CPKC's reported operating ratio was 64.6%. Our core adjusted operating ratio was 61.6%, up 90 basis points from last year. Diluted earnings per share was CAD 1.15, and core adjusted diluted EPS was CAD 1.27, up 13% versus last year.

Speaker #2: We continue to realize merger synergies while marketing this team are delivering excellent operating performance and customer service. I'm very pleased with the underlying performance of the business and the momentum we are carrying into the second half of the year.

Speaker #2: Now, turning to our second quarter, on slide 15, CPKC's reported operating ratio was 64.6 percent. Our core adjusted operating ratio was 61.6 percent, up 90 basis points from last year.

Speaker #2: Diluted earnings per share was $1.15, and core adjusted diluted EPS was $1.27, up 13 percent versus last year. Taking a closer look at our expenses on Slide 16, I will speak to the year-over-year variances on an FX-adjusted basis.

Nadeem Velani: Taking a closer look at our expenses on slide 16, I will speak to the year-over-year variances on an FX-adjusted basis. Core adjusted comp and benefits expense was CAD 702 million. The year-over-year increase was driven by higher stock-based compensation, wage inflation, and volume-related costs. These were partially offset by ongoing productivity gains, improving train rates, and continued operating efficiency improvements. Looking ahead, we expect to continue generating strong labor productivity in the H2 of the year, with modest headcount growth supporting accelerating volume growth. Fuel expense was up 49% year-over-year. The increase was driven primarily by a 52% increase in on-highway diesel price, along with higher volume. This was partially offset by a 4% improvement in fuel efficiency, driven by increased train weights and improved locomotive productivity. Materials expense was up 3% year-over-year.

Speaker #2: Core adjusted compensation and benefits expense was $702 million. The year-over-year increase was driven by higher stock-based compensation, wage inflation, and volume-related costs. These were partially offset by ongoing productivity gains, improved train weights, and continued operating efficiency improvements.

Speaker #2: Looking ahead, we expect to continue generating strong labor productivity in the second half of the year, with modest headcount growth supporting accelerating volume growth.

Speaker #2: Fuel expense was up 49 percent year-over-year. The increase was driven primarily by a 52 percent increase in on-highway diesel price, along with higher volume.

Speaker #2: This was partially offset by a 4% improvement in fuel efficiency, driven by increased train weights and improved locomotive productivity. Materials expense was up 3% year-over-year.

Speaker #2: The increase was primarily driven by inflation, including the impact of higher fuel price on our non-locomotive fleet, partially offset by efficiency gains from contract optimization and lower locomotive material costs.

Nadeem Velani: The increase was primarily driven by inflation, including the impact of higher fuel price on our non-locomotive fleet, partially offset by efficiency gains from contract optimization and lower locomotive material costs. Equipment rents were 6% lower versus prior year, reflecting improved asset utilization, stronger network velocity, and improved cycle times. Depreciation and amortization expense was up 5%, driven by a larger asset base. Core adjusted PS&O expense was CAD 585 million. The year-over-year increase was driven by higher casualty costs and inflation, partially offset by productivity initiatives and operating efficiencies across the network. In reviewing the quarter, I would highlight the strength of the underlying business performance and execution. Strong volume growth, disciplined pricing, and continued productivity improvements enabled us to deliver another quarter of double-digit earnings growth while absorbing several notable cost headwinds.

Speaker #2: Equipment rents were 6 percent lower versus prior year, reflecting improved asset utilization, stronger network velocity, and improved cycle times. Depreciation amortization expense was up 5 percent, driven by a larger asset base.

Speaker #2: Core adjusted PS&O expense was $585 million. The year-over-year increase was driven by higher casualty costs and inflation, partially offset by productivity initiatives and operating efficiencies across the network.

Speaker #2: In reviewing the quarter, I'd highlight the strength of the underlying business performance and execution. Strong volume growth, disciplined pricing, and continued productivity improvements enabled us to deliver another quarter of double-digit earnings growth.

Speaker #2: While absorbing several notable cost headlines, higher casualty costs and stock-based compensation represented a 4 percent impact to EPS and $120 basis point headwind to OR.

Nadeem Velani: Higher casualty costs and stock-based compensation represented a 4% impact to EPS and 120 basis point headwind to OR. Year-over-year changes to fuel price were 130 basis point headwind to the OR. Despite these impacts, the underlying trajectory of the business remains strong. The combination of volume growth, operating leverage, and disciplined cost management allowed us to offset these headwinds and deliver strong earnings growth in the quarter. Moving below the line on slide 17, net interest expense was CAD 237 million, or CAD 231 million excluding purchase accounting. The increase was driven primarily by interest on new debt, partially offset by lower commercial paper balances and debt repayments. Income tax expense was CAD 335 million, or CAD 370 million adjusted for purchase accounting and significant items. We continue to expect a full-year core adjusted effective tax rate of approximately 24.75%.

Speaker #2: The year-over-year changes to fuel price were a 130 basis point headwind to the OR. Despite these impacts, the underlying trajectory of the business remained strong.

Speaker #2: The combination of volume growth, operating leverage, and disciplined cost management allowed us to offset these headwinds and deliver strong earnings growth in this quarter.

Speaker #2: Moving below the line on slide 17, net interest expense was $237 million, or $231 million excluding purchase accounting. The increase was driven primarily by interest on new debt, partially offset by lower commercial paper balances and debt repayments.

Speaker #2: Income tax expense was $335 million, or $370 million adjusted for purchase accounting and significant items. We continue to expect a full-year core adjusted effective tax rate of approximately 24.75%.

Nadeem Velani: Turning to slide 18 and cash flow, year-to-date net cash provided by operating activities was up 8%, driven by higher operating income. Our year-to-date capital expenditures were CAD 1.4 billion, and we remain on track to deliver full-year CapEx of CAD 2.65 billion, a 15% reduction year-over-year. Year-to-date adjusted pre-cash was CAD 1.3 billion, up 25% over prior year. During H1, our disciplined approach to capital management delivered CAD 2.4 billion of shareholder returns through share repurchases and dividends, reflecting a balanced and opportunistic allocation of capital. In closing, we delivered strong financial results in Q2, reflecting healthy volume growth, disciplined pricing, ongoing productivity improvements, and effective cost management. The business continues to generate strong earnings and cash flow while our balance sheet and capital allocation priorities remain unchanged.

Speaker #2: Turning to Slide 18 on cash flow, year-to-date net cash provided by operating activities was up 8 percent, driven by higher operating income. Our year-to-date capital expenditures were $1.4 billion, and we remain on track to deliver full-year capex of $2.65 billion, a 15 percent reduction year-over-year.

Speaker #2: Year-to-date adjusted free cash was $1.3 billion, up 25 percent over the prior year. During the first half of the year, our disciplined approach to capital management delivered $2.4 billion of shareholder returns through share repurchases and dividends, reflecting a balanced and opportunistic allocation of capital.

Speaker #2: In closing, we delivered strong financial results in the second quarter, reflecting healthy volume growth, disciplined pricing, ongoing productivity improvements, and effective cost management. The business continues to generate strong earnings and cash flow, while our balance sheet and capital allocation priorities remain unchanged.

Speaker #2: As we look to the second half of the year, continued execution across the network, along with ongoing efficiency and growth initiatives, positions us well to achieve our full-year guidance and deliver sustainable, long-term shareholder value.

Nadeem Velani: As we look to H2, continued execution across the network, ongoing efficiency and growth initiatives position us well to achieve our full-year guidance and deliver sustainable long-term shareholder value. With that, I'll turn it over back to you, Keith.

Speaker #2: With that, I'll turn it back over to you, Keith.

Speaker #3: Okay. With that, I'll open it up to questions. Thank you, Jenny.

Keith Creel: Okay. With that, operator, let's open it up for questions. Thank you, gentlemen.

Speaker #4: Thank you. If you would like to ask a question, simply press star, then the number 1 on your telephone keypad. If you would like to withdraw your question, press star, then 2, as previously highlighted.

Operator 2: Thank you. If you would like to ask a question, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press star two, as previously highlighted. Please limit yourself to one question. Your first question comes from Chris Wetherbee with Wells Fargo. Please go ahead.

Operator: Thank you. If you would like to ask a question, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press star two, as previously highlighted. Please limit yourself to one question. Your first question comes from Chris Wetherbee with Wells Fargo. Please go ahead.

Speaker #4: Please limit yourself to one question. Your first question comes from Chris Weatherby with Wells Fargo. Please go ahead.

Chris Wetherbee: Obviously-

Speaker #5: Obviously, a solid quarter, but I guess I wanted to talk a little bit about, you know, what we've seen in developments with the transaction between UP and NS.

Keith Creel: Go ahead

Chris Wetherbee: a solid quarter. I guess I wanted to talk a little bit about what we've seen in developments with the transaction between UP and NS, in particular, the agreement with Canadian National. Just want to get a sense of how do you feel if it does change anything from a competitive landscape for CP? Sort of how do you feel like you fit into the dynamics here, and then the growth opportunities that you see from the combined network of CP and KC over the multi-year period of time in light of what we've seen so far?

Speaker #5: In particular, the agreement with Canadian National. Just want to get a sense of how do you feel if it does change anything from a competitive landscape for CT?

Speaker #5: Sort of, how do you feel like you fit into the dynamics here? And then, you know, the growth opportunities that you see from the combined network of CP and KC over a multi-year period of time, in light of what we've seen so far?

Speaker #2: Well, Chris, you might

Keith Creel: Well, Chris, you might get a two-part answer here. When you say the agreement, point out which specific agreement.

Speaker #3: get a two-part answer here. When you say the agreement, point out which specific agreement.

Speaker #5: So I guess there's two. So there's one that's contingent on the transaction and one that's not, I guess, in terms of the EJ&E and then the potential access down to through Texas.

Chris Wetherbee: I guess there's two. There's one that's contingent on the transaction and one that's not, I guess, in terms of the EJ&E.

Keith Creel: Right

Chris Wetherbee: The potential access down through Texas. I guess maybe start there, and maybe if you want to expand on it to include both of them, I would be curious your take.

Speaker #5: I guess maybe start there, and if you want to expand on it to include both of them, I'd be curious to hear your take.

Speaker #3: Okay. Well, I'm going to go high level, John. I'll let you fill in some of the market. I try to decouple myself, but it's tough to decouple myself from 17 years of experience.

