Canadian Pacific Railway Limited Stock

Good afternoon, everyone. My name is Bo, and I will be your conference operator today. At this time, I would like to welcome everyone to CPKC's Third Quarter 2026 Conference Call.

The slides accompanying today's call are available at investor.cpkcr.com. [Operator Instructions]

I would now like to introduce Mr. Chris de Bruyn, Vice President, Capital Markets, Tax and Treasurer. Please go ahead, sir.

Thank you, Bo. Good afternoon, everyone, and thank you for joining us today. Before we begin, I remind you this presentation contains forward-looking information. Actual results may differ. The risks, uncertainties and other factors that could influence actual results are described on Slide 2, in the press release and in the MD&A filed with Canadian and U.S. regulators. This presentation also contains non-GAAP measures outlined on Slide 3.

With me here today is Keith Creel, our President and Chief Executive Officer. Nadeem Velani, our Executive Vice President and Chief Financial Officer; John Brooks, our Executive Vice President and Chief Marketing Officer; and Mark Redd, our Executive Vice President and Chief Operating Officer. The formal remarks will be followed by Q&A. In the interest of time, we would appreciate if you limit your questions to one.

It is now my pleasure to introduce our President and CEO, Mr. Keith Creel.

Thanks, Chris, and good afternoon, ladies and gentlemen. Thank you for joining us on the call today. First and foremost, I want to extend. I felt thank you to our 20,000 strong family of railroaders across the 3 countries that produce the results our team [indiscernible] we're discussing today. We're extremely proud of what this team has delivered during this quarter, handling strong growth. bringing the railroad extremely well and continuing to create opportunities across this very unique network.

Looking at the quarter on the results side, we delivered third quarter revenues of $4.2 billion, volume growth of 6% and an operating ratio of 61.9% that generated 16% adjusted EPS growth. Against a pretty dynamic backdrop. I'm pleased with what the team has delivered. We handled 6% more volume while continuing to improve the performance of the railroad. And more importantly, there is so much more opportunity in front of us. On the car velocity, train velocity, fuel efficiency terminal fluid all showed strong improvement year-over-year in operations. And this credit belongs to Mark, the senior team and the roads across our network executing our plan every day.

Nick Walker, Greg Squires, Jason Ross, Brad Robertson Braden Ted, Tom Ragone continue to provide strong leadership, and I'll tell you we're fortunate to have a deep experience and talented bench of operating leaders across this network. We've invested ahead of growth. We've got the people, the locomotives and the infrastructure aligned with our demand. We're prepared to grow, and we're becoming better rail orders each and every day. Operational excellence is a journey, it's not a destination. There's more opportunity to be mined and rest assured, I'm confident this team will continue to find it.

On the commercial side, John and his team continued to convert the reach and the opportunities this network creates in new markets, new products and profitable sustainable growth during the quarter. We established all-time volume records in domestic intermodal, international intermodal and U.S. grains. These outcomes reflect strong service discipline in the market and the unique options this network creates for our customers.

We also announced a meaningful expansion of our relationship with Elk Valley resources to move their product from the mines that we serve in Southeastern British Columbia to Vancouver for global export. This expanded agreement reduces complexity, strengthens Indian supply chain and position CPKC and EBR to grow together for years to come.

Our Canada, Mexico Landbridge is another powerful proof point, which continues to generate value in the face of uncertainty. 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. And this is not growth we inherited. It's growth that we created, taken a challenge and turning that challenge into an opportunity, creating new markets enabled by this unique North American network.

And importantly, we delivered 6% volume growth despite headwinds across certain markets during the quarter. That tells you something about the quality and the diversity of our growth opportunities as we remain well on track for another year of mid-single-digit volume growth. It also speaks to the alignment between our operating and commercial teams. The operating team delivers the service. The commercial team takes the service to the marketplace and creates opportunities. They've been doing it consistently since we brought these 2 networks together over 3.5 years ago.

So the bottom line, when you combine industry-leading operations, the unique network built for growth and a hungry disciplined commercial team, you create a very compelling outcome. So let me leave you with this. The larger message has not changed. We have a railroad that's running extremely well, a differentiated network, a deep pipeline of growth opportunities that are in front of us. I'm proud of what the team has delivered in this quarter, but rest assured, we are not satisfied. We know there's more work to do and more importantly, opportunity to capture. The team will remain focused on execution taking care of our customers, converting these opportunities into profitable sustainable growth.

And with that, I'll turn it over to Mark to walk through the operation, John to give you some color on the markets, and they deem will close it up before our questions elaborating on those numbers. So over to you, Mark.

Yes. So thank you, Keith, and good afternoon. I want to begin by thanking our railroaders for another strong quarter of execution. Our network is running very well in delivering reliable service for our customers while supporting continued growth across the business. We saw strong improvement across several of our operating metrics, train speed improved 8%, dwell improved 7%, car miles per car day increased 10%, locomotive productivity up 4% and fuel efficiency improved 3%. These results demonstrate the strength of our PSR operating model.

Review of the safety results. Our personal injury frequency was 1.12, which is 20% higher than last year. Our train accident improved 60% to 0.46. Where we are pleased with the train accident result, the increase of the person enters does not meet our standard. Safety is a never-ending journey. We will learn from every incident, reduce the fundamentals -- reinforce the fundamentals, stay focused on what matters most. Every railroad are going home safe at each and every ship.

Turning to labor. In the U.S., we reached agreements that bring employees from several separate agreements under our Mid-South agreement to simplifies how we operate provides greater flexibility helps us run a more consistent, reliable service for our customers. I'm also pleased to announce that we have 2 new collective agreements with BLET Smart have been ratified on the DMA and [indiscernible] properties. In Canada, CPKC and the IBEW agreed to binding arbitration, ending the strike involving approximately 300 signal and communication employees.

Turning to capital. We continue to make disciplined investments in safety, growth and efficiency. We have received 170 of the Tier 4 locomotives from Wabtec. We're starting -- beginning to receive 35 more from Progress Rail. In total, we expect to bring on 300 new locomotives through 2028. We're already seeing benefits in these investments. The newer locomotives have contributed to more than 35% reduction in our service interruptions on our 100 Series trains in Canada, a 10% reduction in interruptions in our Western Canadian fleet, while improving fuel efficiency on both services.

We are strengthening the tools of our service design team using the plan and uses the plan and operate the railroad. We recently moved into the new planning platform that gives the team near real-time visibility in the traffic and network conditions, along with the greater control of the data and the models used to build the operating plan. This in-house tool replaces a legacy third-party application. Visibility allows us to evaluate operating scenarios faster, responding to changing traffic patterns sooner refine the plan as conditions change. This is what disciplined PSR execution looks like, better information, quicker decisions and even more tighter alignment between the operating plan, our resources and customer demand.

In closing, Brotheway, the railroad is continuing to execute across the network. This railroad is running well. We're beginning -- we're building on that strong foundation with disciplined investments in our people, capacity, equipment and technology. Together with our PSR model, these investments are improving reliability, creating capacity, positioning us to safely handle Johns and then his team's growth. We're never satisfied when we keep controlling what we can control, keep our foot on the gas and continue making this railroad better every day.

With that, I'll turn it to John.

All right. Thank you, Mark, and good afternoon. The CPKC team in this unique network produced another record quarter driven by strong operating and commercial execution. We delivered record Q3 freight revenues and RTMs, up 15% and 6%, respectively. Cents per RTM increased 9%, reflecting sustained pricing strength and higher fuel surcharge revenue. Our capacity and reliable service support new business initiatives and share gains, while disciplined pricing remains a core focus.

Moving on to the next slide, I want to highlight the consistency of our industry-leading growth. We have delivered consistent RTM growth across our 3 nation network with year-to-date Q3 volumes ex coal, up 17% since the merger. That performance, despite a tough macro backdrop is driven by disciplined commercial execution, self-help initiatives and strategic share gains and our strong service product, network validity and available capacity provide the foundation for this growth.

Now taking a closer look at our third quarter revenue performance. I'll speak to the FX adjusted results. Starting with bulk. Q3 was another record quarter for Green with record revenue, RTMs and carloads. Revenue increased 27% on 23% volume growth. Canadian grain volumes increased 35%, driven by a high carryout of stocks following the record harvest, growth into our Mexico market and strong Vancouver exports. U.S. grain volumes increased 13%, driven by strong corn demand in the Mexico and exports through P&W. Now looking ahead, we expect continued grain volume growth through the end of the year and into early 2027, supported by healthy supply and demand fundamentals, combined with our diverse market reach.

We are also very encouraged by new crush production coming online in both Canada and the U.S., including our new contract with LDC at Yorkton. Potash revenues were up 8%, on a 7% decline in volume with performance reflecting the impact of Canpotex's Portland terminal maintenance during the quarter. Now looking ahead, export demand fundamentals remain healthy and Portland's maintenance is now completed. We expect a return to solid growth for the remainder of the year.

To round out bulk, coal revenue declined 1% and 11% reduction in volume. The decrease continued to reflect production-related challenges at the mines. However, as expected, this volume headwind is continuing to moderate. And more importantly, as Keith mentioned, I'm very excited about our new 5-year contract with EVR. This agreement establishes a strategic long-term partnership for CPKC and EVR, resetting to what good service looks like for our Canadian coal franchise.

Now moving on to merchandise. Energy, Chemicals and Plastics revenue increased 9% on flat RTMs. Higher energy prices have shifted some of our commodity flows into shorter-haul domestic and export market, creating a headwind versus our expectations on the quarter. As energy prices moderate over time, we expect those trade flows to normalize. At the same time, I can tell you this team remains laser-focused on controlling what we can control and that's winning new business and pursuing self-help opportunities that only set us up well as we go to 2027.

Forest Products revenue increased 9% on a 2% volume growth. We delivered solid and resilient growth in this space, despite softness in housing and cross-border tariffs. Our focus on industrial development opportunity supports growth against the softer macro backdrop.

