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July 29, 2022 1:13 PM, EDT

CP Announces Q2 Earnings, Moves Forward With Efforts to Acquire KCS

CPA CP train. (David B./Flickr)

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Canadian Pacific Railway posted a drop in net income but an increase in revenue for the second quarter, as it confronts renewed opposition to its planned acquisition of Kansas City Southern Railroad.

The Calgary, Alberta-based carrier on July 28 said Q2 net income fell 38.6% to C$765 million or C82 cents per share compared with C$1.87 a year ago. Revenue notched up 7.2% compared with 2021, coming in at C$2.20 billion compared with C$2.05 billion last year.

“The strong demand environment for North American goods and commodities, coupled with our own unique growth initiatives and the promising upcoming Canadian grain crop, gives me confidence that we will continue to see momentum build into the back half of 2022 and beyond,” CEO Keith Creel said in a statement.

Keith Creel

Creel

The company’s operating ratio worsened slightly to 60.6 from 60.1 last year. Operating ratio measures a company’s expenses as a percentage of revenue and determines efficiency. The lower the ratio, the more ability the company has to make a profit.

Across its various business lines, CP reported mixed results.

  • Grain shipments fell by 15.9% to C$370 million from C$440 million in 2021.
  • Coal slumped by 4.1% year-over-year to C$163 million from C$170 million.
  • Potash jumped 27.6% to C$171 million from C$134 million.
  • Fertilizer and sulfur shipments improved by 9% to C$85 million from C$78 million.
  • Forest products increased by 15.6% to C$104 million from C$90 million.
  • Energy, chemicals and plastics showed a 7.8% year-over-year decline to C$340 million from C$369 million.
  • Metals, minerals and consumer products were up 26.7% to C$228 million from C$180 million.
  • Automotive shipments notched upward 22.4% to C$120 million from C$98 million.
  • Intermodal shipments saw the biggest percentage and dollar increase, surging 28.8% to C$573 million from C$445 million a year ago.

Meanwhile, CP’s proposed $31 billion merger with KCS is now under review by the five-member Surface Transportation Board. CP said a final decision on its application is expected in first-quarter 2023.

However, the two senators from Illinois, Dick Durbin and Tammy Duckworth, along with two members of the House of Representatives, announced their opposition to the proposal. They cite concerns about possible increases in freight traffic in the Chicagoland area and its western and southern suburbs, and a subsequent likely impact on passenger rail traffic on METRA, the region’s commuter rail line, that would share some tracks with the freight carrier.

“The proposed merger will reportedly more than triple freight rail traffic on the CP rail line that runs between Bensenville, and Elgin, Ill. We are concerned this increase will have significant impacts on noise, emergency response time, commuter rail operations, the environment and pedestrian safety. We oppose the merger as currently proposed, and we urge the Surface Transportation Board to give our concerns all due consideration as you review the proposed merger and consider potential mitigation and oversight measures,” Durbin, Duckworth, and Reps. Raja Krishnamoorthi and Marie Newman wrote in a July 25 letter to STB Chairman Martin Oberman.

STB letter by Transport Topics on Scribd

METRA earlier this year also submitted comments to Oberman, expressing concerns over possible passenger-related issues.

In a statement included with its earnings report, CP emphasized the expected economic benefits the merger would bring to freight transportation across North America.

“Our proposed combination with KCS will connect customers to new markets, enhance competition in the U.S. rail network and drive economic growth across North America,” Creel said. “As we continue to progress toward this historic combination, our excitement about the opportunities ahead with the combined companies continues to grow.”

Canadian Pacific beat rival Canadian National in a battle to purchase KCS, which has extensive operations through the Midwest as well as tracks that cross the U.S.-Mexico border from Texas and deep into Mexico. Acquiring KCS would permit Canadian Pacific the ability to connect Mexico and the U.S. to its home country, where it has 12,500 miles of tracks from Vancouver to Montreal. In the U.S. it services Minneapolis–St. Paul, Milwaukee, Detroit, Chicago, and Albany, N.Y.

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