Keith Creel: Well, I am going to go high level, John. I will let you fill in some of the market. I try to decouple myself, but it is tough to decouple myself from 17 years of experience. A lot of which, the latter years entailed fighting for the right and the ability and the operational capacity to kind of decouple yourselves from the whims of the Chicago operating experience inside that inner loop. That EJ&E route, that interstate around Chicago, to me, it is kind of the holy grail in Chicago from a network perspective when I have my old hat on. I am very sensitive, admittedly. I understand the pain and suffering it took. I also understand more so than others, I would argue the operational benefit of having that asset. When I think about that deal standalone, I think Jim, good on Jim.

Speaker #3: A lot of which, in the latter years, entailed fighting for the right, the ability, and the operational capacity to kind of decouple yourselves from the whims of the Chicago operating experience.

Speaker #3: Inside that inner loop. So that EJ&E route, that interstate around Chicago to me, it's kind of the holy grail in Chicago from a network perspective.

Speaker #3: And when I have my old hat on—so I'm very sensitive, admittedly. I understand the pain and suffering it took. I also understand, more so than others, I would argue, the operational benefit of having that asset.

Speaker #3: So when I think about that deal standalone, I think, Jim—good on Jim. He understands, like I understand, the benefit of having that capacity and that relief valve and that kind of interstate route around Chicago.

Keith Creel: He understands, like I understand, the benefit of having that capacity and that release valve and that through kind of interstate route around Chicago. Well, when I put my CN hat on, if I were to, I think back and reflect, that is not unlimited capacity you just gave away. That is your insurance clause. Maybe today you have latent capacity, 10 years from now, do you have latent capacity? To think and suggest just because somebody else pays for the capital, there is unlimited right of way to build sidings and to build infrastructure. At some point, these are long-term assets and long-term decisions, there is going to be accountability for that decision.

Speaker #3: Well, when I put my CN hat on, if I were to, and I think back and reflect, that's not unlimited capacity you just gave away.

Speaker #3: That is your insurance clause. And maybe today you have latent capacity 10 years from now, do you have latent capacity? And to think and suggest just because somebody else pays for the capital, there's unlimited right-of-way to build sidings and to build infrastructure at some point.

Speaker #3: And these are long-term assets and long-term decisions. There's going to be accountability for that decision. You wake up in the middle of a meltdown in Chicago—especially if UP and NS were to realize their ambitions—in the most heavily congested, busiest location in North America, and now you're battling with UP trains and CN trains for the same capacity.

Keith Creel: You wake up in the middle of a meltdown in Chicago, especially if UP and NS were to realize their ambitions in the most heavily congested, busiest location in North America, now you are battling with UP trains and CN trains for the same capacity. Further think this thing out, as I have a bit, how does that impact the overall complex of Chicago now? You just put the J in play. The questions I have, I think about this, I have not quite gotten to this part of the supplemental information that is provided. I spent maybe way too much time on 84 pages of corrections, I read Jim's letter, I got to a little bit of the CGP stuff. I am wondering how that changes their merger plans and how that gets tweaked and how you integrate that in, number one.

Speaker #3: And then, further, think this thing out: if I have a bit, how does that impact the overall complex of Chicago now? You just put the J in play.

Speaker #3: So, the questions I have—and I think about this, and I haven't quite gotten to this part of the supplemental information that's provided. I spent maybe way too much time on the 84 pages of corrections, and then I read Jim's letter, and then I got to a little bit of the CGP stuff.

Speaker #3: I'm wondering how that changes the merger plans, and how that gets tweaked, and how you integrate that in, number one. And I think about the day when the place melts down, and how you decouple now and you have no release valve.

Keith Creel: I think about the day when the place melts down and how you decouple now, and you have no release valve. It gives me concern. So what did you get for that? You got access to Mexico via Memphis Gateway. You get the ability to quote to a customer a two-line move, perhaps, for the haulage rate, as opposed to a three, but it's still a three-line move. It's still a route over Memphis operationally. It's still controlled and dispatched by the Union Pacific. You still get to the most problematic border point in Mexico at Eagle Pass, and now you've got three railroads fighting for the same capacity going to one railroad. That compared to our network from a competitive standpoint, operationally, going to our key markets that we serve is disadvantaged. A lot of information to unwind in all that, Ken.

Speaker #3: So it gives me concern. So what did you get for that? You got access to Mexico, via the Memphis gateway; you get the ability to quote to a customer a two-line move, perhaps, for the haulage rate as opposed to a three, but it's still a three-line move.

Speaker #3: It's still a route over Memphis, operationally. It's still controlled and dispatched by the Union Pacific. You still get to the most problematic border point in Mexico, at Eagle Pass, and now you've got three railroads fighting for the same capacity, going to one railroad.

Speaker #3: Is that, compared to our network from a competitive standpoint—operationally, going to our key markets that we serve—is disadvantaged. So, a lot of information to unwind and all that, Ken.

Speaker #3: I just think, in the end, good for Jim to get access in Chicago. I hope that CN doesn’t have buyer’s remorse in the future.

Keith Creel: I just think in the end, good for Jim to get access in Chicago. I hope that CN doesn't have buyer's remorse in the future, what they gave up versus what they got. Because I don't think they got a lot, in all honesty. When it comes to the merger side, I think that it's a couple of steps for UP to solve a very problematic merger application. It preserves competition, perhaps on those two to ones and three to twos where operationally feasible. That helps take a couple of steps towards solving miles and miles and miles and miles and miles more of problematic steps. When it comes to access for CN coming to Kansas City, we've already got four railroads running between Kansas City and St. Louis. I'd say welcome to the party. Come ready to compete because we will.

Speaker #3: What they gave up versus what they got—because I don't think they got a lot, in all honesty. When it comes to the merger side, I think that it's a couple of steps for UP to solve a very problematic merger application.

Speaker #3: It preserves competition perhaps on those two-to-ones and three-to-tos, where operationally feasible. So that helps take a couple of steps towards solving miles and miles and miles and miles and miles more of problematic steps.

Speaker #3: And when it comes to access for CN coming to Kansas City, we've already got four railroads running between Kansas City and St. Louis. I'd say welcome to the party.

Speaker #3: Come ready to compete, because we will. We're not afraid of competition—we never have been. As long as we do our jobs and we leverage the benefits of our single-line route, I'll stand that against CN.

Keith Creel: We're not afraid of competition, we never have been. As long as we do our jobs and we leverage the benefits of our single-line route, I'll stand that against CN, I'll stand that against UP. John, any commercial comments?

Speaker #3: I'll stand that against UP. John, any commercial comments?

John Brooks: Chris, maybe the Mexico piece, as Keith said, we're not afraid to compete, but I don't view this as very different than maybe when CN had a connection and used the route over Jackson with the legacy KCS to get to Mexico. Then they pivoted to create a route over Chicago with the UP, I think a Falcon or something, to run down to Mexico. Now they've extended their haul in another interchange to Memphis to get down to Mexico. It didn't change our approach 3 years ago when they put it in place. I think we've demonstrated really strong growth on our MMX, and it's all on the backs of the service. I just kind of view it as we've got a product that can't be replicated in the marketplace.

Speaker #5: I would just add on, Chris, maybe the Mexico piece, as Keith said. We're not afraid to compete. But I don't view this as very different than when CN had a connection and used the route over Jackson with the legacy KCS to get to Mexico.

Speaker #5: And then they pivoted to create a route over Chicago with the UP. I think a Falcon or something to run down to Mexico. And now they've extended their haul in another interchange to Memphis to get down to Mexico.

Speaker #5: It didn't change our approach three years ago when they put it in place. I think we've demonstrated really strong growth on our MMX, and it's all on the backs of the service.

Speaker #5: So I just kind of view it as we've got a product that can't be replicated in the marketplace. It's the reason why in 2023...

John Brooks: It is the reason why in 2023, there was CAD 100 million of what I consider we call land bridge business flowing between Mexico and Canada. I see us at CAD 600 million by the end of this year and a path to get to CAD 1 billion. It is just a unique product that we are able to offer. I am sure there is going to be certain customers out there that the CN UP product makes sense for on the FXE or into certain markets, and that is fine. I stand by that. Keith’s comments on Kansas City ring true to me. There are four railroads that come in and out of here existing today from and to the east that we compete for business.

Speaker #5: There was $100 million of what I consider, we call, land bridge business flowing between Mexico and Canada. I see us at $600 million by the end of this year and on a path to get to a billion.

Speaker #5: It's just a unique product that we're able to offer, and I'm sure there are going to be certain customers out there that the CN-UP product makes sense for.

Speaker #5: On the FXC, you're into certain markets, and that's fine. So, I stand by that. And Keith's comments on Kansas City ring true to me.

Speaker #5: We have there's four railroads that come in and out of here, existing today, from and to the east. That we compete for business, but even I think back to when we were competing for the KCFs and that was identified as such a big opportunity and lane by our competitor.

John Brooks: Even I think back to when we were competing for the KCS, and that was identified as such a big opportunity and lane by our competitor. Frankly, we just have not seen it. If they bring to light a big opportunity, it will be an opportunity for us to compete against it. We look forward to that opportunity.

Speaker #5: And frankly, we just haven't seen it. So if they bring to light a big opportunity, it'll be an opportunity for us to compete against it.

Speaker #5: And we look forward to that opportunity.

Speaker #2: And there's one more point, clarifying point, because I think support is to understand too. When John speaks to the business that we've won, we've competed for, and that we continue to see a path to grow to from that 600 million to a billion over the future years.

Keith Creel: There is one more clarifying point that I think is important to understand, too. When John speaks to the business that we have won, we have competed for, and that we continue to see a path to grow to from that CAD 600 million to CAD 1 billion over the future years, the lion’s share of that traffic is coming from or going to Western Canada, not Eastern Canada. Not saying that some is not from the East, but the biggest opportunity is in the West. From a network standpoint, CN is dramatically disadvantaged to our network from those Western Canadian origins, given that we go through Minneapolis-St. Paul and down the west side of the Mississippi. For them to get it to Mexico, whether it is over Chicago, whether it is over Memphis, whether it is over Jackson, they got to go to Chicago. They got to go east to come back west.

Speaker #2: The lion's share of that traffic is coming from or going to Western Canada, not Eastern Canada. Not saying that some's not from the east, but the biggest opportunity is in the west. And from a network standpoint, CN is dramatically disadvantaged to our network from those Western Canadian origins, given that we go through Minneapolis, St.

