CPKC has reported a strong performance in its second quarter of 2024, with a notable increase in revenues and earnings per share. The company's President and CEO, Keith Creel, highlighted the 8% revenue growth to $3.8 billion and a 27% increase in EPS to $1.05.
The operating ratio also improved significantly, indicating efficient operations amidst a challenging freight environment. CPKC's operating team achieved notable operational metrics, with a decrease in terminal dwell and an improvement in train speed. The company's commercial team secured new business in line with the company's network, contributing to its positive outlook for the remainder of the year.
Key Takeaways
- CPKC's Q2 revenue increased by 8% to $3.8 billion, with volume growth of 6%.
- EPS rose by 27% to $1.05, and the operating ratio improved by 280 basis points to 61.8%.
- Operational improvements included a 9% decline in terminal dwell and a 6% increase in train speed.
- Safety performance improved, with a 4% decrease in train accidents and a 38% reduction in personal injuries.
- The company secured new business and remains optimistic about the second half of the year.
Company Outlook
- CPKC expects strong value delivery in 2024 and beyond, with a focus on new retail opportunities and joint line routes into Southeast US and Ohio Valley markets.
- Despite a 9% decrease in international volumes, new business and solid demand outlook position the company well for the future.
- The company anticipates flat average headcount and continues to invest in network capacity.
- CPKC is confident in delivering double-digit core adjusted combined earnings growth.
Bearish Highlights
- International volumes were down 9% due to strike uncertainty and shifts in business share.
- A potential labor dispute may result in a work stoppage at the end of the month.
- Peso volatility's impact on end markets is uncertain.
Bullish Highlights
- The company is not capacity-constrained and sees potential for margin expansion due to strong pricing and moderating inflation.
- Revenue growth is expected to be high single-digit, in line with guidance for 2024 to 2028.
- The expansion of the Laredo bridge will improve train speed and velocity.
Misses
- The company incurred additional costs due to a casualty incident and stock-based compensation, with the exact amounts yet to be determined.
Q&A Highlights
- Labor issues and derailment costs are expected to impact the operating ratio in the third quarter.
- Significant improvement in the operating ratio is anticipated for the fourth quarter.
- The company is on track to exceed its revenue synergy targets in various sectors, including autos and domestic intermodal.
- There has been an unexpected increase in grain shipments to Mexico.
CPKC's ticker symbol was not provided in the summary, hence it was not mentioned in the article. The company's strong quarter is reflected in its revenue and operational performance, with future growth expected despite potential labor disputes and macroeconomic challenges. The article maintains a neutral tone, reporting the facts as presented in the earnings call transcript summary.
InvestingPro Insights
CPKC's recent earnings report paints a picture of a company on the rise, with solid revenue growth and an impressive increase in earnings per share. The InvestingPro data and tips provide additional context to these results, offering investors a more nuanced view of CPKC's financial health and stock performance.
InvestingPro Data highlights CPKC's robust financial metrics, with a market capitalization of $78.13 billion and a P/E ratio standing at 30.91. The company's gross profit margin for the last twelve months as of Q1 2024 is particularly strong at 51.89%, which supports the CEO's comments on efficient operations. Furthermore, the revenue growth of 49.42% over the last twelve months indicates that CPKC is not only growing but doing so at an accelerated pace.
InvestingPro Tips suggest that analysts are optimistic about CPKC's near-term earnings, with 17 analysts having revised their earnings upwards for the upcoming period. This could be a sign of confidence in the company's strategy and execution. Additionally, the company's ability to maintain dividend payments for 24 consecutive years reflects a commitment to shareholder returns, which might appeal to income-focused investors.
For those considering an investment in CPKC, it's noteworthy that the stock trades with low price volatility, which could be a reassuring factor for risk-averse investors. However, it's also trading at a high P/E ratio relative to near-term earnings growth, which suggests that the market has high expectations for the company's future performance.
For more detailed analysis and additional InvestingPro Tips, interested investors can find a total of 9 tips available on InvestingPro's platform at https://www.investing.com/pro/CPKC, which could further inform investment decisions.
Full transcript - Canadian Pacific (NYSE:CP) Q2 2024:
Operator: Good afternoon, everyone. My name is Bow and I will be your conference operator today. At this time, I would like to welcome everyone to CPKC's Second Quarter 2024 Earnings Conference Call. The slides accompanying today's call are available at investor.cpkcr.com. 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. [Operator Instructions] I would now like to introduce Chris de Bruyn, Vice President, Capital Markets, to begin the conference. Chris, please go ahead.
Chris de Bruyn: Thank you, Bow. Good afternoon, everyone, and thank you for joining us today. Before we begin, I want to remind you this presentation contains forward-looking information. Actual results may differ materially. The risks, uncertainties and other factors that could influence actual results are described on Slide 2, in the press release and in the MD&A filed with Canadian and US regulators. This presentation also contains non-GAAP measures outlined on Slide 3. Please note, in addition to our regular quarterly financials, their supplemental Q2 combined revenue and operating performance data available at investor.cpkcr.com, which some of today's discussion will focus on. With me here today is Keith Creel, our President and Chief Executive Officer; Nadeem Velani, our Executive Vice President and Chief Financial Officer; and John Brooks, our Executive Vice President and Chief Marketing Officer. The formal remarks will be followed by Q&A. In the interest of time, we'd appreciate if you limit your questions to one. It is now my pleasure to introduce our President and CEO, Mr. Keith Creel.