The Metals, Minerals and Consumer Products area revenue increased 13% on 8% volume growth. We continue to deliver growth and record quarterly volumes in steel, aluminum and metal, supported by good demand from industrial production and construction activity.

Moving to the automotive area. Revenue increased 5% on a 5% volume decline. While the quarter was significantly impacted by plant retooling and production holds, we remain confident in the long-term growth outlook for our automotive franchise. We have line of sight to return volume growth for the fourth quarter and into 2027, supported by share opportunities and the conversion of short sea traffic to rail.

Now closing with Intermodal, revenue increased 21% on a 10% volume growth and all-time record performance. Domestic intermodal volumes increased 7% in the quarter. Growth was supported by strong performance across our Canadian domestic lanes, along with continued strength in our U.S. lanes and Mexico cross-border service. Our SMX product with CSX continues to build momentum with volumes up 30% sequentially. Our service reliability on both our MMX and SMX intermodal products position us well to continue to build trust with our customers and capitalize on favorable truck-to-rail conversion opportunities.

In International Intermodal, volumes increased 11%, driven by continued strength in shipments from the Port of Vancouver for Gemini and also CMA. Our capacity at both the port and the inland terminals support reliable service and sustainable profitable growth. We are particularly excited about the recent federal funding announcement for the Port of St. John, including significant investments in the port, water access, warehousing and rail efficiency. This nearly $500 million investment will unlock capacity to handle up to 1 million TEUs capacity and support growth for this premier gateway for years to come.

So to close, the growth we are delivering is differentiated and sustainable. It is supported by strong service, disciplined pricing and an expanding pipeline of self-help opportunities that are unlocked by this unique network. We are well positioned for a strong finish to the year, and I remain confident in our ability to carry this momentum into 2027 and beyond.

So with that, I'll pass it over to Nadeem.

Okay. Great. Thanks, John, and good afternoon. I'm pleased with the solid results the team delivered this quarter. 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.

Now turning to our third quarter on Slide 15. CPKC's reported operating ratio was 64.8%. Our core adjusted OR was 61.9%, up 120 basis points from last year. Diluted earnings per share was $1.04, and core adjusted diluted EPS was $1.28, up 16% versus last year.

Taking a closer look at our expenses on Slide 16, I will speak to the year-over-year variances on an FX-adjusted basis. For adjusted comp and benefits expense was $708 million. The year-over-year increase was driven by higher stock-based and incentive compensation, wage inflation and volume-related expense. These increases were partially offset by strong productivity gains, including lower overtime and workforce efficiencies. Looking ahead, we now expect full year head count to be down slightly. This, combined with mid-single-digit volume growth continues to drive strong labor productivity and operating leverage.

Fuel expense was up 56% year-over-year, driven by a 53% increase in average fuel price as well as higher volumes. The change in fuel price was 90 basis point headwind to core adjusted OR in the quarter, while providing a modest benefit to earnings. Our continued focus on fuel efficiency supported by our locomotive investments drove a 3% improvement in the quarter and generated $21 million in savings.

Materials expense was up 12% year-over-year, driven primarily by higher fuel prices on our non-locomotive fleet. Lower locomotive material costs partially offset the increase. Equipment rents were 9% lower versus prior year as improved networking performance and cycle times more than offset the impact of increased volumes. Depreciation and amortization expense was up 4%, driven by a larger asset base.

Core adjusted PS&O expense was $568 million. The year-over-year increase reflected inflation, volume growth and other operating costs, partially offset by lower casualty costs and productivity gains, including lower crew and terminal costs.

Overall, I'm pleased with the operating leverage we delivered in the quarter. Volume growth, disciplined pricing and continued productivity improvements drove double-digit earnings growth despite higher fuel prices, creating pressure on the operating ratio.

Moving below the line on Slide 17. Net interest expense was $239 million or $235 million excluding purchase accounting. The increase was driven primarily by interest on new debt, partially offset by debt repayment. Income tax expense was $448 million or $369 million adjusted for purchase accounting and significant items. We continue to expect the full year core adjusted effective tax rate of approximately 24.75%.

Now turning to Slide 18 and cash flow. Our earnings growth continues to translate into strong cash generation. Year-to-date, net cash provided by operating activities is up 12%, while adjusted free cash flow increased 59% to $2.4 billion. Year-to-date capital expenditures were $2 billion, down 12% from last year, and we remain on track to deliver full year CapEx of approximately $2.65 billion, a 15% reduction versus last year.

Our targeted investments over the last several years in network capacity and locomotives are delivering tangible benefits as demonstrated by our operating productivity and fuel efficiency performance. Through the first 3 quarters of the year, our disciplined approach to capital management delivered over $4 billion of shareholder returns through share repurchases and dividends, reflecting a balance and opportunistic allocation of capital.

Stepping back, I'm pleased with the overall performance in this quarter. We delivered strong earnings growth and cash generation while continuing to improve productivity across the business. As we move into the fourth quarter, we remain focused on execution, and we are very well positioned to deliver on our full year guidance.

With that, let me turn it back over to Keith.

Okay. Thank you, gentlemen. Operator, if you can, let's open it up for questions.

[Operator Instructions] We'll go first this afternoon to Steve Hansen with Raymond James.

Keith, I'm hoping you can provide a little more color on this New Elk Valley agreement, your additional or higher share of the haulage. And just what kind of growth you might contemplate through the new term? It does sound like service and the root simplicity played a role here. Curious if the investment announcement in the Neptun also play a role recently.

Yes, thanks, Steve, thank you for the question. Just in context, if you go back to the last contract, I guess, with our competitor, Canadian National. Historically, before that contract, CP originates 100% of this coal and terminated 100% of the coal kind of from the mine to the Tidewater. Now to step or to the North Shore, CNX is our agent as they do for potash that they do for grain.

Well, this last contract and back then, I guess, it would have been tech coal, introduced an interchange at Kamloops, which you have 100% of the traffic we originate that some interchange to CN at Canadian National to go to those same locations at Topwater in Vancouver. And I think we all understand every time you introduce a handoff and/or interchange you create complexity and an opportunity for introducing supply chain cost indoor, compromising reliability. And I would suggest, over the period of that contract, that has happened in small or large part to a point that in our negotiations, that became a topical point.

So what's happening now is about half of the traffic that today and our changes to our competitor at Kamloops to go to the North Shore of Vancouver will be reclaimed back to CP origin to destination and the interchange can lots would be eliminated for that traffic. So about 1.5 trains will flip back to CPs route cradle to Gray.

We'll go next now to you, Brian Ossenbeck with JPMorgan.

Maybe just a big picture question for John. Just how you're thinking about the pricing opportunity going forward and balancing that with volume growth and of course, network resources. I would assume there's some inflation you're expecting to cover, but in terms of just the broader truckload market and all the support that we would see from the market itself. Should we expect something a little bit better than usual when we think about just kind of the run rate, maybe the mid-single digits? And of course, probably an impact from the Canadian green being lagged with the fuel surcharge. So I would appreciate some comments on that.

Yes. So Brian, you know what, I'm bullish on the pricing outlook. We've got it's been a pretty good run. And I think you've seen our commercial team be extremely disciplined in the marketplace. That's not going to change. I'd just be candid. Renewals continue to be that 3% to 4% or even more in some cases. So I don't see that changing. We're going to stay aggressive on that front.

Obviously, fuel surcharge where it's at in the marketplace. Canada has introduced another dynamic that we're keeping an eye on and making sure that we're competing in the markets like we need to be. But I continue to have a pretty favorable outlook to close out this year. Most of our book is already pretty much renewed. But I got a favorable outlook as we look into the beginning of 2027.

We'll go next now to Fadi Chamoun with BMO Capital Markets.

Yes. You talked about the deep pipeline and growth going forward. I was hoping you can elaborate on kind of what verticals, what do you see share with us some thoughts on where these opportunities are as you go kind of over the next 12, 24 months? And any kind of high-level idea on how to think about RTM growth in 2027 given kind of the pipeline and now you have a bit of a visibility into the grain and the cold story, I guess, for mid to next year from an LTM growth next year?

I don't think they're going to let me quite guide to '27 yet, but I will give you some color. Certainly, we've had a really good bulk year this year. So those compares are going to be tougher as you look at 2027. But I'll tell you, I'm still pretty bullish that we have not run out all the opportunity specific to this green franchise, we continue to uncover more and more opportunities into the southern part of our network and growth in New Mexico and driving efficiency there.

So despite what I do see is tougher comps in that space, I'm convinced we have some upside in there. This crush market and the development of that business, not only in Canada, but also in the U.S. has been pretty good. It really diversifies our grain business. And those crushers got to crush 365 days a year. They're a production facility. So that's really good business. And I think that's an area that you should look to as some upside.

Keith mentioned the land bridge earlier. There's -- I spent here in the last few weeks in Mexico meeting with customers and that that area only continues to build momentum. And that's just -- that's both carload type business and steel products and pay products, but it's intermodal opportunities in that, too. So I expect to build on that land bridge.

I would suggest to you that we're also in the early innings of this domestic intermodal story. I remain bullish on our team's ability to convert truck opportunities. I've talked about, we've got a hunter group in Mexico that is keenly focused on uncovering those opportunities and converting new customers. And we're working closely with CSX on our SMX product that only provides further upside. And we posted really good international numbers this year on some wins. But between the opportunity and the investment that's going to go in at St. John, there's a lot of upside there. And we continue to see -- albeit singles and doubles, we continue to see growth at Lazaro. And who knows, as you see the canal has had some challenges here on water levels, you could have a potential West Coast U.S. strike with the long shoreman in 2027. We continue to be pretty bullish on Lazaro also in terms of growth. So that's a few nuggets that are out there, let alone some of the other things that we have come down the pipeline.

