How is the company progressing with the acquisition of Kansas City Southern?

The company entered into a definitive Merger Agreement with KCS and has made significant progress. They expect to close the transaction into a voting trust in the first quarter of 2022, pending shareholder and regulatory approvals. The combined entity will be named Canadian Pacific Kansas City (CPKC) and aims to create the first rail network connecting Canada, the U.S., and Mexico.

What is the company's outlook for full-year 2021, particularly regarding volumes and earnings?

CP has updated its 2021 outlook, now expecting volumes (RTMs) to grow by low single-digits year-over-year due to diminished expectations for the Canadian grain crop and ongoing supply chain challenges. Despite this, the company continues to expect double-digit growth in Adjusted diluted EPS, based on $3.53 in 2020.

How did fuel prices impact the company's financial performance in Q3 2021?

Higher fuel prices had a significant impact, leading to an increase in fuel expense of $59 million, or 42%, in Q3 2021 compared to Q3 2020. However, a portion of these increased fuel costs were recovered through the company's fuel cost adjustment program, which contributed to higher freight revenues.

CP 10-Q Quarterly Report Q3 FY2021 — Revenue, Net Income, EPS

Q: What is the primary driver behind the decrease in net income for the third quarter of 2021?

The primary drivers for the decrease in net income to $472 million were acquisition-related costs totaling $83 million associated with the pending Kansas City Southern (KCS) transaction and an unfavorable foreign exchange translation loss of $46 million on debt and lease liabilities, compared to a gain in the prior year period.

Summary

Canadian Pacific Kansas City Ltd. (CP) reported revenues of $1,942 million for the third quarter of 2021, an increase of 4% compared to the same period in 2020. Despite the revenue growth, net income decreased by 21% to $472 million, primarily due to significant acquisition-related costs associated with the pending Kansas City Southern (KCS) transaction and foreign exchange losses. However, on an adjusted basis, excluding these one-time items, adjusted diluted EPS increased by 7% to $0.88 and adjusted income rose by 6% to $592 million, demonstrating underlying operational strength. The company is actively pursuing the acquisition of Kansas City Southern, which is progressing through regulatory approvals with an expected close into a voting trust in Q1 2022. This strategic move is poised to create the first single-line rail network connecting Canada, the U.S., and Mexico. While acquisition-related costs impacted the reported net income, the company maintains a strong operational performance with improvements in average train weight and length, alongside a focus on safety and environmental sustainability, including the publication of its first comprehensive Climate Strategy.

Key Highlights

1Total revenues increased by 4% year-over-year to $1,942 million in Q3 2021, driven by higher freight revenue per RTM, partially offset by lower volumes.
2Net income decreased by 21% to $472 million, primarily due to $83 million in acquisition-related costs for the KCS transaction and unfavorable foreign exchange movements.
3Adjusted diluted EPS increased by 7% to $0.88 and adjusted income rose by 6% to $592 million, excluding significant acquisition-related costs and FX impacts.
4The company made a significant payment of $1,773 million (U.S. $1,400 million) towards the acquisition of Kansas City Southern, which is progressing through regulatory approvals and is expected to close into a voting trust in Q1 2022.
5Operating expenses increased by 8% to $1,168 million, largely due to higher fuel prices, acquisition-related costs, and increased depreciation and amortization.
6Cash provided by operating activities increased by 11% to $548 million in Q3 2021.
7CP published its first comprehensive Climate Strategy, outlining its approach to climate action and setting science-based emissions reduction targets for locomotive and non-locomotive operations.

CANADIAN PACIFIC KANSAS CITY LTD/CN Quarterly Report for Q3 Ended Sep 30, 2021

Summary

Key Highlights

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