Keith Creel: Thanks, Chris, and good afternoon. Listen, before we get into the results, on behalf into the results, on behalf of our CPKC family, I want to want to extend our heartfelt payers and condolences to Pat Ottensmeyer's family and friends. Our family mourns this tragic passing. We extend our deepest condolence to his fiancée Deanne, his entire family, some of the many friends and former colleagues. Pat's vision and leadership played a monumental role in the great history of Kansas City Southern (NYSE:KSU) as he helped reshape the railway industry. We've lost a truly remarkable leader and a cherished friend. All he knew him as a professional and a railroader had nothing but respect and admiration for the material impact he made across so many aspects of our industry. And if you had the honor to have enjoyed a friendship with Pat as I did, words will never capture what a class gentleman and human being he was. Pat's legacy lives on. It can be seen in the work we'll do every day at CPKC. I'm also pleased to be hosting this call in Kansas City at our brand-new State of the Art US Operations Headquarters at new [ph] yard. This facility is just one small example of what would have never been possible without Pat's vision and strength as a leader. His contributions as a railroad and as a person will never be forgotten. Moving on to the quarter, I'd like to first start by thanking the 20,000-plus strong CPKC family for their efforts in the second quarter. As a leader, it's always my honor to represent the results we're going to cover on behalf of this team, which I'm extremely proud of. In the second quarter, the family delivered revenues of $3.8 billion, which is up 8%, strong volume growth, an increase of 6%, operating ratio of 61.8%, which is a 280 basis point improvement versus last year, and EPS of $1.05, a 27% increase. Certainly extremely pleased with these results, I can tell you these numbers that I just walked through do not happen by accident but through execution. So on the operating front, I applaud Mark and his operating team for their continued strong operating performance across this network. They delivered significant improvement across a number of our key operating metrics. Unfortunately, Mark had an unexpected operating [ph] procedure he had done yesterday, so he's not with us today. So I'm going to cover his results and his body of work. Average terminal dwell declined 9% in the quarter. Average train speed improved 6%. Locomotive productivity up 10% and fuel efficiency improved 2%. All of these results reflect a network that's fluid, that's running well, and delivering strong service to our customers as we carry that momentum into the second half. And from a safety perspective, train exits were down 4% and personal injuries an astounding 38% improvement. I'm extremely proud that teams continue to focus on safety each and every quarter. Commercially, John and his team continue to bring on business that's going to fit our network well, working in close collaboration with our operating and service design team. And the team continues to price the value of the service that this new network uniquely offers. The team's executing on the vision we had when we first proposed putting these networks together, and it's leading us to a differentiated outcome. While it's been well publicized, the freight environment continues to be challenging. We're not making excuses. We're leaning into the challenge. We're creating owner opportunities that are uniquely enabled by this new network. So in closing, let me say I'm extremely pleased with the first half of the year. I'm even more excited about what the second half holds. We're in a position of strength. We're carrying momentum into the second half that we're going to build on. As I said in January, we're positioned to deliver an exciting year of value creation, and that is exactly what this team is delivering. We're uniquely positioned to deliver strong value in '24, and more importantly, for years to come. So with that said, John, I'm going to hand over to you to provide some color on the markets, and then team will elaborate on the numbers.
John Brooks: All right. Thank you, Keith, and good afternoon, everyone. I'm extremely pleased with the strong top-line growth the team delivered this quarter. This franchise is creating the unique opportunities we've talked about since day one. Our operations are strong, and we're pricing to the value of the differentiated service we are providing our customers. Now, looking at our results on a combined basis, we delivered freight revenue growth of 8% on a 6% increase in RTMs. Sense for RTM was up 2% with strong pricing and a slight tailwind from FX, partially offset by mix. Now taking a closer look at our second quarter revenue performance, I'll speak to an FX adjusted results on a CPKC combined basis. Starting with bulk, grain revenues were up 17% on 15% RTM growth. US grain volumes grew 17% over a prior year. Our franchise is benefiting from strong shipments of corn to the P&W, Mexico, and Alberta, along with increased shipments of soybeans and wheat to Mexico, which remains a strong area of synergy growth for CPKC. Canadian grain volumes were up 13% in the quarter as we saw a stronger-than-expected spring and summer sales program emerge if farmers reduce their on-farm inventory in preparation of the upcoming harvest. Now, looking forward, early indications are that this harvest will be more in line with our five-year average or if not stronger. That, coupled with our regulated grain pricing of approximately 6.5% have us well-positioned in Canadian grain. Now, moving on to potash. Revenues were up 24% on 11% volume growth. We moved higher volumes of potash with Canpotex to their Portland terminal as we lap the impact of their ship loader outage back in April '23. Now, looking forward, potash supply chain is performing very well and export demand is sold out for the second half of the year. We are on pace to set a record all-time tonnage with Canpotex this year. Coal revenue was up 3% on a 2% decline in volume. Lower natural gas prices weakened demand for our US coal franchise and that weakness was partially offset by more export Canadian coal to Vancouver and Thunder Bay. On the merchandise side, energy, chemicals and plastics revenue grew 10% on a 14% volume growth. The volume growth in the quarter was driven by higher crude as we lapped the impact of some outages last year and growth from synergies across just about all of the ECP portfolio, including LPGs, plastics, renewable diesel, and refined fuels. We are excited about the wins we've captured in this space as we are connecting markets from Alberta to the Gulf Coast and into Mexico with our single-line haul service. Now, looking forward, the ongoing ramp up of these synergies, we are set up for a solid second half of 2024 in ECP. In the forest products area, we were down 1% revenues on a 1% decline in volumes. Forest product volumes continue to be challenged by a soft macro environment impacting both our paper and lumber products. However, we are largely offsetting this headwind with synergy growth and extended line haul, shipping more lumber from Canadian producers down to our franchise in Texas and the Gulf markets. Metals, minerals and consumer products revenue was down 3% on a 9% volume decline. Volumes in the in the quarter were impacted by weakness frac sand, driven by lower natural gas prices but also a labor disruption we had at ArcelorMittal (NYSE:MT) steel facility in Mexico. Now, looking forward, although we expect the weakness in frac to continue, the labor distraction has ended, and we expect Arcelor to ramp up production in the back half of the year. In automotive, we produced another record quarter with revenues up 28% on 21% volume growth, an exceptional performance by the team. Our auto franchise is benefiting from higher longer-haul volumes out of Mexico as our closed-loop model service solution only continues to ramp up. I'm also pleased to share that our new Dallas auto compound located at our Wylie, Texas Intermodal terminal opened in late June. This compound is part of our playbook that unlocks an entirely new supply chain model for the OEMs, giving them competition, service, and capacity certainty like they've never had before. Our auto business continues to deliver differentiated growth, and we expect a strong performance as we move through the second half of the year. Now on the intermodal side, revenue was down 7% and a 3% volume decline. Starting with domestic intermodal, volumes were up 3%, despite a soft base demand environment. Our MMX of 180/181 cross-border service continues to perform extremely well in what I would consider a very challenging domestic market. Volumes on this service are up 50% since our exit rate at the end of 2023 and we have a strong pipeline of opportunities stacked up to the back half of the year. This includes new wholesale opportunities, new retail opportunities, temp control service operating and new joint line routes into both the Southeast US and the Ohio Valley markets. Now moving on to the international side. Volumes were down 9%, primarily related to timing of the impact of lingering strike uncertainty and the timing of some share shifts in business. With new business ramping up and a solid outlook for demand, we are well positioned across all our ports for the second half of the year. To close, the volumes in the first half came in slightly better than we expected, and we're off to a strong start in Q3. While the macro remains challenging in some areas, overall demand has stabilized and more importantly, we continue to have line of sight, strong differentiated growth from synergies, self-help initiatives and disciplined pricing. The operations team is delivering reliable, resilient service to our customers, and my team is laser focused on selling into that service in taking advantage of our expansive new network. I'm excited about what we've accomplished so far this year and even more for the opportunities we have ahead of us. So with that, I'll stop and pass it over to Nadeem.