Yes, John, if I could add that point about the strike in the West Coast. I think we all understand the complexity of how that might develop. And that's true now that wasn't true the last time is we have [indiscernible] Lazaro into the Houston markets and into the Midwest that shippers did not have a chance or an opportunity to diversify their risk relative to that strike. And I would suggest that will be part of the playbook. And once you get some of that traffic on your railroad, the experience, the service, the experience reliability. It may not all stick, but from a diversification play, we realized our experience to [indiscernible]. And I think that bodes well to our growth aspiration.

And one comment I'd make is just also just staying in front of John on capacity. I know we are lockstep with different things that he's doing businesses bringing on this railroad, and we certainly got locomotives in place resources in place for crews and certainly better agreements that I spoke about that we can move people around and around the southern part of the U.S. Shreveport area, for sure.

We'll go next now to Jonathan Chappell with Evercore ISI.

John, I know they won't let you talk about the '27 RTMs. But maybe as it relates to the fourth quarter, you're running at about 5.5%. You spoke about a lot of favorable things in your favor right now from auto to potash, et cetera. And then you also should still have some carry out, I would think, from the grain side. So how do you think about momentum for the rest of the quarter, given some of those things that seem to be shifting potentially from headwinds to tailwinds?

Yes. Jonathan, it's gap on. We're going to push it as hard as we can. And I think the -- look, the markets are not perfect. There's ups and downs. We've got some headaches that are out there, but we're going to push it hard. And to your point, as I think about the bulk area today to close out the year, I think it looks pretty good. Domestic Intermodal, our international business, I think, looks pretty good. We've had a little bit of a rough go in the automotive sector here. But we also had the chip issues in that in November, December last year, those compares will turn for us in those months.

And I'm super proud of my merchandise team. That's an area that has just been strapped with tariffs and issues and ups and downs. And we -- you've seen in the numbers, we've continued to battle in forest products and in the merchandise sector, to post some pretty good numbers there. So I'm not going to give you a number, but I'm optimistic that we can close pretty strong.

We're going to go now to Ken Hoexter with Bank of America.

Great. Maybe I know you've talked a lot about maybe capturing some of the good grain crop or, I guess, continuing it, but I don't think we got your expectation for next year in terms of -- do you expect it to be down 5%, 10% and given the crop or do you make that up? And then maybe just your thoughts on capacity. You talked about buying locomotives and getting them on board. Where do you feel like you are in terms of this mid to upper single digit RTM growth in terms of your ability to sustain that? Or should we expect a rise in CapEx in the '27?

Ken, I'll let John address the commercial question. When it comes to capacity, I'll just remind everyone, we made a commitment with our transaction to build out this network to handle high single-digit RTM growth. We haven't experienced that yet, but we've invested the capital, the infrastructure is there. We've got the locomotives. We've got the cars. We've got the terminal and the track capacity. We've got a new bridge. We're built forward for growth. There will be no issues without adjusting our capital envelope.

Yes, Ken. I mean we're going to finish the year, as I mentioned, $2.65 billion this year. You might get a modest increase off of that given where the Canadian dollar is, but good side of that, we've guided long term $2.6 billion to $2.8 billion range of CapEx. So you should expect that range.

Yes, Ken, it's no doubt, this is -- we're coming off a record crop. I think the numbers are bouncing around still a little bit. It feels like it's narrowing in on the 76 million to 78 million metric ton area. So would that be down, I don't know, about 8% or so. But -- that being said, I know there's some growing territory in Southern Alberta and Southern Saskatchewan that historically, we've had struggled over the last few years in terms of drought in that, that are actually producing much better results this year.

So we're optimistic actually in our growing territory that we in some areas, we might actually be a little ahead of last year. So we'll see what that all produces as we go into the next year. I would say, so far, the customers are signaling sold out demand pretty much through the end of this year. And I think the early outlook in Q1 is they remain fairly bullish. So we'll see how that plays out.

We'll go next now to Walter Spracklin with RBC Capital Markets.

Yes. I just wanted to come back to your [ Elk Valley] Resources agreement there and congratulations on that. The question I have really for how we model that now with all the moving parts that we saw this year with the outage at the mine level, and now you're recapturing half of what you lost to CN before. It just makes it really difficult to look out to next year and put a number on what we should look at next year. I know that if we just go back to last year's numbers, you're up, that brings you up 15%, 20%. But now layer on this business, are we looking north of -- are we getting in that 20% range for what you could be up year-over-year in the coal set? Just any kind of given the moving parts there, I really appreciate any guidance you can provide on that particular vertical.

Yes. So Walter, it's a tricky one. There is a lot of moving parts there. I think Elk Valley has been pretty transparent around some of the challenges at the mines. That being said, the performance certainly has been much better, and we're watching it closely as we move through Q4 here. I think if you look at year-over-year, their volumes overall are probably going to end up 15% plus down in terms of tonnage. And oil, it's kind of early in terms of what -- when we have a better handle on what 2027 looks like in terms of their total tonnage output, that will give us a better look.

I apologize for skating around it a little bit. But we're -- it's still -- the crystal ball is still a little cloudy on our side. I think the bottom line is we feel really good about where we stand with them in terms of this additional train trains to Neptune. In addition, as you've seen, they've signed a long-term agreement with Westshore, which is right in our wheelhouse, too, and we expect some good growth there. So the combination of the 2, we just got to get nailed down exactly what this tonnage is going to look like for next year.

We'll go next now to Chris Wetherbee with Wells Fargo.

I thought Slide 10 was helpful in terms of putting some perspective on what you guys have been able to accomplish since you closed the deal a few years ago. I guess as you think about where you stand now and the opportunities sort of in front of you, I know it's been a challenging sort of maybe a more challenging macro than you might have expected when you closed the deal, you guys have obviously executed well through this. So do we still think about sort of a 2 to 3-point sort of revenue premium or volume premium for the deal? I don't know if we can talk a little bit about that. And I know the farther we get away from it, the more difficult it is probably to pull these 2 apart. But any big picture perspective, Keith or John, on how you guys are thinking about that as we look out to '27-'28?

I can tell you the expectation in the room is, yes, we're going to beat by 1 to 2 points consistently. And honestly, as much as I'm proud of our success in what we've been able to produce. You said it. It's been in the face of a pretty tough macro environment. And who knows. I've stopped guessing on when that may turn or turn or not turn. But at some point, things will get favorable. I think that gives us a tailwind. And you can rest assured, Chris, that I think you know we're going to continue to push hard. And there's a lot of opportunities that I mentioned earlier that I still think produce or have the opportunity to produce for the next few years sort of an outweighted RTM performance against the industry and peers.

We'll go next now to Benoit Poirier at Desjardins.

Yes. Just in terms of nation building project, we've seen quite a lot of positive news flow going forward in terms of energy and mining. We also saw a latest announcement from the Strike Kona resources on crude by rail. So I was just wondering if you could provide maybe John or Keith, an update how we -- you see energy performing going forward? And if you would be able to quantify any potential upside from those nation building projects longer term for CPKC?

Yes, Benoit, as I think about some of those projects, obviously, we're tightly working with major projects office on a number of opportunities that are out there. I think there's pretty good alignment in terms of what some redevelopment could look like in Vancouver and particularly the South Shore as it relates to energy. I think it's a little early to tell. You can probably guess what some of those projects might be.

But I think it's a little early to tell on how that plays out. I'll tell you, I mentioned it earlier, and maybe it doesn't fit directly in the energy sector. We're super excited about basically the first project coming out of the trade diversification Corridor fund being all centered on St. John. I think it's a testament to that acquisition that we made a few years back to the short line. It's a testament to the earnings belief in that opportunity in the port in DP World and Haag and Marisa CMA and those steamship lines that have supported that port. I can tell you, it's it's a big part of our growth profile as we looked at, let's say, 2027 to 2030.

We'll go next now to Brandon Oglenski at Barclays.

I apologize in event, everyone on the call because I'm going to be that guy and ask about M&A, Keith, because I think you have filed your responsive requests last month. And obviously, your competitors did that as well. And I know you think this should be rejected on the merits, but can you speak to what was in those requests? And then maybe more specifically on the comments that we heard from closer as well?

Thanks for the question, Brandon. First, let me say this. CPKC in our initial filing, and you'll see in our subsequent filing, November 18, we're not asking Santa Claus to visit us on Christmas. I can tell you that. We're being very strategic. We're being very pinpointed. We're being very surgical asking for, number one, complete rejection. We don't want a condition. We don't want to concession. We don't think it's needed. We don't think UP needs it. We don't think [indiscernible] needs it in spite of this narrative that the nation needs it to create something that represents that much risk, that much market power forever is completely unneeded in the necessary. Not now and I'd say not ever.

That being said, if the STB finds a way to approving their deal, and I think you clearly understand, I don't believe the fact lead to a yes. That being said, what you're going to see in our filing, again, not a Santa Claus list, but protections over gateways that are meaningful that to this point, the applicants, if not offered. Shipper access to protect competitive alternatives to mitigate the market power that's something is colossal as UPNS would create from perhaps an industry like chemical, they would be very, very concerned about that, removing restrictions on remaining independent railroads that hamper their ability to provide competition to UPNS as well, paper barriers, et cetera, et cetera.

So again, not a Christmas list, a reality list. We think this whole thing, if you want to talk about Christmas, maybe it looks like a back of coal, this isn't anyone trying to get a get. And since you've asked the question, I think I might as well address and I'm trying to -- and you're probably going to say, I don't believe you, bite my tongue. But quite frankly, the representations that continue to be made in support of UP's ambitions need to be dispelled. There's been quite a few references, and I would say absolutely based on fact, misrepresentations of truth.

One, I'll start with is a analogy about if it's good for Canada, it's good for the United States. They've got 2 transcons up there, watch it. We have one in the United States. And I think maybe to quote one of the commenters, one of them doesn't like us to have the same thing here. Well, let's talk about what the same thing is. Scale and size matters, whether you want to admit it or not. In Canada, you put the 2 railroads together, there's 21,000 route miles. If you look at UP's network alone, it's almost double that. You put the 2 networks together, 2.5x that. If you think about the population, think about how capital intensive it is to run a railroad, to maintain a railroad. In Canada, and I think Jim knows this because you came from Canada, there's about 40 million people today, an economy that's set and supports 40 million people.