Speaker #2: Paul, and down the west side of the Mississippi. For them to get it to Mexico, whether it's over Chicago, whether it's over Memphis, whether it's over Jackson, they got to go to Chicago.

Speaker #2: They got to go east to come back west. That disadvantages route miles to a material significant way.

Keith Creel: They got to go east to come back west.

Keith Creel: That disadvantages route miles to a material and significant way.

Speaker #5: Very helpful perspective. Appreciate it, guys. Thank you.

Chris Wetherbee: Very helpful perspective. Appreciate it, guys. Thank you.

Speaker #2: Yep.

Keith Creel: Yep.

Speaker #1: Your next question comes from Fadi Shamoun with BMO Capital Markets. Please go ahead.

Operator 2: Your next question comes from Fadi Chamoun with BMO Capital Markets. Please go ahead.

Operator: Your next question comes from Fadi Chamoun with BMO Capital Markets. Please go ahead.

Speaker #6: Hey, thank you. John, you have been able to deliver somewhere in the $300 million to $350 million range of pipeline synergy revenues for the last couple of years.

Fadi Chamoun: Okay, thank you. John, you have been able to kind of deliver somewhere in the CAD 300 million, CAD 350 million of kind of pipeline synergy revenues for the last couple of years. Sounds like you're bullish on that pipeline. Going into 2027, can you frame what type of opportunity you see, kind of idiosyncratic to some of these commercial efforts you're working on? Can we assume that this will continue to play out in a similar fashion that it has done in the last couple of years going to 2027? A quick follow-up to Nadeem, just you mentioned several notable expense items. I just wonder if you can kind of elaborate a little bit what these are and how should we think about the expense bridge as we go into the H2 of the year?

Speaker #6: It sounds like you're bullish on a pipeline. Is going into 2027, can you frame kind of what type of opportunity you see kind of idiosyncratic to some of these commercial efforts you're working on?

Speaker #6: Can we assume that this will continue to kind of play out in a similar fashion that it has done in the last couple of years going into 2027?

Speaker #6: And a quick follow-up to Nadeem. You mentioned several notable expense items; I just wanted to see if you can elaborate a little bit more on what these are, and how we should think about the expense bridge as we go into the second half of the year.

Speaker #5: Yeah, so I'll start there, Fadi. Thanks for the question. I do see a really good run rate to get to that, let's call it $1.4, $1.5 billion in synergies as we close out this year.

John Brooks: Yeah. I'll start there, Fadi. Thanks for the question. I do see a really good run rate to get to that, let's call it CAD 1.4 billion or CAD 1.5 billion in synergies as we close out this year. You're right. That's actually more than a CAD 300 million step-up in that area. I would call out that it's really coming from all the lines of business. As I particularly look, let's say, specifically to the next six to 18 months, we've just seen tremendous growth in our intermodal synergies specific to that and also our grain. We really didn't scratch the surface, and I'm going to say the early days in terms of leveraging this franchise in our grain network.

Speaker #5: And you're right, that's about a 300, actually more than a 300 million dollar step up in that area. I would call out that it's really coming from all the lines of business that is I particularly look, let's say, specifically to the next six to 18 months.

Speaker #5: We've just seen tremendous growth in our intermodal synergies. Specific to that, and also our grain. We've really didn't scratch the surface. And I'm going to say the early days in terms of leveraging this franchise in our grain network.

Speaker #5: And I think what we've seen with the strong crop in Canada actually a strong crop in our upper US network as we've got deeper, deeper into the shipping season, we've seen more and more markets across our network materialize.

John Brooks: I think what we've seen with the strong crop in Canada, actually a strong crop in our upper US network, as we've got deeper into the shipping season, we've seen more and more markets across our network materialize. That's been strong. I want to say we're up 60% to 70% if you look at grain out of our northern territory down into Mexico or the southern US markets. Again, I can tell you I'm proud of where we've moved that needle this year, but I still think we're kind of in the early innings of really kind of figuring out those flows and what those cycle times need to be to compete. Frankly, I think I talked about it just previously.

Speaker #5: So that's been strong. I want to say we're up 60, 70 percent if you look at grain out of our northern territory, down into Mexico or the southern US markets.

Speaker #5: And again, I can tell you we're I'm proud of where we've moved that needle this year, but I still think we're kind of in the early innings of really kind of figuring out those flows and what those cycle times need to be to compete.

Speaker #5: And frankly, I think I talked about it this previously. I just spent some time in Mexico looking at these facilities and the capability to enhance their throughput capabilities that'll drive volume growth is still out there.

John Brooks: I just spent some time in Mexico looking at these facilities and the capability to enhance their throughput capabilities that'll drive volume growth is still out there. As much as I'm proud of that we've taken the MMX service, Fadi, to about 70% capacity levels, I'm still challenging the team, particularly in this freight environment right now, of how we begin to push the envelope to what a second train pair could look like on the MMX. That's really without not a whole lot of reefer growth that we're still working on, that we're just seeing ramp up in that space. I'm optimistic about that.

Speaker #5: As much as I'm proud of that we've taken the MMX service out to about 70 percent capacity levels, I'm still challenging the team particularly in this freight environment right now of how we begin to push the envelope to what a second train fare could look like on the MMX.

Speaker #5: And that's really without not a whole lot of reefer growth that's we're still working on that we're just seeing ramp up in that space.

Speaker #5: So I'm optimistic about that. And then maybe I'd also point out is as much as I think Keith mentioned it, as much as I'm pleased about our closed-loop automotive program, there's still some outliers out there.

John Brooks: Maybe I'd also point out is, as much as, I think Keith mentioned it, as much as I'm pleased about our closed loop automotive program, there's still some outliers out there that I expect to make headway in over the next six to 12 months in contracts that I think will also look to leverage the benefits we can provide with that. Those are kind of the call-out areas. Anything you want to add?

Speaker #5: That I expect to make headway in over the next six to twelve months in contracts that I think will also look to leverage the benefits we can provide with that.

Speaker #5: So those are kind of the call-out areas.

Speaker #2: Nadeem, Fadi, I just wanted a couple of things. Casualty stock comp and incentive comp. We're about a 5 cent headwind versus a year ago maybe around close to about 150 basis points.

Nadeem Velani: Fadi, I'd just point out a couple of things. Casualty, stock comp, and incentive comp were about a CAD 0.05 headwind versus a year ago, maybe around close to about 150 basis points. I think about with those headwinds, if they weren't there, probably closer to a 60 OR. I just leave it at that.

Speaker #2: So I think about with those headwinds, if they weren't there, probably closer to a 60 OR just leave it at that.

Speaker #1: Thank you.

Fadi Chamoun: Thank you.

Speaker #2: Thanks, Fadi.

John Brooks: Thanks, Fadi.

Speaker #1: Your next question comes from Jonathan Chappell with Evercore ISI. Your line is now open.

Operator 2: Your next question comes from Jonathan Chappell with Evercore ISI. Your line is now open.

Operator: Your next question comes from Jonathan Chappell with Evercore ISI. Your line is now open.

Speaker #4: Thank you. Good afternoon. Mark, John just laid out a pretty broad-based growth plan. I know a lot of it's unique to CP, but it feels like for the first time since the merger, you've had some real strong macro tailwinds that are building as well.

Jonathan Chappell: Thank you. Good afternoon. Mark, John just laid out a pretty broad-based growth plan. I know a lot of it's unique to CP, but it feels like for the first time since the merger, you've had some real strong macro tailwinds that are building as well. I know you're going to add a little headcount in the H2 of the year, but below the volume growth expectations. When you think about the next couple of years and the resources, you've created a lot of productivity thus far the last couple of years. How do you think about aligning resources with the type of growth profile that John's laying out over a two- to three-year period?

Speaker #4: I know you're going to add a little headcount in the second half of the year, but lower than the volume growth expectations. When you think about the next couple of years and the resources, you've created a lot of productivity thus far the last couple of years, but how do you think about aligning resources with the type of growth profile that John's laying out over a two to three-year period?

Speaker #2: Well, I think it's just the value of how we do business with DSR. If John's talking about what he's doing in the coming months, we're in the background understanding what kind of crews we need, what kind of locomotives we need to put in front of it, containers, boxcars, whatever it may be.

Mark Redd: Well, I think it's just the value of how we do business with CSR. John's talking about what he's doing in the coming months. We're in the background understanding what kind of crews we need, what kind of locomotives we need to put in front of it, containers, boxcars, whatever it may be. We're steadily looking at the demand of equipment, people. On top of that, I'm looking at synergies of the agreement that we just implemented with the south of, what I would say, south of Eastern Oklahoma down to the border at Laredo which is the old MidSouth agreement, which I'll probably get into too much detail, but it's an agreement that I worked up under. It's almost like an hourly agreement. We talk about an hourly agreement. It's a daily agreement.

Speaker #2: So we're steadily looking at the demand of equipment, people on top of that. I'm looking at synergies of the agreement that we've just signed with the I say signed that we just implemented with the south of what I would say south of Heathmer, Oklahoma.

Speaker #2: Down to the border at Laredo with just the old Mid-South agreement, which probably isn't too much detail, but it's an agreement that I worked up under.

Speaker #2: It's almost like an hourly agreement. We talked about an hourly agreement at the daily agreement. And that would take care of some of the headcount that we need.

Mark Redd: That would take care of some of the headcount that we need. We'll get some synergies plus headcount out of that, and then we can use that headcount for the future business that John wants to do with grain. We still have opportunities with doubling up trains. We've got some opportunities with train length that we'll continue to work through. That's just the southern part. Obviously, we have the Ireland agreement just on the north end of North Dakota, Minneapolis, all those locations. We have workday schedules we could change with those to add people quickly or at least time of day quickly. That's what I would say. We'll stay right out in front of John, and we'll communicate constantly to understand what's next, what's the opportunity. Good news is it just don't come on board tomorrow.

Speaker #2: We'll get some synergies plus headcount out of that, and then we can use that headcount for, in the future, business that John wants to do with grain.

Speaker #2: But we still have opportunities with with train length that we'll continue to work through. And that's just the southern part. Obviously, we have the hourly agreement just until the north end of North Dakota, Minneapolis, all of those locations.

Speaker #2: So, we have workday schedules we could change with those to add people quickly, or at least adjust the time of day quickly. So that's what I would say.

Speaker #2: We'll stay right out in front of John and we'll communicate constantly to understand what's next and what's the opportunity. Good news is it just don't come on board tomorrow and we've got plenty of time to plan and we have locomotives that's coming on board as well.