Nadeem Velani: So thanks, John. It's a great report. So let me start by sharing my enthusiasm for the strong performance for the quarter. Our success is driven by the hard work and dedication of CPKC's, railroaders, I'm proud of what the team is accomplishing. Looking at the quarter, CPKC's reported operating ratio was 64.8%, and the core adjusted combined operating ratio came in at 61.8%. Earnings per share was $0.97, and core adjusted combined earnings per share was $1.05, up 27%. Similar to what we shared in previous quarters, our combined operating expenses in 2023 illustrate the effects of the acquisition for the second quarter is that the acquisition closed on January 1, 2022. I will speak to FX adjusted combined operating results in these prepared remarks. Now taking a closer look at our income statement. Reported operating expense is provided on Slide 11 and combined operating expenses on Slide 12, where I'll focus my comments. Excluding adjustments, comp and benefits expense was $610 million. The year-over-year decline in comp and benefits was driven by reduced stock-based compensation as well as efficiency gains from reduced over time, improved fluidity and engineering productivity gains. This was partially offset by inflation, volume-driven increases from higher GTMs and higher current service costs from our DB pension plan, due to a lower discount rate at year-end 2023. Looking to the rest of 2024, we continue to expect average headcount to be roughly flat on a year-over-year basis, driving further labor productivity gains as we grow volumes. Fuel expense was $466 million, up 9%. The increase was primarily driven by $24 million, or 4% increase in fuel price, along with volume-driven increases from higher GTMs. Increases from price and volume were partially offset by a 2% improvement in fuel efficiency, which resulted in a $9 million in savings. Another area where we are seeing network efficiency gains translate directly into margin improvement. Excluding adjustments, material expense was $95 million. The decline in the quarter was driven primarily by timing of locomotive and freight car maintenance as activity schedules across the network are aligned. Equipment rents were $82 million, down 5% year-over-year. The decline was driven by reduced car hire payments and receipts, along with efficiency gains from improved cycle times and increased network velocity. Depreciation expense was up 6%, resulting from higher asset base. Excluding adjustments, purchased services and other expense was $581 million. Cost of inflation and terminal service costs were partially offset by a year-over-year decline in casualty expense. So overall, top line growth in the quarter, coupled with strong cost control and execution resulted in a 17% increase in core adjusted combined operating income and a 280 basis point improvement in our core adjusted combined operating ratio to 61.8%. Moving below the line on Slide 13. Other income was $40 million, driven by higher equity income, along with a gain on some debt repurchases in the quarter. Other components of net periodic benefit recovery was $88 million in Q2. This reflects a lower discount rate compared to 2023 and partially offsetting the headwinds to comp and benefits from current service cost. Net interest expense was $200 million or $195 million, excluding the impact of purchase accounting. The decline was driven by a reduced debt balance. Income tax expense was $292 million or $328 million on a core adjusted combined basis. We still expect CPKCs core adjusted effective tax rate to be approximately 25% for the year. Turning to Slide 14. We are generating strong cash flow and cash provided by operating activities of $1.278 billion in Q2. Capital investments in safety and growth remain our priority. In this quarter, we reinvested $808 million, in line with our expectation to invest approximately $2.75 billion in 2024. We continue to make strategic investments in capacity across our network, positioning us to continue efficiently absorbing the growth that the merger has enabled. On the quarter, we generated $526 million in adjusted combined free cash flow and continue to repay debt. Our leverage ratio was 3.2 times and we still expect to reach target leverage in early 2025, at which point we will evaluate shareholder returns with our Board. In a review of the quarter, the team delivered another strong volume growth ahead of expectations, along with continued discipline on price and cost control. Synergies are continuing to ramp as the network is performing well. We continue to gain momentum on our expense synergies. Improvements in velocity as well as locomotive and car productivity are generating operating savings. We are also gaining procurement savings through consolidating agreements across the company as well as savings in G&A to combining processes and functions. We're well on track to deliver double-digit core adjusted combined earnings growth. Growth driven entirely from the business and without any help from shareholder returns. This network is delivering strong and profitable growth, and I'm excited for the opportunities we have ahead. With that, let me turn it back over to you, Keith.
Keith Creel: That's great, guys. Let's open it up for questions.
Q - Chris Wetherbee: Hey, thanks. Good afternoon, guys and condolences to the CPKCs family and certainly to Pat family as well. He'll be missed. If I could maybe start a little bit on the synergy side, the revenue synergy side, maybe if we could get a sense of how that's kind of progressing. And as we think about the back half of the year, could we see an acceleration in sort of activity, I guess get a sense of kind of what we're thinking about in terms of revenue synergy progress and maybe what we think the exit rate could look like as we get through the end of '24?
John Brooks: Yeah, Chris, so it's John here. Super pleased with progress. We've seen out of the gates really strong last year and a number of announcements and piled up pretty good exit rate in the 350 range, which we've talked about at the end of 2023. And I mean maybe just to get to the point, I fully expect - we said we'd double that, but I fully expect that we're on a run rate that could get us closer to that $800 million type number as we exit 2024. And if you think about that, it's really spread pretty evenly across our book. Just to give you a sense, about half of that, I would bump in area of intermodal, so international, domestic, automotive. And then the other half maybe split pretty evenly between our bulk franchise as we've really seen here this summer, our green shipments down into Mexico accelerate. And then the other half of that being our ECP merchandise business. So I'm quite pleased with where we sit, so far here, and I expect again, a pretty good ramp up as we move through the second half of '24.
Chris Wetherbee: Great. Thanks, very much. Appreciate it.
John Brooks: Yes. Thanks, Chris.
Operator: Thank you. We'll go next now to Walter Spracklin at RBC Capital Markets.
Walter Spracklin: Thanks very much. Good afternoon, everyone. John, sticking with you, you spend a bit of your time there on the -- on your prepared remarks talking on the Dallas auto compound opening and some of the opportunity there. Can you talk a little bit about the capacity there? How much you could ramp it, how quickly it could come on? And if you could frame it quantitatively even better, but just curious to hear what the upside there is on that particular line?
John Brooks: Yeah. Walter, so I'm really excited about this one. This is an opportunity similar to the playbook in Canada where we identified the land available down in Wiley and aggressively got after that opportunity. In terms of capacity, we're looking at a facility that will do, let's say, 160,000 to 180,000 gins [ph] annually. We utilized about 35 acres or so there. Right now, we've got three OEMs that are signed on in actively shipping into the facility. My sense is those three probably at full run rate will also get us to 75% capacity roughly in that neighborhood. And then we've got two or three fish on the line that I'm pretty excited about that I can see coming on, maybe even towards the end of this year but certainly into 2025. And as you look to the future, the great thing about that location is expandable. We can add some capacity there. And it's really going to provide a pretty unique solution. I also think as you see the production grow in the Eastern US with connections to the NF and CSX (NASDAQ:CSX), that becomes a pretty big opportunity for the future.