The United States, $350 million Scale matters, California 39 million. So why don't we take that argument to California, I would say you could probably support 2 Class 1 railroads in California. Guess what, there is 2 Class 1 railways in California. So size and scale matters. And then the other very, very critical component. And I would suggest that UP would not want the same. I'm not going to speak for them. I'm just going to assume they wouldn't. And that comes to the regulatory regime that we exist and operate in, in Canada in a world where you have 2 railroads. That connected all the major metropolises across the country.

There's something called zone switching, zone interswitching with the prescribed noncapensatory zone switch rate that's clear and transparent to every customer. And if they don't like your rate from point A to point B, they can exercise its own switch and have complete transparency to what the rates are and how they can compete and create their best outcome from a customer's point of view. That doesn't exist in the regulatory regime with the.

To get into a rate case where the STB takes a prolonged period of time, takes a lot of money. And quite often, a lot of customers have said, it's not worth what it requires to try to get that outcome. In Canada, FOA you get a decision in 60 days. It's pretty quick, it's pretty swift and it's not consequential when it comes to the money that's on the table, the money that you have to pay to get the outcome that you believe is worth fighting for. That's critically important. You can't ignore that. But to say it's the same, it's not the same. It's completely, completely different.

I think some of the other points that are completely different. If you think about the 2 railroads, you think about their aspirations, let's get to this comment about Union Support. 50% of the Union Support, the merger, maybe 50% of the shingles or 50% of the organizations, I haven't gone back and fact check that. But I know for a fact that if you get to the boating udon members, Between those 2 railroads, almost 70% diametrically opposed. That's a misrepresentation. It's simply not true.

Now let's talk about this end to end. Well, you know what, CPKC, they're in to end, the SCB looked at their deal, they offered zero concessions, they were zero for them, they're zero for us. Again, I go back to scale and market power. We were the 2 smallest railroads coming together to still remain the smallest rail network in Class 1 rail network in North America. We haven't created any concentrated market power. And when it comes to enhancing competition, even to the new rules, we were truly end-to-end. There were zero overlap. We didn't need anyone to come in to solve an overlap problem. We were hand to go up in Kansas City. We were additive to customer options, not dilutive in any way. So it's not to the same. But the misrepresented is if it is, I think it's insulting. It's just not true.

The single line service point, that's one where I agree. I'm an advocate. I said this from the beginning. There are definite benefits of single-line service and eliminating handoffs. I just spoke of one a few minutes ago that can lose. But it can't be at all cost. And contrary to some of the representations, not all shippers have 10,000 cars that when you benefit through single-line service in terms of those assets and allow them to reduce their capital cost, yes, that's true. But what about the smaller shippers that are out there in the world, which far outnumber those 10,000 car shippers that own those assets.

So again, single-line benefit is true. I'm an advocate for it, but not at all cost. Not if you create something so large with so much scale and reach that creates so much market power that it takes customer options away. So again, I think the truth matters. And I think making proper representations matter. And I think in the end, this regulatory body, from my experience, wants to hear the truth. And that's the final point I'm going to make.

This process in and of itself, to me, has been compromised, but the way these advocates have behaved. We've heard about it, rumor injection, secondhand comments about being said, if you're not forced, you're against us, don't be at the wrong side of the history. Remember, [indiscernible] purchase, don't side with the losers. I got a whole list because guess what, my phone rings and people tell me when they get Brent customers share that. And then I read a letter using other railroads of being the ones that threat. And we're not corollat's like calling the kettle black. Let's be honest about this.

And that's what this dispute is that you've read about last week that the judge rule on Friday that this video that the applicants have set as proprietary and confidential and has trade secrets or whatever the representations were that was recorded at a worst conference with over 900 participants. Number one, really. And number two, just share what was said, let people make their own opinions about whether or not they were or not trend if they weren't in support of this transaction, that should it not get approved just because they didn't support the rates are getting rate to teach them a lesson. So that's why we want the video to be public. It's not confidential. It was said in a public domain, and I believe it was said with intent to chill the room.

I'm kidding, but not kidding. And to me, in the context of a merger that will change the landscape of this industry forever and put this country an undeniable risk from an operational standpoint in a market power standpoint, this isn't a place to be kidding. Some of these customers that I guarantee you the STB wants to understand their concerns, the fors and the against. That's their livelihood. So to suggest you're kidding in a venue like that, I don't think you just weigh that off and ignore that. At a minimum, it's reckless and its irresponsible. And it's wrong. That's akin to me. We'd like to make, the applicants I'd like to make a lot of airline representations in their analogy of why this merger is necessary.

So let's go to the airline industry. What if any of us were to go into an airport and made a joke and said, there's a bomb. I think that would be shocking. And once the dust has settled, even if we said we were kidding before they took us away and hank us and put us in jail, rest assured there's no way that you can assure that someone, what are those customers feel comfortable getting on that plane or getting on that train. How do you then crack that in? I don't know how you do. I really don't. So to me, this process is compromised.

And again, the STB, ultimately, they're the regulator, they're the ones that have to make the decision, but I believe that the applicants have put them in a quandary. How will they ever know they're about to make a forever decision that all the 4s and against have been properly represented. And when there has been a chill rest assured people out there, there are customers out there, and I know there's at least 1 or 2 that's spoken directly to me, and I would suggest there's a whole lot more than that, that have not had the courage to speak nor will they speak because they're afraid the mortality it against.

So again, not a joking matter, I believe the STB has been backed into a corner. I think the applicants have placed them at a quandary. So I'm not 99.999 certain of what they might decide, but I'm 100% certain. They've got a top road ahead of them to try to assess facts an application that I would argue is incomplete because of the applicant's behavior.

We'll go next now to Scott Group with Wolfe Research.

I guess after that, maybe I'll do a near-term ratio question. any thoughts or color on how to think about margin in Q4? And then just one more on tech, if I can. Like if our notes are right from 5 or 6 years ago, this was like a ballpark like $100 million, $150 million revenue loss for you? Like is that the right way to think about getting about half of that back? Is that fair?

Yes, that's a fair ballpark Scott, obviously, depending on what VR's volume is for next year, that's going to have a play a role, but you're in the ballpark. And I appreciate the OR question, Scott, first time I appreciate it. But I'd say that we -- when you think about Q4 last year, it was a different environment as far as fuel prices and so forth. So we'll have a bit of a headwind year-over-year with fuel.

But the way volumes are -- started out, October as being extremely strong. So if we saw fuel prices hurt us a little bit, just as far as the timing of fuel surcharge and also some crack spread pricing that impacted fuel prices. I'm sure your models fuel price impact on us a little bit less than our results came in. So I think that's where there's been a bit of a gap. Now if things turn and we start seeing diesel prices, spot prices improve. Certainly, we'll see a benefit of it -- from it. The bottom line is you'll very comfortable, we'll have a sub-60 OR in Q4 given the volume environment given Mark mentioned how the network is running. We should have a decent weather environment in north of the border in Q4. So far, it's been good. And so that always plays a role, but I feel very good about our ability to have -- finish the year strong and have a sub-60 OR.

We'll go next now to Konark Gupta with Scotiabank.

Just can you frame expectations around sensor as it relates to the fuel impact. And then broadly, for you, John, maybe similarly, are you seeing any dislocations in your price-sensitive markets due to fuel or fuel driven inflation?

Konark, just so I understand, saying sensitive markets relative to the somewhat extreme fuel surcharge inflation that we're seeing.

Yes. I mean, you completed [indiscernible] in some more kits and also there is some price sensitivity in some pockets in your end markets.

Yes. Yes. No. I think I mentioned it earlier. We are seeing it in certain areas and whether it just be different in mechanisms across the rail industry as a whole, different in how mechanisms roll on, roll off against our truck competitors and frankly, all modes of transportation. It is a pretty significant piece of revenue that's on there right now.

And frankly, I'll tell you, customers are looking month-to-month, I think in some instances, on how to shift and how to manage that or looking at other market alternatives in terms of how to -- they might be able to get goods. So I do believe that is a real issue that I think we're all facing right now as we as we manage some of these markets.

Konark, I assume year-over-year sense for RTM kind of high single-digit increase year-over-year. So RTMs as yesterday, are up a little over 6%, high single-digit part improvement year-over-year, you get pretty significant revenue growth. That's how we're tracking so far.

And ladies and gentlemen, that's all the time we have for questions this afternoon. Mr. Creel, I'd like to turn things back to you, sir, for any closing comments.

Okay. Once again, thanks for your time this afternoon. I hope you take away from this call that this company is enjoying some strong operating momentum, Mark. Thank you the team for that. As long as we continue to operate safely and efficiently against this backdrop of overall favorable demand environment, you can expect us to close this year strong and carry that momentum into 2027.

We look forward to talking to you and sharing our results on the next call. Happy holidays, Happy Thanksgiving and Merry Christmas for our U.S. colleagues. Elise Navidad for our Mexican colleagues. Merry Christmas, of course, for our Canadian as well. Thank you.

Thank you very much, Mr. Creel. Again, ladies and gentlemen, this brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Let's round out the transportation track at the 14th Annual Laguna Conference by welcoming back on stage CPKC with President and CEO, Keith Creel; and Vice President of Capital Markets, Tax and Treasury, Chris de Bruyn. Gentlemen, thank you so much for coming back to Laguna.

Always a pleasure.

Keith, so much going on from the cycle to M&A, to regulations and kind of obviously, your plate remains pretty full. Wherever you want to start off, again, just give us a sense of where you're spending your time today, kind of what you're focused on and kind of where you think the top priorities are for the company?