Mark Redd: I mean, we've got plenty of time to plan, and we have locomotives that's coming on board as well.

Speaker #1: Thank you.

Jonathan Chappell: Thank you.

Speaker #2: Yeah.

Mark Redd: Yeah.

Speaker #1: Your next question comes from Brian Ossenbeck. Of JPMorgan, your line is open.

Operator 2: Your next question comes from Brian Ossenbeck of JPMorgan. Your line is open.

Operator: Your next question comes from Brian Ossenbeck of JPMorgan. Your line is open.

Speaker #4: Hey, Ashley. Thanks for taking the question. Hey, John, for you, can you just give a little bit of commentary on yields here? I know the headline numbers are a bit noisy with fuel and FX, so maybe some near-term commentary to help set the stage for the third quarter.

Brian Ossenbeck: Hey, afternoon. Thanks for taking the question. Maybe John, for you, can you just give a little bit of commentary on yields here? I know the headline number's a bit noisy with fuel and FX, so maybe some near-term commentary to help set the stage for Q3. Where are underlying core renewals coming in? Do you still have potentially some repricing or length of haul opportunities that are still kind of trickling through as you get more of the legacy KCS and CP put together? Or is that pretty much done? Just want to hear a little bit more about that, especially in this stronger truckload environment. Thanks.

Speaker #4: But we're underlying core renewals coming in. Do you still have a potentially some repricing or length of fall opportunities that are still kind of trickling through as you get more of the legacy KCS and CP put together?

Speaker #4: Or is that pretty much done? So just want to hear a little bit more about that, especially in this stronger truckload environment. Thanks.

Speaker #5: Yeah. We're still seeing a pretty good length of haul Brian enhancement. I think this quarter we're up year over year about 3%. And I talked about some other land bridge opportunities and where I see some synergy growth yet to come.

John Brooks: Yeah. We're still seeing a pretty good length of haul, Brian, in enhancement. I think this quarter, we're up year-over-year about 3%. I talked about some other land bridge opportunities and where I see some synergy growth yet to come. Those are pretty big length of haul opportunities that are needle movers. There's some of that noise, I think, good noise, still at play that sometimes can impact our mix a little bit on that longer length of haul business. Pricing, I'm super pleased. We haven't taken our foot off the gas for, I don't know, it's been a couple of years now that we've been on sort of the, what I would consider right at or the higher end of our guidance.

Speaker #5: Those are pretty big length of haul opportunities that are needle movers. So there's some of that noise I think good noise still at play that sometimes can impact our mix a little bit on that longer length of haul business.

Speaker #5: Pricing, I'm super pleased. We haven't taken our foot off the gas for, I don't know, it's been a couple of years now that we've been on sort of the what I would consider right at or the higher end of our guidance.

John Brooks: I think at our Investor Day, we guided to 3% to 4% over that multi-year plan, I would say we've been at the top end, exceeded. Right now, we're probably right in that exact range, We're not taking our foot off the gas there. I expect that to even potentially accelerate as we see what's kind of going on in the trucking space and as we all watch inflation over the coming years. When I look at it, I think about the sense for our PM like this. I mentioned where renewals came in. Mix was a little bit, let's call it a point or two of a headwind, and kind of you back into the balance was fuel and FX, Brian.

Speaker #5: I think at our investor day, we guided the three to four percent. Over that multi-year plan. And I would say we've been at the top end, exceeded right now.

Speaker #5: We're probably right in that exact range, and we're not taking our foot off the gas there. I expect that to even potentially accelerate as we see what's kind of going on in the trucking space.

Speaker #5: And as we all watch inflation, over the coming year or so. When I look at it, I think about the sense for RTM like this.

Speaker #5: I mentioned we're renewals came in. Mix was a little bit called a point or two of a headwind and kind of you're back into the balance was fuel and FX, Brian.

Speaker #4: Thanks, John. Appreciate it.

Brian Ossenbeck: Thanks, John. Appreciate it.

Speaker #5: Yep. All good.

John Brooks: Yep. All good.

Speaker #1: Your next question comes from Steve Hansen with Raymond James. Please go ahead.

Operator 2: Your next question comes from Steve Hansen with Raymond James. Please go ahead.

Operator: Your next question comes from Steve Hansen with Raymond James. Please go ahead.

Speaker #4: Yeah. Good afternoon, guys. Thanks for the time. Keith, I think you might have referenced it earlier indirectly, but I'm just curious how you think the deals or the concessions extracted by CN change your view of any potential concessions you might pursue.

Steve Hansen: Yeah, good afternoon, guys. Thanks for the time. Keith, I think you might have referenced it earlier indirectly, but I'm just curious how you think the deals or the concessions extracted by CN change your view of any potential concessions you might pursue. Does it put you in a stronger position, a weaker position, or is it sort of a nil or not really that relevant in how you think about it?

Speaker #4: Does it put you in a stronger position, a weaker position, or is it sort of nil, or not really that relevant in how you think about it?

Speaker #2: Yeah. I don't think anything the CN's done with DP is relevant to the things that we will ask for as it changed our math at all.

Keith Creel: Yeah, I don't think anything that CN's done with UP is relevant to the things that we will ask for, as it's changed our math at all, and yeah, no impact.

Speaker #2: And yeah, no impact.

Speaker #4: Appreciate it.

Steve Hansen: Appreciate it.

Speaker #2: Thank ank you.

Keith Creel: Thank you.

Operator 2: Next question. Your next question comes from Brandon Oglenski with Barclays. Please go ahead.

Operator: Next question. Your next question comes from Brandon Oglenski with Barclays. Please go ahead.

Speaker #1: Your next question comes from Brandon Oglinsky with Barclays. Please go ahead.

Speaker #5: Hey, thank you for taking the question. And Keith, I guess sorry to stick on that topic, but I guess more broadly though, do you believe that what UP and CN has done is put this deal on any better competitive platform?

Brandon Oglenski: Hey, thank you for taking the question. Keith, I guess sorry to stick on the topic, but I guess more broadly though, do you believe that what UP and CN has done has put this deal on any better competitive platform? I guess I heard a little bit of contention there on the expanded competitive gateway pricing. I don't know if you maybe want to elaborate on that.

Speaker #5: And I guess I heard a little bit of contention there on the expanded competitive gateway pricing, so I don't know if you maybe want to elaborate on that.

Speaker #2: Yeah. Listen, I'm going to wait and let the regulator get into the weeds, but I'll stay at a high level as best as I possibly can.

Keith Creel: Yeah. Listen, I'm going to wait and let the regulator get into the weeds, but I'll stay at a high level as best as I possibly can. I think the simple answer is no. I don't think it changes the math. I think that I'm going to give credit where credit is due. I think it's a few steps forward in a positive direction versus where they were. I think it at least signals a bit of a realization that kind of their railroad empire building plans are going to have to bring more to the table to even be considered as a prima facie case. I think that's important. I think they did address, and kind of back to what Steve said, I missed this point.

Speaker #2: I think the simple answer is no. I don't think it changes the math. I think that I'm going to give credit where credit is due.

Speaker #2: I think it's a few steps forward in a positive direction versus where they were. I think it at least signals a bit of a realization that their railroad empire-building plans are going to have to lean more to the table to even be considered as a promise they should chase.

Speaker #2: I think that's important. I think they did address—and kind of back to what Steve said, I missed this point—they did address our concerns relative to undue control in the KCP terminal as well as the TRRA.

Keith Creel: They did address our concerns relative to undue control in the KCT terminal as well as the TRRA. I thank them for taking that seriously and addressing that. Outside of that, the problems that were there before, and I kind of look at it this way. I look at it in a lens, some would say I'm biased. I would say I'm biased by experience. I have navigated and I was shaped by the experience that we went through in our own merger application and process. The knowledge that we gained navigating the merger process of the rules, the regulations, the statutes, the old rules, the new rules, coupled with the knowledge of how, in our experience, how I read the rules and interpret the rules, which has been truly shaped and impacted by how the STB members have done the same.

Speaker #2: So I think them for taking that seriously and addressing that. But outside of that, the problems that were there before and I kind of look at it this way.

Speaker #2: I look at it a lens some would say I'm biased. I would say I'm biased by experience. I have navigated and I was shaped by the experience that we went through in our own merger application and process.

Speaker #2: The knowledge that we gained navigating the merger process of the rules, the regulations, the statutes, the old rules, the new rules, coupled with the knowledge of how in our experience, how I read the rules and interpret the rules, which has been truly shaped and impacted by how the SCB members have done the same.

Speaker #2: And going back and reading the context of why the rules were written, going back and reading the hearings, going back and listening and thinking and reflecting on Linda Morgan's words, it's a lens that matters when you interpret these facts.

Keith Creel: Going back and reading the context of why the rule's written, going back and reading the hearings, going back and listening and thinking and reflecting on Linda Morgan's words. It's the lens that matters when you interpret these facts. Then finally, the last lens I look at is kind of the applicants, the behavior. Past, present, future, integration history, day-to-day anti-competitive behavior or not. Is this an entity that when they present their facts to the customer, present their facts to the railroads, present their facts or their counterarguments to the regulator, is it as they say, or is it as they believe? There's often a difference in that. Your truth, my truth, and the truth. I think this regulatory body's going to get to the truth. The truth says these facts are problematic.

Speaker #2: And then finally, the last lens I look at is kind of the applicants—the behavior: past, present, future; integration history; day-to-day anti-competitive behavior, or not.

Speaker #2: Is this an entity that when they present their facts to the customer, present their facts to the railroads, present their facts to their counterarguments, to the regulator, is it as they say or is it as they believe?

Speaker #2: There's often a difference in that. Your truth, my truth, and the truth. And I think this regulatory body is going to get to the truth.

Speaker #2: And the truth says these facts are problematic. What was true before they're supplemental submission is significant reduction of competitive options. They're enhancement to CGP is some movement.

Keith Creel: What was true before their supplemental submission is significant reduction in competitive options. Their enhancement to CGP is some movement, I'll give them that, but it's temporary, and it's not inclusive. If it's needed at all, is it not needed forever? If it's needed to solve a formula that says you must enhance competition, just stating your long-term solution to enhance competition, defining it as single line service. If you go back and read the regulations and the hearings, that is not enough. Those aren't my words, that's Linda Morgan's words. It's important, but it's not the only solution, and it will not solve enhanced competition in and of by itself. Again, her words, not my words. Still creates significant monopolistic like, those are my words, market concentration. Still and now even more significant operational risk because now we've got the CN play.