Keith Creel: Yeah. I would just add to that, that entire opportunity as well as we execute is well beyond our Investor Day guidance and wasn't in the base plan. We've got 430 acres left wanted to expand into. So we have the capacity, we have the land. I think we're going to have business opportunities. We got great partners with CSX and the NF to reach all of their markets and feed traffic into that Dallas marketing and down to Mexico. So I think it complements uniquely this network that we're optimized.
John Brooks: And if anyone is going to be in Dallas September, we're going to be doing a tour there, so.
Keith Creel: Yes, we're happy to show that facility off in September.
Walter Spracklin: All right. Thank you very much. Appreciate the time.
Keith Creel: Thanks, Walter.
Operator: Thank you. We'll go next now to Fadi Chamoun at BMO Capital Markets.
Fadi Chamoun: Yeah, good evening. Before taking my question, Keith, maybe can you give us an update [Technical Difficulty] patient and I wanted to ask you, John, like, typically your second half thus end up being a little bit stronger than the first half from a volume perspective, like this difficult seasonality, I guess. But how are you seeing some of the diversion issues that we have experienced in the second quarter and you're experiencing now with stabilizing? Do you think that there is potential for more kind of headwind on that front as we look into the third and fourth quarter?
Nadeem Velani: Hey, Fadi, you cut out on the question. Can you just repeat please the first part.
Fadi Chamoun: Well, the first part, it's just about an update on the labor situation, if you can just give us a little thoughts on that?
Keith Creel: Okay. Well, as we all know, we've been trying our dead level best to make sure we keep our customers updated and all key stakeholders. The CRIB took hold of the question that the Minister of Labor Challenge relative to potential threat to Canadian safety. We're waiting for a ruling on that that question. We've committed to how really come out by August tonight. What we've asked for in return is essentially a little bit of time for our customers to plan so they can responsibly wind down their operation and not just have mass chaos because you can imagine the impact obviously both railroads and the nation being shut down. That said, there are parties although we stay at the table. We're far apart. I'm just being transparent and honest, it's going to be a challenge. We've offered to enter the bidding arbitration given we understand the potential damage to the Canadian economy. We understand the damage and the pain and suffering on our employees, even those that might be out on strike, as well as those that aren't out on strike. So it's not a good outcome for anyone. But that said, at this point, I'll remain cautiously optimistic. It's most probable that we'll have a work stoppage, both railroads. My guess is, best guess, they release the parties by the night, that they'll put a work stoppage probably sometime the end of the month is what I would be guessing at and planning for. But, again, we won't know until that really comes out to the CRB add along the later than larger life based on our commitment.
John Brooks: Yeah. And Fadi, a few things here, I would say. Certainly I feel better about where I thought it was going to be at this point of the year. And I do have quite a bit of optimism around the run rate as you think about the back half of the year. Now that being said, I'll tell you, we still got Keith just spoke to. We got to get through what is likely going to be a strike that brings a certain level of uncertainty. Of course, if we had an election year, we've got a macro environment that - that is still not great in some areas. So that being said, maybe the counterbalance to that is, as I said, I think we're shaping up for a pretty good grain season. And we are really well-positioned in the Western corridor in terms of our capacity and being able to provide the service our grain shippers need in that region. In addition, I'm super excited about what we've been able to do in the US and bringing Mexico into our portfolio of destinations. So I definitely see the bulks accelerating, I think, in a pretty sizable way as we move through the back half of the year. We're going to keep flowing along on the domestic intermodal front, I'm pleased with the growth, but it's a tough market out there. There's no doubt out about it. So we'll see how that unfolds. I'm excited about some things we have ramping up in that business unit. And frankly, some of those merchandise areas present a little bit of a mix headwind in some of those opportunities. As you know, that Carload area is pretty strong sense for RTM, but that's an area where in the forest products in steel and some of those areas where we're definitely not counting on a rebound in the back half of the year. So hopefully, that's a little bit more color.
Keith Creel: Yeah. I think Fadi just one more thing. I think that everyone takes away our guidance. This is assuming the work stoppage. So unless it's one of long duration, when I say long more than two weeks, we're anticipating that. We're planning for that, and it's not going to impact our guidance. Once we get beyond that, I think we'll be in a very good position to have a better, more responsible line of size at the end of the year. We'll see how the labor situation plays out, we'll have a good picture of grain, I think by then, and then we'll look at if we need to change in our outlook.
Fadi Chamoun: Thank you. I appreciate.
Operator: Thank you. We go next now to Steve Hansen with Raymond James.
Steve Hansen: Yeah. Good afternoon, guys. Thanks for time. Look, if I'm listening to your recap this evening, it's almost like you weren't operating in the Western corridor. One of your peers talked about a lot of congestion problems in the West, and it raises a lot of questions about ultimate capacity out West here and how that's serviceable into the key corridor and the key port terminals out here. I mean, how do you feel that you were able to escape the congestion issues that the other faced. And do you feel like the capacity into key jurisdiction here is still sufficient for you? Any comments around that would be super helpful.
Keith Creel: So, Steve, let me focus our comments on CPKC and I've said this all along. You can't oversubscribe your network. You've got to understand your capacity. You've got to understand your limitations and you sell to the strength of your franchise. You don't oversell it, you don't oversubscribe it. You got to have the right number of locomotives, right number of cars, right number of crews. You got to understand what the business is coming on. And at our railroad, we focus intently in a very disciplined fashion and making sure that we rightsize our assets and we sell to capacity. That's a discipline. If you let your aspirations get ahead of your capacities, then ultimately, I know that we would get in trouble. And as an operating CEO, I'm intently focused on that routinely. It's a discipline that's moving into our DNA. And as long as I have anything to do with this railroad indoor anyone that I train and work with has anything to do with this railroad. That's the way CPKC will be run in Canada, US, and Mexico. It's the recipe for truly running a true precision scheduled railroad that provides great service, controls cost, allows earned margins, and allows it to be sustainable for your customer because they're making their decisions based on our ability to keep our word and do what we say we're going to do. And the last thing I want to do is to store that credibility because they have very short memories.
Steve Hansen: Very helpful. Thanks.
Operator: Thank you. We go next now to Tom Wadewitz with UBS.
