Summary
Canadian Pacific Kansas City Ltd. (CPKC) reported a significant increase in revenues for the second quarter and first six months of 2023, primarily driven by the consolidation of Kansas City Southern (KCS) beginning April 14, 2023. Total revenues rose 44% year-over-year in Q2 to $3.17 billion and 35% for the six-month period to $5.44 billion. While reported net income attributable to controlling shareholders increased substantially to $1.32 billion in Q2 and $2.12 billion year-to-date, this was largely impacted by a substantial remeasurement loss of $7.175 billion related to the KCS acquisition. Excluding this and other significant items, the 'Core adjusted combined diluted EPS' was $0.83 for Q2, a decrease of 13% compared to the prior year, indicating operational challenges and integration costs impacting profitability on an adjusted basis. Operating expenses also saw a significant increase, up 67% in Q2 and 39% year-to-date, largely due to the KCS integration, increased compensation and benefits, fuel costs, and depreciation. This led to a higher operating ratio of 70.3% for Q2, a substantial increase from 60.6% in the prior year, with the 'Core adjusted combined operating ratio' also rising to 64.6% from 60.3%. Investors should note the substantial impact of the KCS acquisition on reported figures, with adjusted metrics providing a clearer view of underlying operational performance. The company is managing its debt and liquidity effectively, with an increased revolving credit facility and an undrawn balance as of June 30, 2023.
Key Highlights
- 1Total revenues increased significantly in Q2 2023 to $3.17 billion (+44% YoY) and for the six-month period to $5.44 billion (+35% YoY), largely due to the full consolidation of Kansas City Southern (KCS).
- 2Reported net income attributable to controlling shareholders rose to $1.32 billion in Q2 and $2.12 billion year-to-date, heavily influenced by a $7.175 billion remeasurement loss on the KCS investment.
- 3Adjusted profitability, as measured by 'Core adjusted combined diluted EPS', decreased by 13% to $0.83 in Q2 2023 compared to the prior year, reflecting integration costs and operational impacts.
- 4The operating ratio deteriorated to 70.3% in Q2 2023 (+970 bps YoY), with the 'Core adjusted combined operating ratio' also increasing to 64.6%, indicating higher operational expenses relative to revenue.
- 5Operating expenses increased substantially, up 67% in Q2 and 39% year-to-date, driven by KCS integration costs, compensation, fuel, and depreciation.
- 6CPKC expanded its credit facility to $2.2 billion and maintained an undrawn balance as of June 30, 2023, demonstrating strong liquidity management.
- 7Freight revenue per revenue ton-mile (RTM) increased by 16% in Q2 and 14% year-to-date, driven by higher freight rates and favorable foreign exchange impacts, partially offset by fuel surcharge dynamics.