Speaker #2: I'll give them that, but it's temporary, and it's not inclusive. So if it's needed at all, is it not needed forever? If it's needed to solve a formula that says you must enhance competition, just stating your long-term solution to enhance competition, defining it as single-line service—if you go back and read the regulations and the hearings, that's not enough.

Speaker #2: Those aren't my words. That's Linda Morgan's words. It's important, but it's not the only sole solution. And it will not solve enhanced competition in and of it by itself.

Speaker #2: Again, her words, not my words. Still creates significant monopolistic like. Those are my words. Market concentration. Still and now even more significant operational risk because now we've got the J in play.

Speaker #2: Still significant concerns about anti-competitive behavior. Past and present. And I don't think any of us would argue the ball about eventual consolidation if this merger gets approved, that voter is rolling.

Keith Creel: Still significant concerns about anti-competitive behavior, past and present. I don't think any of us would argue the ball about eventual consolidation. If this merger gets approved, that boulder is rolling. Send it now. If you read the application, the supplemental, read Jim's letter. If I've ever read a letter that said, Not only is this one good, the second one's better. It's great for America. We need to go to and serve the public's interest in America. We need to be a two-rail network operation. That's it. I kind of shudder thinking about that as a human and as a consumer. I was reminded of the weight of this decision yesterday afternoon when I went home and I looked at my phone, and it's kind of topical because I give Jim credit, he uses a lot of analogies about flying to Chicago and airlines and direct flights.

Speaker #2: It's undeniable. If you read the application, the supplemental, read Jim's letter—I mean, if I've ever read a letter that said not only is this one good, the second one's better, it's great for America.

Speaker #2: We need to go to and serve the public's interest in America we need to be a two-rail network operation. That's it. And I kind of shudder thinking about that as a human and as a consumer.

Speaker #2: I was reminded of the weight of this decision yesterday afternoon when I went home. And I looked at my phone and it's kind of topical because I give Jim credit.

Speaker #2: He uses a lot of analogies about flying through Chicago. And airlines and direct flights and then I read American Airlines grounded. System-wide, regional airlines mainline airlines nobody can move.

Keith Creel: When I read American Airlines grounded. System-wide, regional airlines, mainline airlines, nobody can move. What about a world when only an American or United exists and one of the two is grounded? What happens? That's mass chaos in airlines. Now apply that same solution to railroads. You got one railroad that handles 40% of every move. Now forget about the misleading comments about GTMs and worth of saying. No, come on. A heavily weighted railroad that moves a lot of grain and coal, their GTMs are going to be naturally more than a railroad weighted more at the intermodal. News alert, a coal car and a grain car weighs a whole lot more than, say, 10 or 11 intermodal cars. That's misleading. It's 43 states. In Jim's perfect world or UP's perfect world, it's two railroads.

Speaker #2: What about a world where only American or United exists? And one of the two is grounded. What happens? That's mass chaos in the airlines.

Speaker #2: Now apply that same solution to railroads. You got one railroad that handles 40% of every move. And forget about the misleading comments about GTMs and worthless saying.

Speaker #2: Come on. A heavily weighted railroad that moves a lot of grain and coal—their GTMs are going to be naturally more than a railroad weighted more at the other end of the moment.

Speaker #2: News alert: a coal car and a grain car weigh a whole lot more than, say, 10 or 11 intermodal cars. So that's misleading. It's 43 states.

Speaker #2: In Jim's perfect world or UP's perfect world, it's two railroads. One of the two or both of the two because of a computer glitch gets grounded.

Keith Creel: One of the two or both of the two, because of a computer glitch, gets grounded. That is too big to fail. I can talk to each of you all day long, and perhaps some of you here, ask and answer. I'm not going to convince you. That's okay. I don't need to convince the STB. This STB body, I know from experience, they understand the gravity of this decision. They understand those regulations better than any of us do. They understand the intent, and they understand their mandate, and they have the authority to make the right decision. They have the independence to weigh the facts. Again, I'll say this. If you're a shipper, if you're a concerned party that's going to comment, pay attention to what's going on. Don't get led down a false narrative.

Speaker #2: That is too big to fail. And I can talk to each of you all day long and perhaps some of you ask and answer.

Speaker #2: I'm not going to convince you. But that's okay. I don't need to convince the STB. This STB body and I know from experience they understand the gravity of this decision.

Speaker #2: They understand those regulations better than any of us do. They understand the intent and they understand their mandate. And they have the authority to make the right decision.

Speaker #2: They have the independence to weigh the facts. So again, I'll say this: if you're a shipper, if you're a concerned party that's going to comment, pay attention to what's going on.

Speaker #2: Don't get led down a false narrative. Do your math. Do your own homework. Form your own opinions and file your comments. State your facts because that's ultimately what the record is going to be decided upon.

Keith Creel: Do your math, do your own homework, form your own opinions, file your comments. State your facts, because that's ultimately what the record is going to be decided upon. If those facts are known and understood, nothing that UP just submitted changes it. They're problematic facts that lead us to a place that is not in the best interest of the public, not in the best interest of this network. That's the way I feel. That's what I believe based on my lens.

Speaker #2: And if those facts are known and understood, nothing that UP just submitted changes it. The problematic facts that lead us to a place that is not in the best interest of the public, not in the best interest of this network.

Speaker #2: That's the way I feel. That's what I believe based on my lens.

Speaker #1: Thank you, Keith.

Nadeem Velani: Thank you, Keith.

Brandon Oglenski: Thank you, Keith.

Speaker #2: Thank you.

Keith Creel: Thank you.

Speaker #1: Your next question comes from Ken Hexter with Bank of America. Please go ahead.

Operator 2: Your next question comes from Ken Hoexter with Bank of America. Please go ahead.

Operator: Your next question comes from Ken Hoexter with Bank of America. Please go ahead.

Speaker #3: Hey, Greg. Good afternoon. Hey, Keith, you actually started out almost complimentary of the deal of what Jim was doing. I would have said almost supportive, but I think your last answer suggests perhaps still not.

Ken Hoexter: Hey, great. Good afternoon. Hey, Keith, you actually started out almost complimentary of the deal of what Jim was doing. I would've said almost supportive, but I think your last answer suggests perhaps still not. He did toss in there mixing up CPKC in the mix with BN and CSX. I'd love to hear your thoughts there. Nadeem, did you just end your answer there with the 60% OR? Was that you're suggesting your launching point as to what we should look for into H2, so maybe a sub 60% in H2? Is that what you were throwing out there?

Speaker #3: But he did toss in there mixing up CPKC in the mix with BN and CSX. I'd love to hear your thoughts there. And then, Nadeem, did you just end your answer there with the 60% OR?

Speaker #3: Was that your suggestion—your launching point—as to what we should look for into the second half? So maybe a sub-60 in the second half?

Speaker #3: Is that what you were throwing out there?

Speaker #2: Yeah, that's fair. I think we're going to see sequential improvement and sense for RTM. We're going to see significant acceleration in volumes compared to the first half.

Nadeem Velani: Yeah, that's fair. I think we're going to see sequential improvement in cents per RTM. We're going to see significant acceleration in volumes compared to H1, overall the revenues are going to be better, and we're going to see operating leverage coming out of that. My expectation would be to have less casualty expense than we had in H1 of the year. I think some of those items can be very accretive to the earnings and the OR.

Speaker #2: And so overall, the revenues are going to be better. We're going to see operating leverage coming out of that, and my expectation would be to have less casualty expense than we had in the first half of the year.

Speaker #2: So I think some of those items can be very accretive to the earnings and the OR.

Speaker #4: Thanks. Sandy, your question. I mean, bottom line up front, I'm adamantly opposed to additional rail consolidation. For all those reasons I've talked about, but if it's forced, we're not going to stand still.

Keith Creel: Ken, to your question, bottom line up front, I'm adamantly opposed to additional rail consolidation for all those reasons I've talked about. If it's forced, we're not going to stand still. We can't stand still and compete to our best. I'm not going to tell you what partner. I can make a value proposition case with a host of partners. Rest assured, this industry won't sit still. If UP and NS come together, it's a matter of time. There's going to be additional consolidation. There has to be to be able to compete against that Goliath that would be created. In any of those scenarios, this team, this network offers pretty compelling value.

Speaker #4: We can't stand still and compete to our best. So I'm not going to tell you what partner. I can make a value proposition case with a host of partners.

Speaker #4: But rest assured, this industry won't sit still. If UPNS come together, it's a matter of time. There's going to be additional consolidation. There has to be.

Speaker #4: To be able to compete against that Goliath that would be created. And in any of those scenarios, this team, this network, offers pretty compelling value.

Speaker #3: Thanks, Keith. Thanks, Nadeem.

Ken Hoexter: Thanks, Keith. Thanks, Nadeem.

Speaker #4: Thank you.

Nadeem Velani: Thank you.

Speaker #2: Yeah, that's good.

Keith Creel: Yeah. Thanks, Ken.

Speaker #1: Your next question comes from Walter Sprechlin with RBC Capital Markets. Please go ahead.

Operator 2: Your next question comes from Walter Spracklen with RBC Capital Markets. Please go ahead.

Operator: Your next question comes from Walter Spracklen with RBC Capital Markets. Please go ahead.

Speaker #2: Yeah, thanks very much, Freder. Good afternoon, everyone. Keith, you and BN have both argued that progress can be made, agreements can be signed, without the need for mergers. And certainly, this deal between CN and Union Pacific is not contingent on the merger.

Walter Spracklin: Yeah, thanks so much, operator. Good afternoon, everyone. Keith, you and BN have both argued that progress can be made, agreements can be signed without the need for mergers, and certainly this deal between CN and Union Pacific is not contingent on the merger. It happens immediately. I'm referring to the EJ&E and the Eagles Pass through Memphis deal. Does this prompt you now or maybe you've already been doing it, but couldn't you now or will you look to cement your own deals, your own agreements with either the BN or might you have with SMX through CSX? Is there opportunity to add on to that with CSX? Is there any opportunities that you see when you look at your routing where track swapping or track right swapping with the BN might make sense as well?

Speaker #2: It happens immediately. I'm referring to Eagles Pass through Memphis. Does this prompt you now or maybe you've already been doing it, but couldn't you now or will you look to cement your own deals, your own agreements with either the BN or like you have with FMX through CSX?

