CALGARY, Alberta — Canadian Pacific reported strong fourth quarter earnings on Tuesday and expects to see volume growth this year despite economic uncertainty.
The railway’s earnings call was a sideshow to the main event: The pending Surface Transportation Board decision on the proposed CP-Kansas City Southern merger.
“We finished the year with the people, capacity and resources in place to meet the needs of our customers today and are well-positioned to make history in 2023,” CEO Keith Creel says.
CP executives remained confident that the STB would approve the merger in the coming weeks. They declined to give financial guidance for the year, however, citing the merger and a slowing economy.
But Chief Marketing Officer John Brooks said he expects to see growth in CP’s bulk traffic segment, which makes up 40% of its business and is relatively immune to swings in the economy. Merchandise traffic should hold up well, he says, and automotive traffic should be strong due to pent-up demand, increased production, and a new contract with Ford.
Brooks also expects CP’s intermodal business to remain on a tear due to international intermodal contract wins and the ongoing expansion at the Port of Saint John, New Brunswick. CP’s overall international intermodal volume was up 40% for the quarter.
The port reached the 150,000 TEU, or 20-foot equivalent container mark, for the first time in 2022 as volume soared more than 70%. Container capacity at the port will double this year with the addition of new cranes and a second berth that will go in service by April 1.
CP and KCS completed interline southbound and northbound test runs with temperature controlled containers between Canada, the Midwest and Laredo, Texas. The Midwest-Laredo service ran on a 72-hour schedule, which is competitive with single-driver trucks.
The temperature-controlled market in those lanes is ripe for conversion to intermodal because it’s completely served by trucks now, Brooks says.
CP’s second experimental hydrogen-powered locomotive, a GP38, will make its first test runs in Calgary this month, Creel says.
CP’s first hydrogen locomotive made its maiden revenue run in October. The home-built unit, converted SD40-2F No. 1001, is dubbed H2 0EL for “hydrogen zero-emissions locomotive.” The Oct. 28 revenue test run was the second main line foray for the unit, which uses hydrogen fuel cells and batteries to power its electric traction motors.
For the quarter, CP’s operating income increased 19%, to $989 million, as revenue grew 21%, to $2.5 billion. Earnings per share, adjusted for the impact of one-time items, increased 19% to $1.14. CP’s fourth-quarter operating ratio increased 0.6 points to 59.8%.
Fourth quarter volume was up 9% when measured by carloads and containers, or 8% on a revenue ton mile basis, the preferred metric of the Canadian railways. Grain was up 24%, intermodal 18%, and automotive up 11%.
For the year, CP’s operating income increased 4%, to $3.3 billion, as revenue rose 10% to $8.8 billion. Earnings per share, adjusted for one-time items, was flat at $3.77. The operating ratio, adjusted for one-time items, was 61.4%, a 3.8-point increase.
Creel said he expected the operating ratio to improve this year. “The 61.4 is not a CP standard,” he says.
CP’s volume for 2022 increased 2% based on carloads and containers, but was down 1% on an RTM basis.
Another possibility is the Central American banana market. Bananas grown in Honduras is trucked to the Yucatan for export by ship.
It would not take much effort to truck bananas further to Lorenzo Cardenas. The big issue would be security.
Interesting to see if they capture any of the flower and fruit markets. A shipper tried bringing fresh flowers from Ecuador in by air freight through St Louis-Mid America and that died. Much fruit for the US market comes from Chile which can shipped to Larenzo Cardenas by boat and expressed up to the midwest or Canada.