Tom Wadewitz: Yes, good afternoon. Keith, I wanted to ask you how you think about -- or John, how you think about capacity of some of the services you have? And also maybe how you think about the potential for 2025 to be a strong margin expansion year? I guess I think of -- just one example, but the 180/181, you probably still have good amount of capacity. So, you see some growth, it should be pretty strong incremental margins. You've had some noise this year, kind of, I guess, anticipating the labor issue and so forth. So, I just wonder if you have kind of a broad thought that potentially set up for a pretty strong margin expansion year next year and how you think about available capacity on some of the services you have? Thank you.
Keith Creel: Yeah, we're well-positioned from a capacity standpoint, Tom, it's a great question. 180/181 is a perfect example. We're eating some margin because we've got that service out there. But to John's point, it's up 50% here since the beginning of the year, that train is running at half training. So we still have additional capacity to sell into and the margins only approved once you get the base cost covered in that train start. So, again, all across this network. All these lanes were selling, we said this to the STD and I'll say it again and again and again, we're building this network out to match the synergies so that we can onboard this business not deteriorate our service offering, not deteriorate our car cycle-times, our locomotive productivity, all those things that allow us to run a successful business to be able to continue to pull a record amount of capital in this network, so they can grow in a responsible way that rewards the shareholder as well as provides the customer reliable service they need. That's the recipe. It's not rocket science. The issue is having the discipline to execute it. But if you do that, you're going to continue to put yourself in a position of success that, quite frankly, has proven to be very unique in the industry.
Tom Wadewitz: Do you think the available capacity is it's fair to think it's broader than that particular service that you would have it across kind of multiple areas in the network?
Keith Creel: I would say we're not capacity-constrained in any way. That's probably the best way to say it. And think about the capital that we're spending, in line with our STD submission, we said we're going to spend about $275 million. We're well on our way. We've got seven, eight sidings in. We've got the bridge of Laredo that's about to be completed. Obviously just look at the progress of it a couple of hours ago. It will be done, going to be online. We've got six or seven capital projects, we did not even plan. That we added into the capital envelope in Mexico based on the learnings of last year when we put that task force down there that haven't come online yet. So, they're at, what I would call critical capacity points. Once that capacity comes online, you're going to see locomotives move faster, you can see cars move faster, you're going to see costs come down and guess what, we're going to create capacity for more growth. So again, this network is not fast constrained. It's our job to make sure that we don't get in that position as long as our customers work closely with us, they give us good forecast. Now I'm not going to say that we can go back to March of this year, and we had a 40% increase of business on the West Coast of Vancouver and it oversubscribed that -- the ports that actually did. We took decisions, we took steps responsibly responding to that in March to make sure we won oversubscribed. We allow contracts causes to be relaxed, so the traffic could be diverted, so that our customers could still continue to meet their customers' expectations. We also allowed contracts shifting to occur early in anticipation of the strike because we knew at that time we thought the strike was going to happen in May. And it was our responsibility to make sure we protected our capacity so that we could deliver for customers and bounce back from that strike in very good fashion. And that's exactly the rhythm and the discipline that we've applied as we go forward whether the strike happens in August, September, October, god help us, it doesn't. We need to get this uncertainty over. But this railroad is going to deal with what we can deal with, control which you can control and you're going to have a very differentiated outcome if you do that.
Nadeem Velani: And Tom, let me just add, we laid out a year ago guidance for 2024 to 2028 of high single-digit revenue growth, and we're right on track for that in year one, and we have plenty of capacity to support that revenue growth, and we're going to bring it on at a low incremental cost.
Tom Wadewitz: Great. Thank you for the time.
Nadeem Velani: Thank you, Tom.
Operator: We go next now to Scott Group with Wolfe Research.
Scott Group: Hey. Thanks, good afternoon and I echo the condolences on Pat from earlier. Nadeem, at the beginning of the year, you talked about an inflation sort of catch up. Can you just give us an update on how that's playing out and same-store price trends? And then maybe just, John, just some thoughts, like the RTM carload spread is just so wide right now. It was like 10 points in the second quarter, similar spread in third quarter. Is this the right way to think about the business sort of going forward with the synergies? Or is there something sort of unusual just given commodity dynamics? How should we think about this? What's the right spread, I guess, going forward?
Keith Creel: Scott, you're right on. I mean, we highlighted that there's going to be an opportunity to have some pricing catch up just the way the contracts - to make sure of the contracts and just way that cost inflation served so much in the previous 18 months, 24 months. So we're starting to see on the cost side, inflation moderate kind of in that mid 3, 3.5 kind of level. We're seeing the strength of our service being rewarded in the marketplace, and we're seeing kind of the same sort of pricing in that north of 5. So that spread of pricing versus inflation is widening. And I don't see that changing. In fact, I see that accelerating to an extent more so because I see inflation moderating further. I mean, we've seen that across the board or whether that's on the material side. Labor has been a bit higher. But again, that's going to moderate over the next year. And so I think we're to see the benefits of strong pricing and lower inflation. I think that's going to be helpful to our margin story.
Nadeem Velani: And Scott, on the RTM carloads question, I mean, RTMs to us, want to get paid for. They're the most important metric, even more so with this new expanded length of all network. So what you're seeing in the spreads today is accentuated or exaggerated because we haven't yet lapped that loss of the short-haul low-profit business that left us, I guess it was fourth quarter of last year. Order of magnitude that's 170,000 carloads. So if you get caught up in the carloads, you're going to miss the power of what's really occurring. Every carload that we have with converting lead to fall, whether it's 30% longer, 40%, 50%, your models aren't going to catch it. So again, RTM should be the Holy Grail when it comes to this railroad not carloads.
Scott Group: Makes sense. And just so I understand your point, Nadeem, even with the new labor deal coming, do you still feel good about labor inflation, overall inflation slowing?
Nadeem Velani: I do. I do. I think we've been accruing on what we anticipate a fair ruling and a fair kind of win-win situation between us and labor. And so I'm not concerned about that. I mean in the near term, we're going to have a bit of headwind. We had a significant casualty costs that that we faced in July we're going to feel in the third quarter. That being said, there's still two months left in the quarter, and we got to keep them on rail, and we can help mitigate some of those costs. And I think we've seen some additional stock-based comp costs that we're going to feel in Q3 year-over-year. Outside of that, the way the network is running and the operating leverage that I see in front of us, I think it more than offset some of those costs, and I think we're going to have a very strong back half of the year. So perhaps not sequential improvement in the OR in Q3, because of some of those headwinds I just mentioned. But I think in Q4, we're set up to have a record operating ratio for CPKC, and I think it's going to be a very strong finish to the year, and it's going to set us up for a 2025 that I think could be a very powerful earnings model.