Speaker #2: Is there opportunity to add on to that with CSX? And is there any opportunity that you see, when you look at your routing, where track swapping or track rights swapping with the BN might make sense as well?

Speaker #4: Yeah, Walter, undeniably, in either case, when you've got two willing parties, you can do a lot of things. I've looked at our network—there's a menu of options.

Keith Creel: Yeah, Walter, undeniably, in either case, when you've got two willing parties, you can do a lot of things. I've looked at our network. There's a myriad of options. There's things we can do with BN. There's things we can do with CSX outside of a merger that, quite frankly, we could put a pretty compelling product in the marketplace to go head-to-head. Is it going to be single-line service? No. Is there going to be some advantages into that? Yes. Again, if this thing becomes a foregone conclusion, then you're going to see motivation increase to be able to do those things. I think right now people are waiting to see this industry outside of UP and NS and maybe now CN. They didn't want a merger. Our customers.

Speaker #4: There's things we can do with BN. There's things we can do with CSX. Outside of a merger, that quite frankly, we could put a pretty compelling product in the marketplace to go head to head.

Speaker #4: Is it going to be single line service? No. Is there going to be some advantages to that? Yes. But yeah, it's again, if this thing becomes a foregone conclusion, then you're going to see motivation increase to be able to do those things.

Speaker #4: I think right now people are waiting to see this industry outside of UP and NS, and maybe now CN. They didn't want to merge.

Speaker #4: Our customers—if you talk to the customers—I don't care what CN agreed to with UP, what UP is agreeing to with CN, what enhancements they made to CGP; put it all in the same basket.

Keith Creel: If you talk to the customers, I don't care what CN agreed to with UP, what UP's agreeing to with CN, what enhancements they made to CGP, put it all in the same basket. I don't think you're going to have a run to the bank or a run to the STB saying, Gosh, well, this is the best thing since sliced bread. We're going to support, we're going to support. Because this is a forever decision. You don't unwind this thing. Again, if it gets wound up, we've got a responsibility to respond, and we will. As a result of this, we've never been closer to BNSF, we've never been closer to CSX. We've never developed the market intelligence that we're developing now and the motivation and the route options to present some pretty compelling value propositions on the table.

Speaker #4: I don't think you're going to have a run to the bank or a run to the SDB saying, "Gosh, this is the best thing since sliced bread."

Speaker #4: We're going to support. We're going to support. Because this is a forever decision. You don't unwind this thing. But again, if it gets wound up, we've got a responsibility to respond and we will.

Speaker #4: And as a result of this, we've never been closer to BNSF. We've never been closer to CSX. We've never developed a market intelligence that we're developing now in the motivation and the route options to present some pretty compelling value propositions on the table.

Speaker #4: So again, we won't sit still in a merger environment. We won't sit still short of a merger. Good can come out of this. The best outcome is no merger.

Keith Creel: Again, we won't sit still in a merger environment. We won't sit still short of a merger. Good can come out of this. The best outcome is no merger. The best outcome is perhaps, in the absence of a merger, UP and CN can do some good things together to create some value for the industry and to create some value for their customers. There's a lot of traffic out there to move. In turn, you're going to see CP do things with CSX, with BN with CSX. It can create a whole lot of different parties because people are thinking a whole lot different than they ever have. Those outcomes can occur, and UP just showed us they could.

Speaker #4: The best outcome is perhaps in the absence of a merger, UP and CN can do some good things together. To create some value for the industry and to create some value for their customers.

Speaker #4: There's a lot of traffic out there to move. And in turn, you're going to see CP do things with CSX, with BN. BM with CSX.

Speaker #4: They can create a whole lot of different parties because people are thinking a whole lot different than they ever have. But those outcomes can occur and UP just showed us they could.

Speaker #4: Not that they didn't already know already or haven't done so already. In the absence of a merger, which is exactly what the regulations require you to do before they will approve a merger, side note.

Keith Creel: Not that they didn't already know or haven't done so already in the absence of a merger, which is exactly what the regulations require you to do before they will approve a merger.

Speaker #4: Emphasis added, mine.

Speaker #1: Appreciate the color, Keith. Thank you.

Walter Spracklin: Appreciate the color, Keith. Thank you.

Speaker #4: Thank you, Walter.

Keith Creel: Thank you, Walter.

Speaker #1: Your next question comes from Ravi Shankar with Morgan Stanley. Please go ahead.

Operator 2: Your next question comes from Ravi Shanker with Morgan Stanley. Please go ahead.

Operator: Your next question comes from Ravi Shanker with Morgan Stanley. Please go ahead.

Speaker #5: Hi, this is Madison on for Ravi. Thanks for taking my question. We're just wondering how you guys are thinking about capacity in your network as the upcycle comes.

[Analyst] (Morgan Stanley): Hi, this is Madison on for Ravi. Thanks for taking my question. We were just wondering how you guys are thinking about capacity in your network as the upcycle comes.

Speaker #4: Yeah, I think I'll be quick with an answer, Mark, if you want to add. If you keep in mind that our merger application required — we made some pretty significant investments to prepare for growth.

Keith Creel: Yeah, I think I'll be quick with an answer. Mark, if you want to add. If you keep in mind that our merger application required we make some pretty significant investments to prepare for growth, we've done exactly that over the last 3 years. What we did not anticipate when we put the railroads together was an economic recession. We're kind of built ahead for future growth. We're in a very good position relative to locomotives, relative to car capacity, relative to track capacity. The only thing we need to flex up on when the business and the growth comes is add incremental headcount.

Speaker #4: We have done exactly that over the last three years, and what we did not anticipate when we put the railroads together was an economic recession.

Speaker #4: So we're kind of built ahead for future growth. We're in a very good position relative to locomotives, relative to car capacity, relative to track capacity.

Speaker #4: The only thing we need to flex up on when the business and the growth comes is to add incremental headcount.

Speaker #2: Yeah, I would say incremental headcount from the agreements that we put together. We've unlocked three, four Louisiana to where we can go in all directions with one agreement.

Mark Redd: Yeah, I would say incremental headcount from the agreements that we've put together. We've unlocked Shreveport, Louisiana, to where we can go in all directions with one agreement. Again, we've got CAD 275 million from the SPV promises that we put together for them. We've got the connection toward CSX, where we spent a lot of money, 49-mile-an-hour track that unlocks a lot of capacity going east. Again, we've said down in Mexico we've spent CAD 75 million on top of the bridge that we just built, that KCS built, that we finished. Yeah, capacity's not going to be an issue. Again, in different areas, John and I will stay in front of that regardless of where we go with the business. We're committed to do that.

Speaker #2: Again, we've got 275 million from the STB promises that we put together for them. We've got the connection toward CSX where we spent a lot of money, $49 a mile an hour track that unlocks a lot of capacity going east.

Speaker #2: Again, we've done in Mexico, we've spent $75 million on top of the bridge that we just built. The KCS build that we finished. So yeah, capacity is not going to be an issue.

Speaker #2: And again, in different areas, John and I will stay in front of that regardless of where we go with the business. We're committed to do that.

Speaker #4: Yeah, so we're in a position for growth. The lower incremental cost.

Keith Creel: Yeah. We're positioned for growth at lower incremental cost.

Speaker #5: Got it. Thank you guys.

[Analyst] (Morgan Stanley): Got it. Thank you, guys.

Speaker #1: Your next question comes from Scott Group with Wolf Research. Please go ahead.

Operator 2: Your next question comes from Scott Group with Wolfe Research. Please go ahead.

Operator: Your next question comes from Scott Group with Wolfe Research. Please go ahead.

Speaker #6: Hey, thanks. Maybe just like a bigger picture version of that question. I think back to the analyst day, we were supposed to get a lot of revenue growth with a lot of operating leverage and margin improvement and mid-teams, high teams, type earnings growth.

Scott Group: Hey, thanks. Maybe just like a bigger picture version of that question. I think back to the analyst day, we were supposed to get a lot of revenue growth with a lot of operating leverage and margin improvement and mid-teens, high teens type earnings growth. John, I thought your slide about the compounding volume growth was helpful. It's been good, but it probably hasn't been as good as you thought at the analyst day. I think to your point of that last question, Keith, the macro environment's just been more challenging.

Speaker #6: And John, I thought your slide about the compounding volume growth was helpful, but and it's been good, but it probably hasn't been as good as you thought at the analyst day.

Speaker #6: And I think to your point of that last question, Keith, the macro environment's just been more challenging. I guess ultimately what I'm trying to ask is, do you think we're at an inflection point where you still have some of the synergy opportunity plus now maybe a more supportive macro where it's all going to and now the buyback is kicking in where it's all going to start coming together and we're going to see more of a meaningful acceleration earnings growth back to what you thought it was going to be?

Scott Group: I guess ultimately what I'm trying to ask is, do you think we're at an inflection point where you still have some of the synergy opportunity plus now maybe a more supportive macro and now the buyback is kicking in, where it's all going to start coming together and we're going to see more of a meaningful acceleration in earnings growth back to what you thought it was going to be? Is that kind of where you think we are now?

Speaker #6: Is that kind of where you think we are now?

Speaker #3: Yeah, and I'd say it's undeniable since April of '23 that the freight environment is about as bad as we thought it—or we never thought it could be as bad as it was.

John Brooks: Yeah, I'd say it's undeniable since April 2023 that the freight environment is about as bad as we thought or we never thought it could be as bad as it was. Despite that was really the point of that slide, was to say despite that, we've been able to stack pretty impressive growth up with not a supportive environment. Now looking ahead, I do believe although all of our growth and a lot of our growth was supported by synergies in the new products we put in place, as I said, we're still in the mid-innings of a lot of those opportunities. I think your point is really spot on.

Speaker #3: Despite that, and that was really the point of that slide, was to say despite that, we've been able to stack pretty impressive growth up with no not a supportive environment.

Speaker #3: So now looking believe although all of our growth and a lot of our growth was supported by synergies in the new products we put in place, as I said, we're still in the mid endings of a lot of those opportunities.

Speaker #3: So I think you're pointing is really spot on. You continue at the pace of product development, filling in the capacity that Keith and Mark just spoke about.

John Brooks: You continue at the pace of product development, filling in the capacity that Keith and Mark just spoke about, we start to get a little bit of a tailwind in some of these areas. I think that becomes very compelling.

Speaker #3: And we start to get a little bit of a tailwind in some of these areas. I think that becomes very compelling.

Speaker #6: And Nadeem, do you think the operating leverage accelerates with that?

