The work stoppage by members of the International Longshore and Warehouse Union at Canadian West Coast ports may have cost Canadian Pacific Kansas City $80 million in lost revenue, executives said during the railway’s second-quarter earnings call.

CPKC will “work hard to claw back” that lost revenue over the remainder of the third quarter and in the fourth quarter, Chief Marketing Officer John Brooks told investors on the Thursday afternoon call.

The railway has been deploying a number of “self-help” strategies to drum up additional business once demand recovers, such as ramping up activity through the Port of St. John in eastern Canada to offset softer macroeconomic demand occurring in the international intermodal space, according to Brooks.

Another self-help strategy has been to be aggressive in looking for intermodal opportunities, according to CPKC President and CEO Keith Creel.

“We’re in the same boat as what you’ve heard from the other rails in terms of the intermodal business. … [But] we are on a three-week blitz, [with] over 3,000 cold calls. We’ve got boots on the ground. We’re blitzing all our major territories. We’re not sitting idle,” Creel said. “I do see the intermodal challenges persisting, but we’re going to make self-help. We’ve got the fastest intermodal service in our north-south superhighway. We’re going to continue to put more footage on that train.”

CPKC intends on capitalizing its access to Mexico through the merger and the network of the former Kansas City Southern de Mexico, and it sees opportunities for the automotive segment, for the frac sand and steel businesses, for forest products and for its reefer service. 

“We’re out working with these customers to create these long-haul cycles with our center beams, opening up new markets,” Creel said. “We’re deep into creating a whole new mousetrap in the Texas and Dallas market around transloading — stuff that probably you won’t see a lot of needle moving in that space in the near term given the headwinds, but as the housing construction area bounces back, it’s an area [where] we’re going to be ready, and I think we’re set up for success when that comes back.”

For the railway’s operations in Mexico, CPKC sees opportunities to improve service and control costs, and the railway has a team that will be going there to hash out ways to improve commercially and operationally, Creel said. 

CPKC executives acknowledged that the railway is “carrying surplus head count,” which translated into higher expenses for the quarter. But the railway is eyeing anticipated volume growth starting in the back half of this year and ino 2024. Investors should expect “a much better expense and productivity performance in the back half of the year,” said CFO Nadeem Velani. 

“Obviously, if we’d have known this [market] softness would have been here, perhaps we would have hired a little bit later and trained a little bit later,” Creel said. “But nevertheless, we have very unique growth opportunities that are counter to the macroenvironment. They give us great confidence that it doesn’t make a lot of sense to lay a lot of employees off” and risk losing them when demand to haul potash and grain picks up. 

Velani noted that there were several one-time expense items in the second quarter, such as a litigation settlement and an expensive derailment that cost a combined $45 million

CPKC’s Q2 2023 financial results

Revenues for the second quarter were nearly CA$3.2 billion (US$2.4 billion), up 44% year over year (y/y), CPKC said. The y/y figure reflects CP’s results in the second quarter of 2022. Canadian Pacific and Kansas City Southern completed their merger in April to become CPKC (NYSE: CP). Results are reported in Canadian dollars. 

Net income was $1.3 billion, or $1.42 per diluted share, for the second quarter of 2023, compared with $765 million, or 82 cents per diluted share, for the second quarter of 2022. 

Expenses were $2.2 billion, compared with $1.3 billion y/y.

Volumes were down by 5% in the second quarter, while head count was up 6%, according to Creel. 

Adjusted operating ratio was 64.6% for the second quarter, compared with a reported OR of 70.3% and 60.6% for the second quarter of 2022. Investors sometimes use OR to gauge the financial health of a company, with a lower OR implying improved health.

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Related links:

CPKC’s Q2 net income rises above $1B

Canada’s dockworkers strike impacts freight rail operations

CPKC, CSX form joint venture for hydrogen locomotives

CPKC and Americold collaborate on refrigerated rail service offerings

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