John Brooks: And Scott, just maybe just one other comment on the carloads and RTMs, right, just to give you an example, like right now, I think Q2, our average length of haul was up about 6%. But if you look at our domestic intermodal, it was up over double digits on average length of haul. And again, that's just indicative of what exactly Keith described on that shift in business. And frankly, as I look out to the second half of the year, as I see some strength in and I think our international franchise, there's a really good chance, we can play catch up and kind of you'll start to see that deviation come closer together as we move through Q4.
Scott Group: Got it. Helpful, guys. Thank you.
John Brooks: Thank you, Scott.
Operator: We'll go next now to Brandon Oglenski at Barclays.
Brandon Oglenski: Thanks for taking my question and again, condolences to Pat and family and friends. Keith or maybe, John, I guess when you speak about the Laredo bridge expansion, maybe we're over emphasizing how much capacity that adds to the system. But how do you approach that with a balanced outlook for growth with customers, but also balancing the need to keep consistent service. And where do you think we're going to see the results from that expansion most immediately in 2025?
Keith Creel: So you're going to see the results to me would be about train speed and train velocity. It's going to be singles and doubles. There's not going to be any big home runs. If you think about it today, you're running a four-hour windows so it's suboptimal when it comes to trains. You've got a number of trains that are going to be in queue, it could be in it could be in queue an hour, queue for four hours before it gets to changed. All that goes away. The queue disappears. We get to make needs on the bridge. We'll work well with UP, UP work well with us. It's going to be a smooth transition. We're working out the details now for UP to have a crossover coming off that second bridge. So again, we're both located on the bridge. We both will do better. The velocity is going to improve, and our assets are going to turn faster. So again, to be baked into the metrics they're all being home runs, it makes a meaningful difference in today's operation and most especially smarts growth.
John Brooks: And Brandon, it's a differentiator in the marketplace. It is what my team using to sell to the customers expanding down in Mexico and really feeding that cross-border service. It's about security, it's about service, it's about capacity. And the second bridge, honestly just adds to that capability that differentiates us against other routes in and out of Mexico, and that's a strong selling point to our customers.
Brandon Oglenski: Thank you, both.
Operator: We'll go next now to Jon Chappell at Evercore ISI.
Jon Chappell: Thank you. Kind of staying with that theme, John, we're getting a lot of, I think, concern or maybe even excitement depending on who you are on potential tariffs and what that means, especially in Mexico. What are your customers telling you about potentially front-end loading or being more proactive as it relates to imports, either the West Coast of Canada or to Mexico? And then also, where does the service stand right now? I know there were some maybe hiccups at the initial stages of the integration. I know Mark and his team made a lot of headwind, a lot of progress there. Where is the service down in Mexico if there is a surge in the coming months?
Keith Creel: The service has never been better over to you, John.
John Brooks: Honestly, Jon, we just ran a number of tough flows, imports through Lázaro up into the Houston market. I think they're on our rails for 3.5 days that excludes time at the port in that. It's a really good customer experience. I would say it's been - to your point, it's been a slug. It's been educating around what import, export freight can look like through Mexico. So it's been a pretty big learning curve with the customers but we're starting to produce some results. And I'll just give you an example, and you've probably seen some of this, but we've actually had five new service calls recently announced at Lázaro. A couple of new Maersk services, O&E, MSC, CMA. And I think what we're seeing is we're building confidence. The service level is as Keith said, is strong, and we're demonstrating that. And frankly, there's good demand intra-Mexico. But that intra-Mexico demand brings with it the opportunity for space on those boats to then flourish and provide capacity for cross-border. And you're right, we certainly have some pending labor issues that could take place on the East Coast. And combined with these new services that we think it sets us up well for continuing to grow that Lázaro opportunity in the back half of this year into 2025.
Jon Chappell: Thanks, John.
Operator: We'll go next now to Ken Hoexter at Bank of America.
Ken Hoexter: Hey, great. Good afternoon and again, my condolences to the CPKC and Pat’s family. I've known Pat for over 20 years and always brought definitely smiles to the room. Just to clarify, Nadeem, on your OR improvement, I guess you're not looking for OR improvement in the third quarter, and I think you said a significant improvement. Is that like maybe 300-plus basis points to get to sub-60 in the fourth quarter to get to your double-digit earnings? Does that sound right? And then is there a clarification on the level of stock base comp return that comes back? And then lastly, just a quick one for John. It looks like the grain crop, I think you've got an average crop built in. It looks like we've got a decent one shaping up. Any thoughts on the size, scale of the market at this point?
Nadeem Velani: Sequentially, I don't see necessarily improvements in the OR, just given, like I said, some derailment costs in July and some additional stock-based comp in this quarter relative to a year ago and higher versus Q2. As far as Q4, we had a very strong Q4 operating ratio in 2023, and I see year-over-year improvement in the OR Q4 2024 versus 2023, which puts you at a very good operating ratio.
John Brooks: Yeah, Ken, being a grain guy, it's never made until it's in the bin, but we are pretty optimistic in Canada. And I think what we're particularly optimistic about is if you think about last year's crop and even going back to the '21, '22 drought drop, our growing territory felt more of the effects of that. And as we sit here today, we certainly see significant improvement in the CPKC growing territory in southern part of the provinces. In terms of projections, we've kind of settled in our mind and our modeling at about a 73 million metric ton or so. But customers are talking about possibly 75 million to 78 million metric ton type crop. So we'll see. We got a little bit of time left to go. But certainly optimistic that it could be a strong grain fall.
Ken Hoexter: Great. Thanks for the time, guys. Appreciate it.
Operator: We'll go next now to Brian Ossenbeck at JPMorgan.
Brian Ossenbeck: Good afternoon. Thanks for taking the question. Maybe just a follow-up on the OR commentary. I mean, that seems pretty reasonable that it would deteriorate if you're expecting a labor disruption here in the quarter. I just wanted to clarify that or if maybe the derailments are bigger than we thought. And then just for John, if you can give us some context around the end markets that are potentially affected by the peso. We've seen a pretty big swing post-elections, probably going to stay a little bit more volatile in the coming quarters. So does that have an impact on those calls, does Lázaro be able to offset that with other maybe cost improvements? Or have you price it on a dollar basis? Like how do you work for that volatility and what are the customers looking for?
John Brooks: Well, Brian, honestly, I don't know if we felt the whole lot of effect at this point or at least I can differentiate what would be just, sort of, broader macro softness in some of the areas in and out of Mexico, that parallel business, particularly like some of our steel business down in that area. I honestly - because we don't have what I would consider regular cross-border import export business at this point in Lázaro, we haven't really felt much on that. And frankly, I would say just the opposite to customers, the steamship lines we're working with because of the strength with intra Mexico that we're seeing right now have actually been pretty excited about what the cross-border opportunity could present. I don't know if that's just forward thinking, Brian, in terms of expectations on the peso to moderate some or not. But nothing I can really call out to you right now that has materially impacted our cross-border flows.