Scott Group: Nadeem, do you think the operating leverage accelerates with that?

Speaker #4: Yeah, absolutely. I think Scott, I mean, as you know, the last few years I think the industry as a whole has been expecting a much more supportive macro and I think we've learned that we can't hope for that macro to recover and we've taken a more conservative approach and we've talked a lot about resources and capital investment, etc.

Nadeem Velani: Yeah, absolutely. I think, Scott, as you know, the last few years, I think the industry as a whole has been expecting a much more supportive macro. I think we've learned that we can't hope for that macro to recover, we've taken a more conservative approach, we've talked a lot about resources and capital investment, et cetera. We were on the front end of that at the beginning of the integration, beginning of our day one, three years ago. If you look at where we are this year, I think headcount's down 500 people. Volumes are up 3%, 4% and accelerating, we're going to be able to accommodate that growth.

Speaker #4: We were on the front end of that at the beginning of the integration of our being the beginning of our day one, three years ago.

Speaker #4: And if you look at where we are this year, I think headcount's down 500 people and volumes are up three, four percent and accelerating. And we're going to be able to accommodate that growth.

Speaker #4: So when I look at 2027 and next few years, we can accommodate it with that capital envelope that we talked about of 2.6, 2.7 billion.

Nadeem Velani: When I look at 2027 and next few years, we can accommodate it with the capital envelope that we talked about of CAD 2.6 billion, CAD 2.7 billion, that's with a weaker Canadian dollar that has an impact on capital. Overall, we can accommodate this growth, with the capital plan that we have, it's going to generate significant amount of free cash as you've seen so far this year, that's going to help accelerate earnings. To me, the operating leverage story is just beginning, you're going to see it in the back half of this year, you've seen it so far in Q2 as well.

Speaker #4: And that's with a higher Canadian dollar or a weaker Canadian dollar—that has an impact on capital. So overall, we can accommodate this growth, and with the capital plan that we have, it's going to generate a significant amount of free cash, as we've seen so far this year.

Speaker #4: And that's going to help accelerate earnings. And so to me, the operating leverage story is just beginning. And you're going to see it in the back half of this year and you've seen it so far in Q2 as well.

Speaker #6: Thank you guys.

Keith Creel: Thank you, guys.

Speaker #4: Thanks, Scott.

John Brooks: Thanks, Scott.

Nadeem Velani: Yeah.

Speaker #1: Your next question comes from Konark Gupta with Scotiabank. Please go ahead.

Operator 2: Your next question comes from Konark Gupta with Scotiabank. Please go ahead.

Operator: Your next question comes from Konark Gupta with Scotiabank. Please go ahead.

Speaker #4: Thanks. Good afternoon, Keith. Keith, when you sit down with your customers and stakeholders, do you feel that they are quite distracted by the ongoing industry developments?

Konark Gupta: Thanks. Good afternoon. Keith, when you sit down with your customers and stakeholders, do you feel that they are quite distracted by the ongoing industry developments? I'm referring to everything from the UPS merger to the CN-UP deal, as well as the potential downstream effects that everyone's talking about. It is a very hot thing.

Speaker #4: And I'm listening to everything from the UPNS merger to the CN UPDs, as well as the potential downstream effects that everyone's talking about. Give us a break of thought.

Speaker #4: Thanks.

Speaker #6: Yeah, I think that's probably the way we all feel about this thing. We've been dealing with this for a while. It requires a lot of attention.

Keith Creel: Yeah, I think probably the way we all feel about this thing. We've been dealing with this for a while. It requires a lot of attention. All these what if scenarios. Whatever it is, just getting on with it and getting to a point where we can kind of lock and focus on what we can control, and there's not all these variables, I think is going to be well-received. The customers, quite frankly, John, you can provide a bit more color here, but everyone that I've engaged with, I've again, not had one that said, We want more consolidation. They said, We want to protect competitive options. We want optionality. We like the ability to create competitive tension between two railroads when it comes to pricing and capacity and our capital decisions and our shipping decisions. I think that's been a common theme that's resonated with us.

Speaker #6: All these what-if scenarios, whatever it is, just getting on with it and getting to a point where we can kind of lock and focus on what we can control.

Speaker #6: And there's not all these variables. I think it's going to be well received. The customers, quite frankly—John, you can provide a bit more color here—but everyone that I've engaged with, again, not had one that said, "We won't work in consolidation."

Speaker #6: They've said we want to protect competitive options. We want optionality. We like the ability to create competitive tension between two railroads when it comes to pricing and capacity and our capital decisions and our shipping decisions.

Speaker #6: And I think that's been a common theme that's resonated with us.

Speaker #3: Yeah, without a doubt, Konark, since really COVID, where we've experienced sort of the increased fragileness of some of these supply chains, our customers are looking for more options.

John Brooks: Yeah. Without a doubt, Konark. Since really COVID, where we've experienced sort of the increased fragileness of some of these supply chains, our customers are looking for more options. Frankly, that is why we garnered so much support in putting CP and KCS together on our journey because we truly did enhance competition and open new markets. I just think, to your question, it is a distraction. I think there's a lot of narratives out there, and our customers are trying to figure out what is right and what is the correct source of the truth. Frankly, they've seen the benefits we've been able to create. I also think are questioning, are they really going to get enhanced competition out of what UP and NS are proposing?

Speaker #3: And frankly, that is why we garnered so much support in putting CP and KCS together on our journey, because we truly did enhance competition and open new markets.

Speaker #3: And I just think to your question, it is a distraction. I think there's a lot of narratives out there and our customers are trying to figure out what is right and what is the correct source of the truth.

Speaker #3: And frankly, they've seen the benefits created, but I also think we're questioning—are they really going to get enhanced competition out of what UP and NS are proposing?

Speaker #6: And that's a key difference, John, what you just said. Our merger brought additional options to the table, which included a never-before-available additional single-line opportunity for instance, from Chicago to Mexico.

Keith Creel: That's the key difference, John, what you just said. Our merger brought additional options to the table, which included a never before available additional single line opportunity, for instance, from Chicago to Mexico. In our case, beyond. It was all additive too. Nothing was diluted. There were no options taken off the table. That's completely different than the beast that we're dealing with now. It's a substitution for, according to the applicants, it's better than, if you're the shipper, it still means less options. Do you have the same options tomorrow that you have today? In pro forma, if it gets approved, the answer is unequivocally no. You don't. Customers, by and large, after all the years of consolidation in this industry, that does not resonate with the customer when you tell them they have fewer options.

Speaker #6: And in our case, beyond. So it was all additive, too. Nothing was diluted. There were no options taken off the table. That's completely different than the beast that we're dealing with now.

Speaker #6: It's a substitution for and according to the applicants, it's better than but if you're the shipper, it still means less options. Do you have the same options tomorrow that you have today?

Speaker #6: And pro forma, if it gets approved, the answer is unequivocally no—you don’t. And customers, by and large, after all the years of consolidation in this industry, that does not resonate with the customer when you tell them they have fewer options.

Speaker #6: I don't care which therapy you give them, they have the memories and the trauma of the prior consolidations in this industry. And some of the worst trauma—I'm sorry, UP, you caused it.

Keith Creel: I don't care what therapy you give them, they have the memories and the trauma of the prior consolidations in this industry. Some of the worst trauma, I'm sorry, UP, you caused it. The thought of giving them more power and being exposed to that again requires a therapist in some cases. I say that in jest, I'm not kidding. The transportation decision-makers that suffered through that 30 years ago, I've been here 35, I've been railroading 35, Jim's been railroading 45. A lot of those decision-makers are in senior positions, and they still lose sleep at night thinking about those integrations. Operationally or commercially, customer, you have fewer options, it doesn't resonate. With a very small population, that might be uniquely advantaged, it's a small population. It's single line service at what cost?

Speaker #6: And the thought of giving them more power and being exposed to that again requires a therapist in some cases. And I say that in jest, but I'm not kidding.

Speaker #6: The transportation decision makers that suffered through that 30 years ago I've been here 35, I've been railroading 35, Jen's been railroading 45. A lot of those decision makers are in senior positions and they still lose sleep at night thinking about those integrations.

Speaker #6: So operationally or commercially, customer you have fewer options, it doesn't resonate. But with a very small population that might be uniquely advantaged, but it's a small population.

Speaker #6: So it's single-line service—at what cost? And we never tipped the scale in our combination. We never threatened that. We just added one to the table.

Keith Creel: We never tipped the scale at our combination. We never threatened that. We just added one to the table. We didn't take anything away.

Speaker #6: We didn't take anything away.

Speaker #1: Thank you. Your next question comes from Tom Waterlicks with UBS. Your line is open. Please go ahead.

Operator 2: Thank you. Your next question comes from Tom Wadewitz with UBS. Your line is open. Please go ahead.

Operator: Thank you. Your next question comes from Tom Wadewitz with UBS. Your line is open. Please go ahead.

Speaker #5: Oh, yeah, good afternoon. So, John, just had, I guess, maybe a couple for you on the market. So, how do you think about coal, kind of—I guess it gets less worse through the quarter?

Tom Wadewitz: Hi. Yeah, good afternoon. John just had, I guess, maybe a couple for you on the market. How do you think about coal like kind of

Tom Wadewitz: I guess it gets less worse through the quarter. Is there a point where you say, "Okay, this is the new run rate for coal," that it's like, hey, the mines just can't do what they used to? Or are you optimistic that it gets to 2027, you get back to kind of where they were? I guess within ECP, that's been pretty good, but I think refined products to Mexico may be weak. I don't know. Any kind of, I guess, thoughts on those two? Thank you.

Speaker #5: Is there a point where you say, okay, this is the new run rate for coal, but it's like, hey, the mines just can't do what they used to, or you're optimistic that it gets 2027, you get back to kind of where they were.

Speaker #5: And then, I guess within ECP, that's been pretty good, but I think refined products in Mexico may be weak. So I don't know, any kind of, I guess, thoughts on those two?

Speaker #5: Thank you.

Speaker #3: Yeah, thanks, Tom. So, yeah, definitely Q2 was what we are looking at as the worst of the worst in terms of impact to our revenue and our volumes related to the coal.

John Brooks: Yeah. Thanks, Tom. Yeah, definitely Q2 was what we are looking at as the worst of the worst in terms of impact to our revenue and our volumes related to the coal. I think Q3 feels like maybe Q1 and progressively it gets a little better to close out the year. We're staying really close with the customer there. I can tell you they are optimistic around increasing volumes. I would say we've definitely seen an improvement in their production. Our expectation is, and I think their view to the mining capability as they look to 2027, is to get back to those type of levels you would've seen last year. I know they want to even grow beyond that. I think your characterization of less worse is probably right as we move into the second half of the year. ECP, you're right.