Okay. Thanks again for having us. It's always a pleasure to talk about our story. Kind of thinking about the year, the way it's playing out, a lot of things I could not have predicted. Obviously, there's no shortage of challenges, but the things that we could, we kind of put the pain at the beginning of the year. Guiding to mid-single-digit RTM growth, which will allow us to produce a low double-digit earnings CAGR. So in spite of all the challenges, as this thing has played out, I'm very pleased with where we are. We came out of the first half in the momentum, operating strength as well as commercial strength in the second half. RTMs were about 4% year-to-date. Quarter-to-date, we're knocking on 7%. So we continue to gain a little bit of momentum. Operationally, the railroad is running extremely, extremely well. Continued growth in strength in grain, strength in intermodal, moderating headwinds in some of our coal challenges.

That 4% I talked about, if not for coal, if it were normalized at 6% RTM growth. So again, as those 2 things start to moderate for us, demand continues to be there. We're clearly in line to deliver on the guidance that we've given for the year. And more importantly, as we continue to build this network out, we're well positioned to continue to lead the industry in growth.

We talked about a lot of noise. We've integrated a railroad that I never would have predicted a freight recession over the last 3.5 years. As that begins to moderate, you get to a more normal environment, whatever normal looks like, and you get beyond some of these, I call the trade tribulations and get to more certainty when it comes to tariffs and trade between the 3 countries, the things that are occurring in Canada as a result of those trade tribulations that I think continues to strengthen our network as well as North American economy overall leads to a good place as we go forward.

Got it. It's great setup there. Maybe a couple of follow-ups on that. Do you and your customers know what normal looks like? And maybe do you have to move the goalpost a little bit on what normal looks like? When do you think they can finally maybe effectively get off their hands and kind of say, hey, we need to create economic activity here or we need to build inventory here versus waiting for headline settle?

Well, I think -- I don't know what normal is anymore. I think you can control what you can't control. The customers themselves, what we've seen, certainly when you have volatility and unpredictability, it's going to minimize or at least lessen the full benefit of certainty and the investment to follow certainty. So I think once you get to USMCA, CUSMA, whatever you want to call it, whatever acronym you have, once that gets settled, I think that leads to a better outcome. But in spite of that, you continue to have significant investment in Mexico. You continue to have significant investment in the United States from all the manufacturing and the data centers are being developed, all those mechanisms that are moving. So investments occurring. Trade is flowing. It's going to be accretive once it gets settled.

But the biggest impact, especially for us, I think, has already been felt. The things that are being talked about and the potential outcomes, I think, are favorable. And I think some of what we've lost in metals, some of what we've lost in aluminum, some of the headwinds even in automotive. I think once it gets settled, those become tailwinds. And you may not get it all back, there's going to be some rebalancing. More shift is going to happen in the United States perhaps on the manufacturing side. But I still think you have trade in trade flowing between these 3 nations, which we uniquely connect in a very positive way.

Got it. Maybe just to follow up on the point of USMCA. It feels like there is renewed momentum there, some more optimism that we may get a lasting resolution fairly soon. Obviously, you guys are pretty plugged in on that. Kind of do you have any intel there? Kind of what are your views on that?

And second, you sort of alluded to it in your comments, but does it feel like there is some pent-up demand there that can be unleashed when that's done?

Well, as far as resolution soon, I'm not certain. I think we're in a better place in Mexico than Canada. But I also think that Prime Minister Carney and President Trump at the end we'll do what's best for the United States and what's best for Canada. And that's a strong trading relationship between the 2 countries. The thing that I am very encouraged about though short term is what Canada is doing to diversify itself to a point. Now they're always going to be connected to the United States. It's the largest single end market.

But what this crisis has created in Canada, I perhaps never thought I would see in my -- maybe in my life, much less in my leadership legacy of the company. But to have a country now that is entertaining tax reform. The things that Prime Minister tabled this week that it's going to be tabled in legislation that with its majority government, certainly, the need is there and the political strength is there to get it passed is going to take Canada from being a laggard investment to a leader, a world leader. So it's going to attract additional capital. The capital is going to end up flowing through the build-out to the build that's transported goods through the rail network. So we're going to benefit from that.

When it comes to labor reform, that's another area that people don't really understand. If you think about it, the unpredictability, the unreliability, kind of the damage that's been done to Canada's reputation as a reliable trading partner is undeniable. When it comes to the 2 railroads being on strike a couple of years ago, when it comes to the airlines being on strike, when it comes to the ports being on strike, I don't care what markets you get to if you can't get the product to market or get the people move from market to market, it impacts your ability to be able to succeed.

So now you've got a government that understands that labor reform is important. And the way it's working, quite frankly, labor relations and the ability to negotiate good agreements for labor, good agreements for company because of the way the process works today, it's broken in large part, at least with some of the most significant major unions, the railroads have, -- the men and women that actually need the product from point A to point B. It's just dysfunctional probably being generous. If these changes occur, the labor reform occurs and you get to a place when all negotiations have been exhausted and as opposed to the pain coming before the solution, which is binding arbitration, the government has an ability to bind the parties to arbitration. You kind of get to where you would have started anyway.

That's going to get us to a place where, quite frankly, that I think will allow negotiations long term, not short term, but long term. And that's an art that's kind of been lost in Canada. The art of negotiation. The labor leaders come to the table to list the demand. But if you were to say yes, you'd be bankrupt. You'd have no business. They know that they wouldn't want to admit it, but they know it as well as I know it. So you have to say no to put on this front that you're negotiating. They're not negotiating. You're just creating an impasse that ultimately is the net sum is everybody loses. The employees lose, the country loses, the customers lose. That's not a positive outcome.

So this labor reform with investment reform and then the other piece, the final piece is the investment itself. What the government is doing to invest to harden the infrastructure, the port investments, the rail investments to be able to get this resource-rich nation to market, again, the railroad is going to pay a part of that. So in the end, I think what's happened, this crisis has created a country that's woken up and are becoming a stronger Canada. And a stronger Canada is not only good for Canada, it's good for all 3 nations. And it's uniquely good for CPKC because we connect all 3 nations.

Got it. So it sounds like a really strong foundation there. But just to build on that and connect with some of the remarks we made earlier about potentially some manufacturing kind of moving to the U.S. Obviously, still lots of moving parts in so many different ways. But as we head towards more of a multipolar world, I think, obviously, a lot of focus on near shoring kind of in the last several years, not as much of a theme this year at the conference as it has been in the last couple of years. But do you have a sense of where that's settling out and kind of how happy are you with your network and kind of what part it will play in whatever supply chain will look like going forward?

Well, listen, it's still in flux, but the major announcements that have been made public. If I look at my network, it doesn't hurt the network, it helps the network. There are some of the OEMs that might shift production perhaps from Mexico to the United States. They've announced building another facility, but it's production coming out of a facility that I don't serve, served by my competitor in Mexico. The one I serve actually is going to increase production. So net-net, I think it's positive. Nothing that's fundamentally going to hurt our network itself.

So again, I get back to where I started, the parts, the engines, the finished vehicles, I think these negotiations might get to countries of origins, those percentages being shifted, but it still leads to products and vehicles being manufactured and produced more so, not less so in Mexico, Canada and the U.S. And again, when you're in the network of the next all 3, however it shakes out, we're going to be a player in it. And the strength of our franchise is undeniable. And the reliability we've created, the piece that's coming online now that hasn't in the past because of the network, it's not just rail shifts. It's also water to rail. It's taking it out the sea and putting it on the rail. So again, we uniquely enable and benefit from that.

Got it. I want to quickly touch on grain here because obviously, it's a huge profit engine for you guys, volume engine for you guys. It feels like it doesn't get as much airtime because obviously, nobody can predict the grain crop. But it feels like this has been a gift that's been giving for you guys for a long time. Obviously, record grain crop this year. There's some concern that it will be a tough comp next year, kind of we'll see what happens. But what are some of the levers you can pull kind of on the grain side that, again, continue to deliver the profitability there and continue to deliver yields there irrespective of what the crop does?

You know what, that's a very insightful point because it's kind of -- the story is in Canadian Pacific, we're a grain railroad. Before we've lived and died by the harvest as we've expanded our network, we diversified the book of business, and we've created an ability to create some resiliency. But along the way, we're also still benefiting from being that one-trick pony. So if I go back to '13, '14, the winter and the crop and the meltdown and regulated grain and the government forcing us to haul grain in Canada, that created innovation. It created an expansion, especially on our network of what was a 6,000-foot feeder network to now we run big long trains, 8,500 feet. Most of our grain elevators is probably the lion's share are all converted now.

So the ability to turn those assets, the capacity that was created is huge. The export capacity has been built at the West Coast, the G3 and everything that happened on the North Shore and the additional expansion on the South Shore. That's all realizing its full benefit now. Now you couple into the network now where we can take Canadian product into Mexico. And if you have a drought in Canada, you've got product coming from our U.S. Midwest, the feedstock that's going into Canada. So there are levers that we can pull today because of a diverse book of business that never would have been possible without our merger.

So whether it's corn going to Mexico, whether it's soybeans, again, going to China, whether it's grain export out of Canada or grain export out of Canada, wheat into Mexico, it's a very diverse book of business that allows us to continue to pull the levers. And when we have the bumper crops, it's really, really good times. But when the bad times come and you have a drought, it's not -- the lows aren't near as low. So there's a resiliency built in the network because of the merger.

That's great to know. Exactly where my follow-up question was on your merger here. You said at the top of your comments that no one envisioned a 3-year downturn when you did the merger. I think that's absolutely true. But given everything that's happened macro-wise, industry-wise, idiosyncratically, obviously, you guys put the operations together pretty quickly and delivered the cost synergies. But how -- like if you sit here and look back at the merger today, kind of what are the things that you really like and what are the things that may have gone differently than you thought?

