CPKC signals sub-60 operating ratio in Q4 as land bridge revenue targets exiting 2026 above $600M

Earnings Call Insights: Canadian Pacific Kansas City (CP:CA) Q3 2026

Management view

• CEO Keith Creel highlighted what he called “third quarter revenues of $4.2 billion, volume growth of 6%, an operating ratio of 61.9% that generated 16% adjusted EPS growth,” adding, “we established all-time volume records in domestic intermodal, international intermodal and U.S. grains.” (CEO, President & Director Keith Creel)
• Creel framed the Canada-Mexico network as a central growth driver: “When we brought these 2 railroads together just over 3 years ago, this traffic was about $100 million in annual revenue. We expect to exit this year north of $600 million.” (CEO Creel)
• Creel said CPKC expanded a coal logistics relationship: “We also announced a meaningful expansion of our relationship with Elk Valley Resources to move their product…to Vancouver for global export,” calling it “a meaningful expansion” intended to “reduce complexity” and “strengthen end-to-end supply chain.” (CEO Creel)
• COO Mark Redd emphasized improved network performance while flagging safety slippage: “Train speed improved 8%, dwell improved 7%, car miles per car day increased 10%,” but “our personal injury frequency was 1.12, which is 20% higher than last year.” (Executive VP & COO Mark Redd)
• Redd detailed labor and capacity actions, including: “we have 2 new collective agreements with BLET, SMART,” and “CPKC and the IBEW agreed to binding arbitration, ending the strike involving approximately 300 signal and communications employees.” (Executive VP Redd)
• CFO Nadeem Velani tied earnings growth to mix, pricing, and fuel: “Strong volume growth, disciplined pricing and continued productivity gains drove 16% growth in core adjusted diluted EPS despite the margin pressure from higher fuel prices.” (Executive VP & CFO Nadeem Velani)

Outlook

• Management did not issue a new explicit EPS or revenue guidance range in the prepared remarks, but Creel reiterated the volume growth posture: “we remain well on track for another year of mid-single-digit volume growth.” (CEO Creel)
• Velani provided a Q4 operating ratio expectation in Q&A: “I feel very comfortable we’ll have a sub-60 OR in Q4 given the volume environment…how well the network is running.” (Executive VP Velani)
• Brooks described pricing carryover into renewals: “renewals continue to be that 3% to 4%, or even more in some cases,” and said he had “a favorable outlook as we look into the beginning of 2027.” (Executive VP & Chief Marketing Officer John Brooks)

Financial results

• Creel reported “third quarter revenues of $4.2 billion,” “volume growth of 6%,” and “an operating ratio of 61.9%.” (CEO Creel)
• Velani distinguished reported vs. adjusted profitability: “Diluted earnings per share was $1.04 and core adjusted diluted EPS was $1.28,” and “CPKC’s reported operating ratio was 64.8%. Our core adjusted OR was 61.9%.” (Executive VP Velani)
• Velani described fuel as the key quarterly margin swing: “Fuel expense was up 56% year-over-year…The change in fuel price was a 190 basis point headwind to core adjusted OR in the quarter,” while fuel efficiency “improved 3%…and generated $21 million in savings.” (Executive VP Velani)
• Velani emphasized cash and capital deployment: “adjusted free cash flow increased 59% to $2.4 billion,” and “we remain on track to deliver full year CapEx of approximately $2.65 billion,” while “delivered over $4 billion of shareholder returns through share repurchases and dividends.” (Executive VP Velani)