Speaker #3: I think by Q3, it feels like maybe Q1, and progressively it gets a little better to close out the year. We're staying really close with the customer there.

Speaker #3: I can tell you they are optimistic about increasing volumes. I would say we've definitely seen an improvement in their production, and our expectation is—and I think their view of the mining capability as they look to 2027—is to get back to those types of levels you would have seen last year.

Speaker #3: And I know they want to even grow beyond that. So I think your characterization of less worse is probably right as we move into second half of the year.

Speaker #3: ECP, you're right, it's sort of the one area that keeps me up at night is the refined fuels into Mexico. It's a really good piece of business and I guess supply chain solution that we've developed.

John Brooks: It's sort of the one area that keeps me up at night is the refined fuels into Mexico. It's a really good piece of business and I guess supply chain solution that we've developed. It really has been pretty well nonexistent here for the last six to eight months. We start to see as things sort of improve relative to the situation in the Gulf, we begin to see that open back up a little bit. As soon as things turn again, it closes right back up. I think the good news on that front is we're ready. That supply chain is solid. We've got the customs processes and that in place. As the market shifts and those Arbitrage open back up, I think we'll benefit from that business again. I just can't tell you exactly when that's going to happen.

Speaker #3: It really has been pretty well non-existent here. For the last six, eight, eight months, we start to see as things sort of improve relative to the situation in the Gulf, we've begin to see that open back up a little bit, but as soon as things turn again, it closes right back up.

Speaker #3: I think the good news on that front is we're ready. That supply chain is solid. We've cut the customs processes and have that in place.

Speaker #3: So as the market shifts and those arms open back up, I think we'll benefit from that business again. I just can't tell you exactly when that's going to happen.

Speaker #5: Yeah, okay. Great. Thank you.

Tom Wadewitz: Yeah. Okay. Great. Thank you.

Speaker #3: Thanks.

Speaker #6: Thanks, Tom.

Nadeem Velani: Thanks.

Nadeem Velani: Thanks, Tom.

Speaker #1: Your next question comes from Benoit Barrier with Desjardins Bank. Please go ahead.

Operator 2: Your next question comes from Benoit Poirier with Desjardins Securities. Please go ahead.

Operator: Your next question comes from Benoit Poirier with Desjardins Securities. Please go ahead.

Speaker #6: Yes, thank you very much. And good afternoon, everyone. Just in terms of assumptions, given the movement that we've seen in FX and fuel, I was wondering if there was any change in your assumptions for the year.

Benoit Poirier: Yep. Thank you very much, and good afternoon, everyone. Just in terms of assumption, given the movement that we've seen in the FX and fuel, I was wondering if there was any change in your assumption for the year and maybe specifically for the grain, John. You mentioned, are you counting on a stronger grain crop in the H2 to kind of offset the coal weakness, or are you still making a three to five-year average? Thank you.

Speaker #6: And maybe specifically for the grain, John, you mentioned, are you counting on a stronger grain crop in the second half to kind of offset the coal weakness or are you still baking a three to five year average?

Speaker #6: Thank you.

Speaker #3: Yeah, I'll let maybe Nadeem comment on some of the macro assumptions, but on the grain front, I think we're pretty optimistic that we're going to close out Q3 on a sort of continued strength.

John Brooks: Yeah. I'll let maybe Nadeem comment on some of the macro assumptions. On the grain front, I think we're pretty optimistic that we're going to close out Q3 on a just sort of continued strength. I think the question will be sort of when exactly the grain harvest comes on. I'll tell you right now, I've seen maybe more bullishness relative to CPKC's specific growing territory. Southern Alberta, Southern Saskatchewan, areas that have even last year weren't great in terms of drought conditions being better. We are optimistic. For the purposes of our Q4, we've sort of modeled what would be the three to five-year average. I'll tell you, last year our volumes did not move at a record pace. We were a little bit slower out of our southern territory, and then that kind of picked up.

Speaker #3: I think the question will be, sort of, when exactly the grain harvest comes on. I'll tell you right now, I've seen maybe more bullishness relative to CP, KC-specific growing territory.

Speaker #3: So Southern Alberta, Southern Saskatchewan, areas that have even last year weren't great in terms of drought conditions. Being better. So we are optimistic. For the purposes of our Q4, we've sort of modeled what would be the three to five year average, but I'll tell you last year, our volumes did not move at a record pace.

Speaker #3: We were a little bit slower out of our southern territory and then that kind of picked up. Maybe a little bit different than what CN experienced in the fall.

John Brooks: Maybe a little bit different than what CN experienced in the fall. Even at that sort of average run rate, we see some uptick in terms of grain helping be supportive in that. Again, we also believe our US franchise has a pretty good outlook on top of that, Benoit.

Speaker #3: So even at that sort of average run rate, we see some uptick in terms of grain helping be supportive in that. And again, we also believe our US franchise has a pretty good outlook on top of that, Benoit.

Speaker #6: Benoit, our assumption hasn't changed much of where we're at the beginning of the year. We're closer to $1.38 on currency. We're closer to $1.40, $1.41 recently.

Nadeem Velani: Our assumption hasn't changed much of where it was at the beginning of the year. We were closer to CAD 1.38 on currency. We're closer to CAD 1.40, CAD 1.41 recently. Obviously, fuel is very volatile and there's timing issues related to fuel surcharge and the lag of what comes with the expenses that we hit directly. Overall, our fuel assumption has increased for at least for the next 30 to 60 days, and we'll see what plays out the rest of the year. We're effectively covered. I would just say that it may impact our operating ratio to an extent, just in terms of the taking on those fuel surcharge revenues at 100% operating ratio and the lag impact, which hopefully will turn and become positive by the end of the year.

Speaker #6: Obviously, fuel is very volatile, and there are timing issues related to fuel surcharge, as well as the lag that comes with the expenses that we hit directly.

Speaker #6: So overall, our fuel assumption has increased, at least for the next 30 to 60 days, and we'll see what plays out for the rest of the year.

Speaker #6: But we're effectively covered, I would just say that it may impact our operating ratio to an extent. Just in terms of the taking on those fuel surcharge revenues at a 100% operating ratio and the lag impact, which hopefully will turn become positive by the end of the year.

Speaker #6: It's a very good color. Thank you very much, John.

Benoit Poirier: Very good color. Thank you very much, gents.

Speaker #3: Yeah, thanks.

John Brooks: Yeah. Thanks.

Speaker #1: Your next question comes from David Vernon with Bernstein. Your line is open.

Operator 2: Your next question comes from David Vernon with Bernstein. Your line is open.

Operator: Your next question comes from David Vernon with Bernstein. Your line is open.

Speaker #7: Hey, good afternoon, and thanks for having me here. So, John, maybe as you think about how the business has grown over the last couple of years, can you help us frame what the cross-border Mexico revenue is on a total shipment basis, and how much of that is actually going to western Canada or western Chicago versus eastern, or eastern Canada, or other points in the US?

David Vernon: Hey, good afternoon, and thanks for fitting me in here. John, maybe as you think about how the business has grown over the last couple of years, can you help us frame what the cross-border Mexico revenue is on a total shipment basis, and how much of that is actually going Western Canada or west of Chicago versus Eastern Canada or points in the US? Just trying to get a sense for the revenue intensity on the cross-border Mexico stuff, because you guys have delivered a lot on the synergy side with KC Backhaul. Thanks.

Speaker #7: Just trying to get a sense for the revenue intensity on the cross-border Mexico stuff because you guys have delivered a lot on the synergy side with the KC Mexico.

Speaker #7: Thanks.

Speaker #3: Well, I can frame it up this way, David. Specific to what I consider our land bridge business, I think guided towards I can see a run rate to get to 600 million on that business this year.

John Brooks: Well, I can frame it up this way, David. Specific to what I consider our land bridge business, I think I guided towards a continual run rate to get to CAD 600 million on that business this year. You should think about, as Keith said earlier, 60%-65% of that is between Western Canada and Mexico, and the balance is Eastern Canadian business. I would tell you, it's pretty equally spread between whether that's intermodal business, ECP business, automotive business, and grain business. Those are kind of the big four.

Speaker #3: And you should think about, as Keith said earlier, 60–65% of that is between Western Canada and Mexico, and the balance is Eastern Canadian business.

Speaker #3: And I would tell you, it is pretty equally spread between whether that's intermodal business, ECP business, automotive business, and grain business. Those are kind of the big four.

Speaker #7: Super helpful. Thank you.

David Vernon: Super helpful. Thank you.

Speaker #6: Thanks, David.

Keith Creel: Thanks, David.

Speaker #1: Thank you. This does conclude our question and answer session. I'd be happy to return the call to Mr. Keith Creel.

Operator 2: Thank you. This does conclude our question and answer session. I'd be happy to return the call to Mr. Keith Creel.

Operator: Thank you. This does conclude our question and answer session. I'd be happy to return the call to Mr. Keith Creel.

Speaker #6: Okay, thanks, operator. And listen, thanks again for everyone's time tonight. We pulled some robust discussions this afternoon. There's a lot of noise in our industry—there's a lot of noise.

Keith Creel: Listen, thanks again for everyone's time. Some nice, fulsome, robust discussions this afternoon. There's a lot of noise in our industry. There's a lot of noise in the economy. We think the noise from an economic standpoint is providing a very supportive backdrop that we control what we control. We're set up for a strong H2 operationally, commercially, with a bit of strengthening freight market demand at our back. We're focused on executing and meeting or exceeding not only our 2026 guidance, but carrying a whole lot of momentum into 2027. Thank you, and we look forward to sharing our Q3 results in October.

Speaker #6: In the economy, but we think the noise from an economic standpoint is providing a very supportive backdrop that we control what we control. We're set up for a strong second half.

Speaker #6: Operationally, commercially, with a bit of strengthening freight market demand at our back. We're focused on executing. And meeting or exceeding not only our 26 cadence, but carrying a whole lot of momentum into 27.

Speaker #6: Thank you and we look forward to sharing a third quarter results. And our coverage.

Operator 2: This concludes today's conference call. You may now disconnect.

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

Q2 2026 Canadian Pacific Kansas City Ltd Earnings Call

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