Canada’s second largest railway is outperforming its peers and expectations despite the pressure that U.S. tariffs have placed on the transportation sector, according to one expert.
Canadian Pacific Kansas City Ltd. (CPKC) reported quarterly results on Wednesday that showed a year-over-year revenue increase, beating earnings per share estimates.
“We continue to like the story here, is the short of it,” Steve Hansen, managing director and equity analyst with Raymond James, told BNN Bloomberg in a Thursday interview.
“They have trimmed guidance off the top line, but they’re still looking for double-digit growth for the year.”
Despite the earnings beat, CPKC cut its yearly financial forecast due to the uncertainty surrounding U.S. President Donald Trump’s trade and tariff policies.
The rail giant says it now expects adjusted diluted earnings per share to increase between 10 and 14 per cent this year, rather than the 12 to 18 per cent previously predicted.
“It’s come down from the high-teens to the low-teens effectively, but with still mid-single-digit traffic growth and so this is a story that continues to deliver on most fronts despite the rhetoric we’re seeing on trade policy,” Hansen said.
“They continue to deliver on their revenue synergies that stem from the merger just a couple years back, so we continue to like it here – strong outlook for the company and the team.”
Canadian Pacific closed its US$31 billion acquisition of Kansas City Southern in 2023, merging the two railways into CPKC. Hansen said the newly combined company is still in the process of integrating the two networks.
“The early, low-hanging fruit have been plucked, but from a revenue synergy standpoint this is going to be a multiyear journey, so we’re probably in the third inning, if you will, we still have a long way to go,” he said.
“The integration between Canada, the U.S. and most importantly the reach down in Mexico is just starting, we’re starting to see a lot of what they call ‘self-help’ projects that they’ve put in place now – new services that were never previously offered – just really starting to get up and running.”
Once the integration is fully complete, Hansen said CPKC will be able to “significantly” improve earnings growth in the coming years.
“We’re already seeing the evidence of that… if you look at the traffic growth we’re seeing today relative to some of their peers, they’re outperforming,” he said.
“And if we think about longer-term opportunities for growth, they had initially targeted just over $1 billion in incremental revenue opportunity in a number of different buckets. We’re already seeing evidence to suggest that estimate will be too low… we do think there’s a long runway here.”
With files from The Canadian Press