Yes. So number one, we're ahead of where we thought we would be in spite of the recession in spite of kind of these puts and takes and challenges. The things that haven't manifested yet that I think not that they won't, they just won't now. Crude oil, that was a big piece for us. That was part of our expanding upon the DRU and the business that we do out of Canada into Mexico from -- in the U.S. That hasn't came. But what has come is transborder trade, trade between the United States and Mexico really, really has surprised us. And this crisis has accelerated. We were doing -- I think when we put the railroad together, maybe $100 million. We're over $600 million, and we're going to $1 billion. And there's more demand, not less demand. So that's even in spite of all the trade situation.

So again, that's really kind of exceeded our expectations. We're going to exit this year about $1.5 billion of revenue synergies. But what's most important, what's most exciting is when you get a normalized economy and as you go forward and look forward, as you build this out, this railroad is an infant. We're 3.5 years old, 42 months old, a forever story. You don't build this thing out overnight. So as regulations change and they're changing, as infrastructure is invested and it's being invested, you build out the Americold, you build out SMX, you build out continued MMX, transborder trade between Canada and the U.S., you get to a place where if we're not doing our jobs, if we're not a couple of points better than the industry is because of the network that we've built out and we're creating and we're building out, we don't need to deserve to be in the position.

And that's what I tell my sales team. At the end of the day, if the industry is growing at 3 and you're not doing 5%, you need to go work somewhere else. Go grow at 3%, you're not going to grow -- you're not going to be employed because we're going to grow at 5%.

Got it. Just on Mexico itself, the Canada, Mexico land bridge revenue has, like to your point, growing from $100 million to $600 million here. Can you just unpack that opportunity a little bit more? Kind of is it existing customers? Is it new customers? Like what does that pipeline look like?

It's both. It's further deeper penetration in our existing marketplaces. So it's continued growth in intermodal, continued growth in grain, this cold storage piece. We've expanded now the cold storage Americold facility, which kind of was 3 or 4 years into the development, changing the regulations to be able to make the border transparent. It was all based on proteins going south and vegetables coming north. Now we've just literally got the regulations changed. We're going to start taking pepperoni, popcorn, dog food, dry goods, not just cold storage goods, using that same transload facility that's located in our facility in Kansas City. Additional facilities being built in Mexico that haven't been announced yet that are deep into the development phase, something close to Toluca, Mexico City market. going south of Monterrey. So again, all that's still in early stages of being built out and developed.

Got it. I want to switch gears a little bit to -- from talking about the transaction that did happen to the transaction that's been proposed. Obviously, the STB has kind of taken the transaction out of and kind of has moved to the next stage here. Obviously, you've been very vocal for your thoughts on this the entire time. Would love your latest views on where we are right now and kind of what do you think needs to happen here?

I think I've actually been a bit restrained in my true thoughts.

You can -- it's just us here, so you can feel free to be unrestrained. Tell us where you really think.

I know Jim is listening. So number one, I'm going to start with some of his moves. I think he's maybe means a little bit of love. I think what UP and CN did together, good on UP, not so good on CN when it comes to stand-alone. When it comes to the transaction overall, as this thing plays its way out, I feel even more stronger today than I did a month ago or 2 months ago or 3 months ago. I don't care how good the story is. No pun intended. It doesn't trump bad facts. And as the facts get known and understood and they're becoming known and understood and more people are coming out and speaking against, there'll be some fors, but it's the heavy -- it's the preponderance of the bad facts are represented by the against.

We're talking about a deal that the industrial logic makes sense. And there are certain benefits when it comes to single-line service. I'm a proponent of single-line service, it makes sense, but it's at what cost. And unfortunately, for the proponents, UP and NS, the regulations require those costs to be measured. Those new regulations say that if the goods don't outweigh the bads, and I'm saying in layman's terms, they should not approve the merger. And if it does get approved, it's going to come with heavy concessions to try to offset the competitive harm that it creates.

And I would say and suggest and as these facts get developed, they clearly say that the harms are undeniable. The risks are real, too big to fail, the consolidation, the market power, all that, that gets created if this deal gets approved, and that's just step one. That's not the additional consolidation that would have to occur after. They never can solve for that in this process. So I say and I believe it leads to a no.

But if I'm wrong, the concessions are going to be so heavy that, quite frankly, if I were the proponents, I'd be concerned that I'm giving away what I think I'm getting, much like what CN has done. That deal they did with UP relative to Chicago, to me, and I was part of the team that fought for that strategic advantage of decoupling your connectivity in Chicago and creating an interstate around so that when it melts down, you don't melt down too. They just put it in play. They just gave away an asset and an asset to an asset that, quite frankly, UP's network just got stronger, CN's just got weaker. And as a result, because it's in Chicago, when Chicago melts down, we all suffer.

Right. A couple of follow-ups here. You sort of alluded to this, but obviously, they've made some concessions so far with the CN agreement and a few other announcements as well. How far do you think that goes?

Relative to?

Relative to what you would expect in terms of concessions.

Again, I don't think there's enough concessions to offset the harms. And I think when it comes to their merger case, I think it's dilutive to their case because what they've done is said that they haven't exhausted all opportunities to exhaust interline agreements. And that's -- guess what? Even if Jim doesn't like it or UP doesn't like it, that's what the regulations require. I think that's important. Much like some of the comments that have been made that another merger or consolidation ship and worry the STB. Well, guess what, the law says it has to. So you can't just approve one and disapprove the other. You have to take all that into account because we've got no place for an industry that 3 decades ago was 30 railroads. Now we're living in a world there's 6. And if this gets approved, it's a path to 2.

And I just don't think the United States -- and again, I'll talk in airline terms because Jim likes to speak to airline terms. If I go to Chicago and there's only 2 airlines, and I'm there in the middle of the winter and I live there and I've been there a lot and I've flown through there a lot. I'm sure you have too. It's kind of scary to think that you've got 2 airlines, you don't have Midway Airport at all. We're all going to go through O'Hare and the nation is going to live and die by how that works. in the middle of the winter. That's a scary, scary reality that it is too big to fail.

And I think that this regulatory body understands that, there's your truth, UP's truth, my truth and the truth. And this regulatory body is going to make their decision based on the truth. And I don't think the truth ever is going to enable a yes to that merger.

Understood. Very clear. Again, maybe just one point, you brought up CN, kind of one of the parts of the concession was kind of giving them access to Kansas City and maybe a direct line once it's done kind of direct line into Mexico as well. Thoughts on that and kind of how maybe that potentially influences your commercial strategy?

Well, commercially, I'm not -- let's separate this to bifurcate them. So one is in the deal, one is not in the deal. So what CN has done and what UP has allowed CN to do is enhance competition perhaps or options, competitive options for Canadian shippers and Mexican shippers. And I don't think the STB cares about that at all. So they've helped Canada, they've helped Mexico. It's good to see that Jim hasn't forgotten his Canadian routes.

That said, when it comes to competitive tension for us, we're not afraid of competition. We're a single-line move. They're a multiline move. I don't care how you do it, change it, slice it up. It's still a 3-line move. And if we do our job, our best day versus their best day is 2 different value propositions. That's out of Eastern Canada. Western Canada, we're such advantaged from a route mile standpoint, it's not going to come to play at all because to get to Mexico by way of a CN origin, you got to go to Chicago versus our route is going to go right down to the west side of the Mississippi River. So as the crow flies, I'm not flying to Chicago to get to Mexico. I'm going to go direct. I'm not going to go change planes in Chicago.

So again, I don't -- from a competitive standpoint, good on the Canadian shippers that might be served by CN that don't have the option today. Good for the Mexican shipper, it's indifferent for the U.S. shipper. I would suggest that you're sending traffic over perhaps an Amtrak route that they may not be so happy about it or their trains get delayed, they may not like it. But does it change the commercial dynamics in Canada for us? No, not in the least bit.

Got it. Last question on this topic. I think you said that CPKC has never been closer to BNSF and CSX. I don't want to sound like TMZ, but exactly how close are you? And also, I think is -- are the benefits there of that closeness something that need to be achieved through a transaction? Or can it be done through an agreement? Does it need a merger or not?

Yes, there's a lot that can be done without an agreement. I'll start there because we don't want a merger. None of the parties want a merger. It's not the best outcome. But if the merger happens, when I say we're close, as you work through these processes and these concerns and these coalitions, you bring your teams together. They communicate the way they've never communicated, your sales and marketing team, Tom Williams and his team and John and our team, they're talking more than they've ever talked. Not talking as much as we talk with CSX because we've already announced some things with CSX, but we're not done.

If you think about this and you try to unwind decades and decades of marketing relationships and what CSX might originate today and interchange to UP, which tomorrow would get unseated, so to speak, UP would probably rather do businesses themselves as they had with CSX in order that they can compete for when that happens. And if it happens, then CSX is going to be more motivated to work with us for access perhaps into Mexico. Today, they're not going to do that because they still have an existing commercial relationship with UP. They're not going to get ahead of themselves. They'd be cutting their nose off their face. So pro forma, if it happens, short of a merger, there's going to be immediate things that we can do. They are going to put products in the marketplace that will better compete head-to-head with a pro forma UP.

But again, that's pales in comparison. You can't let a giant like that be created and compete against it in your best way to realize your best potential as a stand-alone entity. So additional consolidation is going to happen if it gets approved. It's not if it's when. And when it happens, if they get approved, our network is unique. We're the only railroad that will ever connect all 3 nations, single-line service. We have a very strong value proposition to bring the table. Maybe I'm a bit biased, but I think I've got the best team in the industry. It's a deep bench with a great network. I think that puts us in a place that if those discussions when and if they happen, we'll be able to have a voice at the table, and I think it's going to matter.

We'll see what happens in the next couple of years. Maybe we can switch gears a little bit. Obviously, we spent a lot of time talking about the long-term and strategic focus. Maybe you can talk a little bit about near-term trends. Anything in particular to look out for in the 2Q to 3Q walk in terms of noisy items? Obviously, you had the labor disruption. You have $6 diesel, kind of anything to in mind?

