Canadian Pacific Loses $200M in Tariff War, CEO Reports

Canadian Pacific Kansas City Ltd. (CPKC) recently disclosed a significant financial impact due to the ongoing tariff war initiated by the United States. CEO Keith Creel announced that the company has absorbed a revenue hit estimated at $200 million, an issue raised during a conference call with analysts.

Impact of the Tariff War

Despite the challenges posed by the tariff discrepancies, Creel expressed optimism regarding future negotiations of the United States-Mexico-Canada Agreement (USMCA). According to him, a successful renewal could yield positive outcomes for all participating nations. He emphasized that while trade might require balancing, it remains essential for mutual prosperity.

Potential Outcomes of USMCA Renegotiation

• Trilateral trade has increased to over $1.6 trillion since the North American Free Trade Agreement (NAFTA) was enacted in 1994.
• Creel speculated that the USMCA could be renewed before the upcoming midterm elections.
• Trade balance adjustments could benefit all three nations involved.

In the most recent fiscal quarter, CPKC reported a 1% increase in revenue, reaching $3.92 billion, driven by improved operational efficiency and higher freight volumes. However, net income experienced a decline of 10%, falling from $1.20 billion to $1.08 billion compared to the same period last year.

Challenges Faced by CPKC

A decline in profits was accompanied by concerns regarding industry consolidation. Union Pacific Corp. has proposed an acquisition of Norfolk Southern Corp. for $85 billion. This potential merger could create a transcontinental railway, significantly altering the competitive landscape of the rail industry.

Concerns Over Industry Consolidation

• The merger would connect Union Pacific’s Western network with Norfolk Southern’s Eastern route.
• Creel warned that without adequate regulations, the merger could stifle competition and harm customers.
• The union of these companies would control around 40% of American freight traffic.

This proposed acquisition faced regulatory scrutiny from the Surface Transportation Board, which recently rejected the merger application due to incomplete details. Creel stressed the need for considerations of Canadian railroads involved in bilateral trade.

Financial Performance and Future Outlook

On January 16, the company reported a 3% rise in core adjusted diluted earnings, reaching $1.33 per share, just shy of analyst predictions. For the fiscal year, CPKC’s net income rose by 11%, totaling $4.14 billion, while its revenues increased nearly 4% to $15.08 billion.

Future Projections

• Projected volume growth in the mid-single digits for the coming years.
• Expectations of low double-digit growth in core adjusted diluted earnings per share.
• A planned 15% reduction in capital expenditures, amounting to $2.65 billion.

The company also announced a quarterly dividend of approximately 23 cents per share, to be paid on April 27. CPKC remains focused on leveraging new business opportunities and synergies related to its recent merger activities.