CPKC core earnings jump 16% as grain and intermodal offset fuel costs

Canadian Pacific Kansas City grew third-quarter core adjusted diluted earnings 16% to 91 cents per share, up from 78 cents a year earlier, as grain and intermodal revenue growth outpaced a fuel bill that jumped 61%. The result, released after the close of markets Wednesday for the three months ended Sept. 30, offers rail shippers a picture of a franchise still extracting value from its Canada–Mexico network — with rising costs quietly absorbing part of the gain.

Revenue climbed to C$4.22 billion ($3.01 billion) from $2.61 billion a year earlier, an increase of roughly 62%. Freight volumes, measured in revenue ton-miles, rose 6%. Reported diluted earnings rose a far more modest 3%, to 74 cents from 72 cents, a gap that points to one-off charges beneath the headline growth.

President and CEO Keith Creel said: "CPKC delivered solid results, powered by momentum across our unrivaled North American network, countering macroeconomic headwinds during the quarter." He added: "The railroad is running very well, our service remains strong, and we continue to deliver growth across key markets, including grain, intermodal and merchandise."

Which segments carried the quarter?

Grain was the standout. Grain revenue reached $644 million, up from $500 million — a 29% jump, and nearly $144 million of new business in a single quarter. Intermodal followed, rising to $581 million from $476 million.

Other segments contributed more incremental gains:

• Energy, chemicals and plastics: $544 million, up from $499 million
• Automotive: $266 million, up from $244 million
• Coal: essentially flat at $181 million

That mix matters for shippers: CPKC's growth is concentrated in agricultural and containerized flows along its north-south corridor, while coal — the traditional bulk mainstay — contributed nothing.

Where did the money go?

Operating income rose to $1.06 billion from $955 million, an 11% gain. But expenses grew faster than revenue in several categories. Fuel expense surged to $475 million from $296 million — an increase of $179 million in one year. Compensation and benefits climbed to $507 million from $441 million.

The cost pressure shows in the efficiency metrics. The operating ratio — operating expenses as a percentage of revenue — worsened to 64.8% from 63.5%. The core adjusted operating ratio deteriorated to 61.9% from 60.7%. The company attributed 1.7 percentage points of the reported figure's increase to higher fuel prices, and 1.9 percentage points of the core adjusted figure. Strip out fuel, and the underlying efficiency slippage is modest — but it is still a slippage.

Net income attributable to controlling shareholders edged down to $653 million from $655 million. Reported EPS still rose because the weighted-average diluted share count fell to 877.6 million from 911.4 million — buybacks did the work the income statement could not.

What about the tax and merger items?

Income tax expense increased to $319 million from $211 million. The quarter absorbed a $67 million charge tied to Canadian tax reassessments connected to the 2023 Kansas City Southern acquisition, plus a $12 million expense from a Mexican tax settlement.

CPKC also disclosed $12 million in advisory costs related to its analysis and advocacy around the U.S. Surface Transportation Board's review of the proposed Union Pacific–Norfolk Southern merger. That figure is small; the signal is not. CPKC is spending real money to shape the regulatory terms under which a combined UP-NS network — potentially with broad reciprocal access — would operate.

What does the cash flow show?

Cash generated by operating activities increased to $1.10 billion from $905 million. Capital spending on additions to properties fell to $437 million from $613 million — a $176 million reduction. Meanwhile, the company spent $1.02 billion buying back its own shares, slightly more than its entire operating cash inflow for the quarter.

That combination — lower capex, heavy buybacks, flat net income — invites a caveat alongside Creel's confidence. The CEO said disciplined execution and a "robust commercial pipeline" underpin the company's confidence in meeting its annual commitments. The grain and intermodal numbers support that claim. The fuel line, the tax charges and a deteriorating operating ratio suggest the margin path from here depends heavily on fuel prices cooperating and the Mexican-Canadian volume machine keeping pace.