Yes. I think the only 2 things that are kind of headwinds for us, the immediate things, fuel price, like everyone else, it escalated so quickly, so fast. It will be a bit of a headwind to the quarter, but we'll correct itself with our recovery mechanisms for the fourth quarter. The other piece is ECP. You don't see it necessarily in the numbers as much because you see carloads up. That's why I've always said carloads are not your best proxy. RTMs, you get paid by RTMs. And RTMs, we're seeing because of the war, specifically in ECP, plastics that would be otherwise going to a market in Mexico that are being short-hauled going to European markets. And except those 2, everything else is kind of right in front of us as we expected.

On the labor front?

On the labor front, I'm more encouraged than less. We had a strike with the IBEW, for the employee's sake, I hate that we had it. It doesn't make a lot of sense. They've agreed to binding arbitration, which we offered before they went out for 3 months. The way I see it as a human being, they lost 3 months of wages. And I interacted and talk to these people, our employees, our family members. So I think it's a shame that it had to happen, but it's resolved. We're going to get to an arbitrated settlement. I don't expect it's going to look any different than the pattern that's already been set by the same arbitrator that arbitrated our disagreement with the Teamsters. I wish we would have gotten there in the beginning.

But again, I'll go back to where I started. I'm super encouraged by what might come out of labor reform in Canada because I think it leads to a place where the parties can actually negotiate an agreement that's good for the employee, good for the customer, good for the company. That's a win-win. This creates a path to do that. And when it comes to the balance of our network, the U.S., we're in a good place. We're about to announce a deal with one of our major running trade unions that will go out for ratification soon, probably next week.

So other than that, we've got our integration. We've consolidated one agreement on the legacy KCS network south of Pittsburgh. It's called the Mid-South agreement. It's more of a -- it's an hourly deal, kind of short line like, it gives us flexibility, but most importantly, it gives us one consistent agreement as opposed to 4 agreements, which brings complexity and cost, lack of service and reliability, all those things. Death by a thousand cuts, we're beyond that. So from a labor standpoint over the entire entity of our network, we're in a good place.

Got it. Just one follow-up on fuel. Maybe for you, Chris, can you just remind us the mechanism here? I think you have the quickest pass-through of any of your peers. Just talk to us on the timing of that and kind of how the mechanism works, OR and EPS.

Yes. That's right, Ravi. So 60% of our fuel surcharge program is on a 1-month lag. The preponderance is on a 2-month lag, which is more of the industry standard. So our fuel lag will be catching up the quickest in the industry. Fuel prices will be an OI tailwind. But with the run-up in September, we'll have a little bit of a headwind from some negative lag that Keith was alluding to.

Understood. Any questions from the audience?

Just wondering, as the major merger-related investment cycle starts to wind down, how we should be thinking about the potential step-up in free cash flows and shareholder returns over the next few years and just kind of the capital strategy?

Yes. Chris, you're the orchestrator of that.

I'll let you know if you get it right. It sounds good. Yes. So thank you for the question. You've seen capital guidance this year. We took CapEx down about 15%. We'll come in around that $2.6 billion level. We do expect that $2.6 billion to $2.8 billion level to be sustainable for the next several years. We've invested a lot in the network through the merger process between the bridge at Laredo, redesigning our Chicago terminal, all the CTC and sidings that we've put in. So you're seeing that free cash flow conversion up cycle really, and we think that's sustainable for the next several years. We don't believe in hoarding cash on the balance sheet. So first call on capital is investing in the business. And once that's satisfied, we'll look to return cash through a mix of share buybacks and dividends.

Any other questions? Keith, I know you consider CP to be a technology leader in the space, everything from autonomy to hybrid locomotives and such. Can you just -- I mean, obviously, a lot going on, a lot on your plate with strategic things and macro. But can you just talk about some of the latest tech initiatives you guys have at CP and what you're excited about?

Well, listen, when it comes to technology, I don't believe on being on the bleeding edge of technology. I don't like to burn capital just to burn capital. But I do believe we're leaders when it comes to implementing and operationalizing technology. We have focused on technology to run the railway safer and more efficiently. And when it runs safer and more efficiently, assets turn faster, costs are less, sweat the assets. It just fits our mantra and our model. So the things that we're trying to do, we've done some very innovative things in Canada where we've eliminated regulatory inspections through the use of our portals, the use of cold technology to test the braking systems on the trains. We're trying to bring that to the United States. We're working closely with the FRA. We're working to try to get a pilot to do that, which I think is going to give us a stepped improvement in productivity, efficiency and safety. We're not there yet. It's -- they're slower than I'd like them to be, but we do have a very good relationship, and we're going to continue to work on that.

The other area of technology that I'm excited about that we're kind of -- we're sticking our toe in the water. And again, think about bleeding edge. When it comes to AI, we have implemented AI in our algorithms and safety in our back shop in our customer service center. We were doing bots and some of those things, which is way above my understanding, I don't know, 6, 7 years ago. We've converted headcount. I understand about converting headcount. But we've created a team with inside the company, IT, I'm on it. It's an AI steering committee for the lack of a better term.

So we have started to apply AI to something as simple as all of our contracts. Think about the book of business, 3 nations, all the vendors, looking at the contracts that we negotiated and signed, creating AI agents that go through and make sure that we're really getting the benefit of those contracts. The vendors are charging what they should be charging. There's leakage in all that. So there's monies that we're going to bring to the table that we're implementing.

We're also doing some additional things on safety when it comes to track reliability, locomotive reliability. Those are the 2 key areas. So that's kind of it. We're going to work through this thing. We're going to evolve it. The Board is always asking, I'm like, I've learned enough about AI to know about tokens and how much tokens cost and what model you use matters. So we're not going at warp speed, we're going at steady speed. We're not throttle eight, which I'm a throttle eight guy. They've got to prove the test, prove the concept. Once you do, we implement fast. that's kind of the approach.

Maybe not directly related to you, but are you keeping your eye on autonomous trucking at all and kind of how -- like we will see about the time frame, but when that happens, kind of how that might potentially influence impact rails?

Yes. I think it's not if, it's when. And eventually, it's going to happen. I don't think it's full scale yet. I think we got to be aware. I think they could become partners perhaps. First mile, last mile stuff is kind of an opportunity for us. I think the other natural barrier for full penetration for us is the border points themselves. A lot of our trade flows, U.S., Canada, Mexico, the United States, I don't think you're going to AI and automate the border. And as long as that is there, I think we'll be the least impacted. But eventually, it's going to impact us. So we have to stay aware of it.

Got it. So Keith, bring us home here. Obviously, you guys have had the best earnings CAGR of any of your peers by some distance since the merger. Talk to us about what the market is kind of not -- has not yet seen, what the market underappreciates and kind of what the opportunity is, hopefully, when the up cycle kicks in.

Yes. I think the biggest underappreciation is we're 3.5 years into this. We're not building -- haven't built it all out. We're unique. We have a landscape to build to that nobody else does. And we've done it in spite of the economy. If you put the 2 together, you put a little tailwind to that, the 2% to 3% that we've missed because the economy hasn't given it to us, you lay that on top of our organic growth or synergy growth, whatever you want to call it, are coming together. We're 3.5 years old. This is built forever. You're going to see us doing, again, -- we're doing our jobs, we're going to be a couple of points ahead of the industry.

We're doing really good at our jobs. It will be better than that if the economy will help us get there. You're going to see continued discipline in the way we run the railroad, strong operating performance. You put those 2 together, it's going to drive better than average earnings growth and free cash flow generation. Those 2 together are pretty compelling value creators.

Great. Sounds exciting. Keith, Chris, thanks so much for being here.

Thank you.

Thanks so much.

Good afternoon. My name is Leo, and I will be your conference operator today. At this time, I would like to welcome everyone to CPKC's Second Quarter 2026 Conference Call. The slides accompanying today's call are available at investor.cpkcr.com. [Operator Instructions].

I would now like to introduce Chris de Bruyn, Vice President, Capital Markets, Tax and Treasurer, to begin the conference call.

Thank you, Leo. Good afternoon, everyone, and thank you for joining us today. Before we begin, I want to remind you this presentation contains forward-looking information. Actual results may differ. The risks, uncertainties and other factors that could influence actual results are described on Slide 2 in the press release and in the MD&A in -- this presentation also contains non-GAAP measures, as outlined on Slide 3.

With me here today is Keith Creel, our President and Chief Executive Officer; Nadeem Velani, our -- Executive Vice President and Chief Financial Officer; John Brooks, our Executive Vice President and Chief Marketing Officer; and Mark Redd, our Executive Vice President and Chief Operating Officer. The formal remarks will be followed by Q&A. In the interest of time, we would appreciate if you limit your questions to one.

It is now my pleasure to introduce our President and CEO, Mr. Keith Creel. .

Kay Thanks, Chris. And again, thanks for everyone joining us on the call today. As I always do, I'll start by thanking the 20,000 strong -- I remain extremely proud to serve with each 1 of you. So thank you for your efforts and your sacrifices.

And on the performance, if you look at it, it reflects the strength of the CPKC franchise, the resilience of our business mix and the continued benefits of uniquely connecting Canada, the U.S. and Mexico to the only single-line rail network that uniquely serves all 3 countries. So we brought these railroads together just over 2 years ago to create something unique, a network capable of unlocking new supply chains expanding market access, increasing competition across North America, and we're doing exactly that. With each passing quarter, that vision is becoming a reality.

So the results for the quarter, the team delivered volume growth of 4%, revenue growth of 13%, an operating ratio of 61.6%, earnings of $1.27, which is an increase of 13%. The results were driven by a combination of disciplined execution. Now Mark and the team, strong service performance and continued growth across many of our key franchises. Operationally, the railroad continues to perform at a very high level.

During the quarter, we established new records across a number of the key operating metrics with its asset utilization, train velocity terminal fluidity all improved year-over-year, demonstrating the ability to safely and efficiently move more freight across the network while creating additional capacity for John to sell into our future growth.

On the growth initiative side, we continue to have the rationale for combining CPKC's is pretty simple, create the first and only single-line railroad, that links Canada, the United States and Mexico and leverage the network to generate value for our customers and our shareholders. Today, we're seeing the strategy tenant into these tangible results.