Nadeem Velani: And Brian, just reiterate on the OR, yes, we had near-term additional costs associated with some casualty. There's going to be a step-up in costs in the quarter. And then, yes, I mean, reasonably, we think we're going to have a labor disruption, and that's going to have an impact on the OR. So I think from our perspective, I think it's responsible to highlight the fact that there's going to be cost to say what we think is going to occur. Keith mentioned that maybe end of August that that's unlikely event. And so factoring that into what we think is going to be our margins in Q3 is responsible. You're going to get me in trouble with for talking about the OR so much.
Brian Ossenbeck: Okay. Thanks very much.
Nadeem Velani: Thank you.
Operator: We'll go next now to Kevin Zhang at CIBC.
Kevin Zhang: Hey. Thanks for taking my question. Good afternoon, everyone. I'm just wondering, with the FMC (NYSE:FMC) halting this Gemini alliance, does that have any near or medium-term implications in terms of some of the growth you envisioned either later this year or into 2025?
John Brooks: Yes. That's a really good question, Kevin. Since frankly, since COVID, the international business unit is the volatility in some of those freights and port flows, as Keith spoke to earlier that we experienced in March, April has presented more challenges. And I can tell you, we are strategically as much as we say, very much into picking our partners and how we align rethinking in a lot of areas how we think about that international space. Certainly, Hapag is one of our largest customers, the most trusted partners. We also have a significant business with Maersk. So I would tell you, generally speaking, I'm excited about it. I think it presents opportunities for us coast to coast, both Vancouver and in Port of St. John, and certainly then with APM Terminals operating down at Lázaro and frankly, Maersk announcing two in services or actually a new service and revised service where they're calling on Lázaro Head of Manzanillo, I think, presents a really good opportunity for us. Now, we'll see that, it's not all done yet. I know they're working through a lot to get that that completed. But if in fact, does what we think it could, it could present a certainly a good opportunity in the international space in 2025.
Kevin Zhang: That's great. Thank you for taking my question.
Operator: We'll go next now to Stephanie Moore with Jefferies.
Stephanie Moore: Hi. Good afternoon. Thanks for the question. I apologize if this asked earlier, but it's just kind of looking at the most recent weekly kind of RTM data, it does look like you're standing apart from maybe some of your peers, as of late. So just curious if you're seeing anything kind of specific maybe having to do with some near-term dynamics, fire, strikes, the like. Just kind of curious who does seem to stand out a little bit or just have to do with maybe a big jump in Mexico, but maybe anything you can speak to some of the early 3Q performance in RTM price? Thank you.
Nadeem Velani: Yes, I mean we are lapping the port strike from a year ago, and that's been beneficial. But certainly, I mean, we're seeing strength across the board and what have been some macro challenges if you think about domestic intermodal, for example, that's turned into a positive. We're starting to see confidence in the new grain crop. So, grain is strong year-over-year. So, I think across the board, I think we're up almost 14% RTMs quarter-to-date. Now that's going to slow a little bit as we lap this strike benefit year-over-year or strike comp. But I think we're still set up for a very strong Q3 and back half of the year. So, I agree with you, we are kind of setting ourselves apart from some of our peers. If you think about this transaction and what it provided, we kind of did things a little bit backwards. We saw the benefits of the synergies on the front end in an environment where the macro was weak. Now, we're going to continue to see the synergies ramp up. John talked about the exit rate closer to $800 million on the top line. But now we're also starting to see the base business that was weak in the last and a half, started to rebound. So, Canadian grain is a big part of our franchise. We're starting to see that recover. On the intermodal side, we're starting to see the benefits of our domestic franchise and some of our market share wins, and we're starting to see the macro improve. So, that's going to start being a tailwind. So, some of the base business, and I can go on with coal and potash is starting to recover. And so as that base comes on with synergies, you're seeing kind of that double effect of outsized growth that we talked about at our Investor Day last year. And I think that is going to create a lot of operating leverage and allow us to get that growth to the bottom-line. That's why we're so excited about 2025 and beyond.
Stephanie Moore: Got it. So, you wouldn't necessarily call out any kind of short-term dynamics that you're seeing in the last couple of weeks because of some tenants outside of that, so to say, is kind of you're running the playbook as you outlined?
Nadeem Velani: Yes. A little bit of the comps year-over-year easy comps from the strike that occurred a year ago at the West Coast port in Canada. That's the benefit. But on side of that, no.
Stephanie Moore: Okay. Really appreciate the time. Thanks, guys.
Nadeem Velani: Thanks, Stephanie.
Operator: We'll go next now to Cherilyn Radbourne of TD Cowen.
Cherilyn Radbourne: Thanks very much. Good afternoon. Thanks for squeezing me in. John, I was just hoping that we could dig in a little bit more on the exit run rate on the revenue synergies, which sounds like it could be up to $100 million higher than originally expected. Could you talk about where you're seeing that outperformance from an end market perspective? And whether that is evenly balanced as energy overall?
John Brooks: Yes, Cherilyn. So, a couple of things. When we originally built this two, three years ago, like the world has changed and evolved now is as we sit here today. And I've talked a lot about that auto was an area initially we thought would be a longer-term story, but actually is Wylie compound and some of the opportunities out of Mexico has actually pulled ahead to be in early story. As you think about the intermodal business, and I'm going to say largely domestic intermodal and autos, that's making up roughly, I'm going to say, about half, slightly below half of the synergies. And then the other half is split between our bulk and our merchandise ECP franchises. Now an area I'll call out that we didn't expect to be quite as strong at this point with some of our grain into Mexico. And I'll give you an example. Last -- this month in July here, we've run, I think, 15 trains between corn, wheat, soybeans off of our traditional legacy CP franchise, whether it be Southern Canada, North Dakota, Minnesota, down into Mexico. I think the prior month with nine, the prior months of that was six, if my memory calls. So we're seeing a nice ramp up in that bulk franchise that may be coming on a little stronger than I initially had anticipated. And I hope that helps.
Cherilyn Radbourne: That's perfect. Thank you.
Operator: Thank you. We'll go next now to Konark Gupta at Scotia Capital.
Konark Gupta: Thanks and good afternoon. Thanks for squeezing me in. John, I think you alluded to earlier on the call about some international intermodal shifts. There was market share shift as well as some new wins. Can you please elaborate? And then Nadeem, I think you mentioned about some cost in package and any sense on the magnitude of those two items, casualty and stock-based comps. Thanks.