Q&A

• Steven Hansen, Raymond James: asked for details on the Elk Valley agreement and potential growth; CEO Creel explained the contract change was designed to remove handoffs, saying “about half of the traffic that today interchanges…at Kamloops…will be reclaimed back to CP origin to destination and the interchange…will be eliminated for that traffic.” (CEO Creel)
• Brian Ossenbeck, JPMorgan: asked about pricing vs. volume trade-offs; Brooks replied, “I’m bullish on the pricing outlook,” adding, “renewals continue to be that 3% to 4%, or even more in some cases.” (Executive VP Brooks)
• Fadi Chamoun, BMO: asked where growth is coming from over 12–24 months and a view of 2027 RTMs; Brooks said, “I don’t think they’re going to let me quite guide to ’27 yet,” then pointed to “grain…growth into Mexico,” “domestic intermodal…convert truck opportunities,” and “the land bridge…only continues to build momentum.” (Executive VP Brooks)
• Jonathan Chappell, Evercore ISI: asked about Q4 momentum; Brooks said, “we’re going to push it as hard as we can,” adding, “I’m optimistic that we can close pretty strong.” (Executive VP Brooks)
• Ken Hoexter, BofA: asked about next-year grain expectations and capacity/CapEx; Creel said CPKC “made a commitment to the STB…to handle high single-digit RTM growth,” and Velani reiterated the capital envelope: “we’ve guided long term $2.6 billion to $2.8 billion range of CapEx.” (CEO Creel; Executive VP Velani)
• Walter Spracklin, RBC: pressed for coal modeling with EVR moving parts; Brooks said EVR’s volumes were “probably going to end up 15% plus down,” adding, “the crystal ball is still a little cloudy.” (Executive VP Brooks)
• Christian Wetherbee, Wells Fargo: asked if the merger benefits still imply outperformance; Brooks responded, “the expectation in the room is, yes, we’re going to beat by 1 to 2 points consistently.” (Executive VP Brooks)
• Brandon Oglenski, Barclays: asked about CPKC’s STB filings on UP-NS; Creel said CPKC is asking for “complete rejection,” and if approved, for “protections over gateways…shipper access…paper barriers,” while calling representations supporting the deal “misrepresentations of truth.” (CEO Creel)
• Scott Group, Wolfe: asked about Q4 OR and EVR revenue recapture; Velani said EVR recovery was “a fair ballpark” and on Q4, “I feel very comfortable we’ll have a sub-60 OR in Q4.” (Executive VP Velani)
• Konark Gupta, Scotiabank: asked about fuel’s impact on yields and market behavior; Brooks said fuel surcharge dynamics were “a real issue,” and Velani said he assumed “high single-digit cents per RTM kind of high single-digit increase year-over-year.” (Executive VP Brooks; Executive VP Velani)

Sentiment analysis

• Analysts: slightly negative to pressing on coal visibility and EVR modeling (e.g., “It just makes it really difficult to look out to next year and put a number on what we should look at next year.” (Walter Spracklin, RBC)), while also probing pricing durability, fuel dislocations, and M&A/regulatory outcomes.
• Management: slightly positive in prepared remarks (e.g., “we’re extremely proud,” “record quarter,” “remain confident”), with more defensive and emphatic tone on UP-NS in Q&A (e.g., “We don’t want a condition. We don’t want a concession,” and “misrepresentations of truth.” (CEO Creel)).
• Versus last quarter, the current call’s prepared tone remained growth-forward, while Q&A shifted more toward regulatory confrontation and specific commercial mechanics (EVR interchange removal), compared with Q2’s heavier focus on how UP-NS and CN agreements might reshape competitive dynamics.

Quarter-over-quarter comparison

• Q3 emphasized record intermodal and U.S. grain performance and the EVR contract expansion, while Q2 emphasized synergy momentum and broader macro recovery framing; in Q2 Creel said CPKC was “well positioned to deliver another year of double-digit earnings growth in 2026,” while Q3 Creel reiterated “mid-single-digit volume growth” and highlighted land-bridge scaling. (CEO Creel)
• Profitability optics shifted: Q2 core adjusted OR was “61.6%,” while Q3 core adjusted OR was “61.9%,” with Q3 commentary more directly centered on fuel-driven OR headwinds and a Q4 “sub-60 OR” expectation. (Executive VP Velani)
• Analyst focus evolved from second-order consolidation implications (Q2) toward more near-term modeling items in Q3 (EVR coal reroute economics, Q4 OR, cents/RTM, fuel surcharge dislocations), while the merger topic intensified into explicit STB filing language and alleged “threatened” shipper narratives. (CEO Creel)

Risks and concerns

• Redd flagged safety performance: “our personal injury frequency was 1.12, which is 20% higher than last year,” adding, “the increase…does not meet our standard.” (Executive VP Redd)
• Brooks cited near-term coal uncertainty: “it’s kind of early in terms of what they’re looking towards 2027,” and “the crystal ball is still a little cloudy.” (Executive VP Brooks)
• Brooks described demand sensitivity to fuel surcharge mechanics: “customers are looking month-to-month…on how to ship…or looking at other market alternatives.” (Executive VP Brooks)

Final takeaway

CPKC management presented Q3 as a quarter of $4.2 billion revenue, 6% volume growth, and a 61.9% core adjusted operating ratio, while emphasizing record intermodal and grain performance, an expanded Elk Valley Resources coal agreement designed to eliminate an interchange for a portion of traffic, and ongoing scaling of the Canada-Mexico land bridge with an expectation to exit 2026 above $600 million in annual revenue. In Q&A, management pointed to pricing renewals in the 3%–4% range, acknowledged coal visibility limits tied to customer mine output, highlighted fuel surcharge-driven market sensitivity, and expressed confidence in a “sub-60 OR in Q4” supported by strong early-quarter volumes and network performance.

Read the full Earnings Call Transcript

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