John Brooks: Yes. Konark, just on the share piece, I'll just call it like it is. We shifted Costco (NASDAQ:COST) partially out of our franchise at Vancouver, and we've brought on a corresponding piece of O&E business. And again, this goes back to what I was talking around really rightsizing our partners at the Port of Vancouver and also with an eye to what these partners can do with us across our entire franchise. So St. John, Lázaro. And as we kind of rework this book, there might be more to come in how we do that. But rest assured, we're high-grading the overall franchise value of the book with those shifts and doing it with an eye towards using our entire network now that we have the leverage of CPKC.
Nadeem Velani: And Konark, just on the stock-based comp, I mean, as you know, we mark-to-market each month. So that amount is still to be determined. We'll see what occurs on September 30 when the quarter ends. And on the casualty side, we had one incident alone that was in July earlier this month that was in the neighborhood of $45 million, $50 million were the cost. So that's why I highlight just how this is going to be a headwind. And so like I said, there's an opportunity to maybe avoid costs in the remaining part of the quarter. That's our goal and intent to keep them on the rails. But just given this cost occur, wanted to make sure I highlighted it.
Konark Gupta: Thank you.
Nadeem Velani: Welcome.
Operator: We'll go next now to Ravi Shanker at Morgan Stanley.
Ravi Shanker: Thanks. Good afternoon, everyone. And our thoughts are also the CPKC company as well. Just kind of on that point, and team, thank you for clarifying the size of those two items. If I can ask you as well, you said there are some strike-related cost items in the guidance’s or in the OR walk as well. Is that purely kind of a cost thing? Or are you also trying to quantify any diversion of volumes away that you're seeing right now and to come. And also on that that diversion, is something that snaps back in a write-off where you have resolution? Or does that take longer like it was last year with the port strikes? Or how do you see that playing out?
Nadeem Velani: No. So we've already faced some revenue headwinds in May before the labor disruption was delayed, if you will. I'm not factoring necessarily into the commentary about no war sequential headwind related to that. So anything tied to revenues. I think is going to be a delayed revenue, if anything. So I think it's a cost element. I think we're going to start -- we will see the network we brought to a halt and then to ramp back up, it takes some costs, it takes time. You have these inefficiencies over a period of whatever the 72-hour notice and then whatever period that the company is out. So that's how I would highlight the cost headwind associated with the strike.
John Brooks: We can't put a number to it to meet Nadeem's point. Domestic intermodal, right, can be tracked and certainly, we'll face some of that. But the rest is kind of, as I said, delayed and it will push volume certainly into Q4. And likely into Q1 of next year, if - depending on how long the stoppage would be.
Nadeem Velani: And the uniqueness of this time is that got both railroads, right? That creates a very different scenario than we've faced over the last 20 years. And so it puts a different pressure on the supply chain, and it has a different dynamic as far as the recovery for the supply chain for Canada as a whole post labor disruption.
Ravi Shanker: Understood. Thank you.
Nadeem Velani: Thanks, Ravi.
Operator: And we'll go next now to Ben Nolan with Stifel.
Ben Nolan: Thanks. I appreciate you guys getting in. I wanted to go back a little bit to pricing. I know that it has and you alluded to this a little bit ago, but there were still some legacy contracts pre-merger that were set to be repriced. And I think you were doing some of that in the third quarter. Curious, if all of that has been worked through, there might be a little bit more juice to squeeze on some of those contracts.
John Brooks: You know what, we are getting into the late innings of the base book. There's probably one big ne out there that that remains. But for most part, we have worked through just timing-wise, they didn't have a lot of multiyear contracts. Most of them are annual. We've been at this now going on close to 1.5 years or whatever since April of 2023. So we've rolled a lot of that over now is the direct answer.
Ben Nolan: All right. Thank you.
John Brooks: Yes.
Operator: And we'll go next now to Benoit Poirier of Desjardins Capital Markets.
Benoit Poirier: Yes. Thanks very much. Good afternoon, everyone. Could we maybe come back on the overall labor issues and whether you believe it put Canada reputation at risk? And do feel that there is a lot of business on the sidelines that could come back in life of labor resolution. And also if we look in the US, there's the port workers, the contract with the ILA port workers that is set to expired in September 2024. And I was just curious to see whether you see any potential benefits in light of a positive cargo diversion? Thank you.
Keith Creel: Well, I'll take the reputational damage. That's undeniably present. You think about, like, Canada is going through the port strike last year, how long that lasted and how much payment suffering that calls for customers, how much credibility impact, some of that traffic is not came back to the West Coast. So undeniably, fast forward to this, you have both railroads shutdown. At some point, customers as much as they need our products in Canada, they're going to get labor unrest fatigue. So we got to get beyond this, I don't have a magic bullet for this. I don't know what the secret answer is. All we can do is continue to be at the table. We have figured out how to negotiate successfully with every other collective agreement we have in Canada. This is the only group, TCRC that -- we just can't get there. So we're going to not give up. We remain cautiously optimistic, but we're not going to do a bad deal either. I'm not going to punish this company, I'll let this company suffer because we don't have the discipline to say no and do what's in best long-term interest for all employees that's fair across all employees, including the TCRC.
John Brooks: Benoit, I'd say the answer is, yes, to your question there regarding the East Coast potential strike. There's ongoing dialogue with the [Indiscernible] ship lines on alternatives and frankly, directly with BCOs that are looking for. I'd say we're in early innings, but some of these tests that I talked about over Lázaro were specifically designed with the intent of traffic that is going through the canal and using the East Coast today that could this be an opportunity to do something a little more permanent at Lázaro. And I also do believe it presents a potential opportunity of the port St. John. So we'll have to see how that plays out.
Benoit Poirier: Thank you very much.
Operator: Thank you. And ladies and gentlemen, we have reached our allotted time for Q&A. I would now like to turn the conference back to Mr. Keith Creel.
Keith Creel: Let me close by thanking you for your time. I hope the comments provided some color on this unique network and this unique value creation that we're unlocking. I take it back, especially now in light of Pat's passing, I think about what we committed to and what led you to do. Pat and I combined these networks to enable growth and to create competition and unlock unique value for all stakeholders across the entire supply chain. That means good paying jobs for our employees, that means great service for our customers, that means rail network capacity for our nation to grow for all three nations to enjoy prosperity and to increase trade together, and we're doing exactly that. So we look forward to sharing another chapter in that growth story when we report our Q3 results but until then stay safe.
Operator: Thank you, Mr. Creel. Ladies and gentlemen, that does conclude today's CPKC's second quarter earnings call. Again, thanks so much for joining us everyone, and we wish you all a great evening. Goodbye.+
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