During the quarter, we established volume records in grain, energy, chemicals, plastics and automotive. We also advanced several important commercial initiatives to reinforce the long-term growth story of our network and franchise. The launch and the momentum behind our enhanced Southeast Mexico Express service, continued growth on the Mexico Midwest Express service, the opening of another American facility this time at the Port of Saint John in Atlantic Canada. We continue to increase traffic flows between Canada and Mexico via the CPKC land bridge that uniquely is enabled by the North American franchise. Perhaps most importantly, as we look forward, our commercial pipeline remains robust. Customers across multiple sectors continue to look for ways to simplify supply chains, reduce friction at borders, increase resiliency, improved transit performance. CPKC is uniquely positioned to help them achieve those objectives.

So in closing, as we enter the second half of the year, we do so from a position of strength. So our network is performing extremely well. Our service product is strong. Our growth pipeline continues to expand. And while uncertainty remains in parts of the macroeconomic environment, we're encouraged by the improving market conditions across several markets. It's a growth story, growth in cross-border traffic, growth in new supply chains, growth enabled by a network that is uniquely created in North America by CPKC. Story realizing the full potential of the franchise we've led history in revenue and earnings growth for the last 2 years, and we're well positioned to deliver another year of double-digit earnings growth in 2026.

So with that said, I'm going to turn it over to Mark. He can elaborate a bit on operations. Mark abreast color in the markets may deem on the numbers, and we look forward to the Q&A session. Mark, over to you.

Yes. Thank you, Keith, and good afternoon. I'm going to begin by recognizing our team of rail rooms across North America for another outstanding quarter of execution. The commitment, discipline and record levels of operating performance while continuing to provide customers with safe and lot of service.

During the quarter, we set second quarter records across a number of key productivity metrics, including train speed, dwell, locomotive productivity and fuel efficiency. These results reflect the strength of our operating model and most importantly, the dedication of our railroad as we continue to execute at a very high load every day. As we marked 1 year since completing the consolidation of our U.S. and Canadian operating systems, the benefits of that work continue to be realized across the network. Our teams are aligned around common process, sharing performance measures and real-time visibility across the network. This is allowing us to identify opportunities quicker and solve issues faster and make better decisions as we continue to realize the benefits of the operating -- the operations as 1 railroad operating performance remains a critical focus area. The visibility and coordination created through the integrated -- integration of our Canadian and U.S. operating systems allow us to manage train execution across the network with great precision and consistency than ever before. The result is a more fluid, efficient and consistent railroad delivered even stronger service and asset utilization across the 3 national systems. Now turning to safety. This remains our top priority.

During the quarter, both personal injury frequency and train accident increased versus the year ago, but steel remained 1.0 for FRA train accident and 0.96 for FRA personal injury. While we are disappointed by these results, we remain fully committed to continuous improvement.

Safety is a -- that requires constant diligence, learning and engagement. We're taking action to address the underlying trends and remain focused on ensuring every employee returns home safe at inverse while continuing to improve the safety of our operations.

Now turning to our locomotive fleet. We have now received all 70 Wabtec locomotives scheduled for delivery 2026. We remain on track to begin receiving progress rate to models in the second half. Building on the 100 locomotives received from Wabtec last year, we continue to make significant improvements for investments of fleet modernization to support the long-term growth and efficiency of our CP network. These investments are already supporting improved reliability, efficiency across the network, particularly on our TransCon operations in Canada where the new units have been deployed. In the digital locomotives under service, we expect further benefit through the improved asset availability, network resilience and operating performance.

Finally, engineering team has been consistently deliver work supported record grain loadings while maintaining strong network performance. Importantly, rail and tie replacement continues to progress ahead of schedule. Our rail and tie crews have increased year-over-year installation productivity by 18% and 59%, respectively. We fully expect to be off the mainline in Western Canada well before the start of the fall harvest sees that positioning us to support customer demand during one of the busiest periods of the year.

In closing, our revenue continues to perform at an extremely high level as no cheap John and I spent some time on the rare last week we came away pleased with what we accomplished, while also identifying the areas of further opportunity. That's what true PSR looks like. Always remember, a glass today is be minus tomorrow as we continue to drive for continuous improvement. Strong execution by our employees, the benefits of strengthening our integration disciplined focus on service performance, strategic investments and continued productivity improvements across the business will position us well in the second half.

With that, I'll turn it over to John.

All right. Thank you, Mark, and good afternoon. Our second quarter results reflect the strength of CPKC's unique franchise and the benefits of our 3 nation network. This quarter is another great example of how we continue to stack up growth from synergies and new business wins, we're realizing strong price for the value of the service and our capacity. Now looking at our Q2 results. We delivered Q2 record freight revenues, excluding fuel and all-time record GTMs, up 13% and 4%, respectively. Cents per RTM increased 9%, reflecting higher fuel surcharge revenue, sustained pricing strength and moderating mix headwinds.

Based on our current outlook for fuel and FX we expect continued strength in yields in the -- moving on to the next slide and before discussing the lines of business, I'd like to spend a moment on the consistency of our growth. Reflecting on Q2 since 2023, we've delivered 17% RTM growth or 22% excluding fuel. This performance, despite a challenging macro backdrop is a result of laser-focused commercial execution, unlocked through the strength of our service product, network efficiency and the capacity we can offer into the marketplace.

Now taking a closer look at our second quarter revenue performance, I'll speak to FX adjusted results. Starting with bulk. Q2 was another record quarter for grain in revenue, RTMs and carloads with revenue increasing 24% on 19% volume growth. Canadian grain volumes increased 24%, driven by record harvest and continued growth in the markets such as Mexico. U.S. grain volumes increased 14%, also driven by strong demand into Mexico and also to the P&W markets. Looking ahead, we remain optimistic that both supply and demand will remain solid through Q3 and although it's still early to tell, the new crop across our network is off to a pretty good start.

Potash revenues were up 10% and a 2% decline in volume, reflecting the impact of port maintenance and lower mine production. Looking ahead, while we continue to expect impacts from port maintenance, export demand fundamentals remain healthy and we are working closely with our customers in this space to maximize our potash volumes into the second half of the year.

To round out bulk, coal revenue declined 18% on a 29% reduction in volumes, reducing our total RTM growth by approximately 3% on the quarter. This decline was driven by ongoing production-related challenges at our customer mines, which impacted shipments throughout the quarter. While run rates have stabilized, the shipment levels and the shipment levels are improving, we expect coal to continue to be a headwind in the second half of the year.

Moving on to merchandise. Energy Chemicals and Plastics revenue increased 8% on 6% volume growth. The volume growth was driven primarily by higher DRU and conventional crude shipments, partially offset by lower fuel oil shipments into Mexico. Looking ahead, we expect continued growth in ECP driven by improved market fundamentals and new business lines.

Forest Products revenue increased 2% and 2% lower volumes. Despite the decline in volumes, we are encouraged to see continued strength in synergies led by lumber shipments into our Southern U.S. markets, highlighting our unique ability to connect supply and demand across North America. In fact, despite higher interest rates and lower housing starts, June marked a record month for lumber synergy shipments across our network. Metals, Minerals and Consumer Products revenue increased 16% on 7% volume growth. Growth was driven by improving steel volumes across both domestic and land bridge lanes, along with continued strength in aggregate shipments supported by new construction activity in the southern part of our network. Moving on to automotive. Revenue increased 19% and 8% volume growth representing another record quarter. Growth was driven by new business wins and extended length of haul as automotive continues to be a compelling example of the value of our 3 Nation network.

Closing with our intermodal franchise, revenue increased 11% on flat volumes. Domestic intermodal volumes increased 3% in the quarter. We are encouraged by the early success of our SMX service with CSX with volumes increasing more than 30% from Q1. We are seeing signs of improving truck to rail conversion opportunities supported by higher fuel prices, tighter regulatory enforcement and reduced trucking capacity. Both our MMX and FMX services are well positioned to capitalize on these favorable market dynamics. In international, Voya's strong pull ahead on prior year comparisons.

Looking ahead, we expect supported by our strong service product from the Port of Vancouver, and as we execute specific growth initiatives at Portis, John, and also Lazaro Cardinals. So in summary, the pipeline of unique growth opportunities is strong, and we continue to capture pricing momentum across our book of business with improvements in the freight demand trends continued synergy realization and a growing pipeline of new business wins, I remain very confident in our ability to deliver mid-single-digit volume growth in 2026.

With that, I'll pass it over to Nadeem.

All right. Thanks, John, and good afternoon. We delivered another quarter of strong volume growth, disciplined execution and effective cost control. These results underscore the strength of our franchise and our ability to translate our unique opportunities in our earnings and cash flow growth. We continue to realize merger synergies while Mark and his team are delivering excellent operating performance and customer service. I'm very pleased with the underlying performance of the business and the momentum we are carrying into the second half of the year.

Now turning to our second quarter on Slide 15. CPKC's reported operating ratio was 54.6%, Our core adjusted operating ratio was 61.6%, up 90 basis points from last year. Diluted earnings per share was $1.15 and core adjusted diluted EPS was [ $1.27 ], up 13% versus last year. Taking a closer look at our expenses on Slide 16, I will speak to the year-over-year variances on an FX-adjusted basis.

Core adjusted comp and benefits expense was [ $702 million ]. The year-over-year increase was driven by higher stock-based compensation, wage inflation and volume-related costs. These were partially offset by ongoing productivity gains, improving train waste and continued operating efficiency improvements. Looking ahead, we expect to continue generating strong labor productivity in the second half of the year with modest headcount growth supporting accelerating volume growth. Fuel expense was up 49% year-over-year. The increase was driven primarily by a 52% increase in on-highway diesel price along with higher volume. This was partially offset by a 4% improvement in fuel efficiency, driven by increased train waste and improved locomotive productivity.

Materials expense was up 3% year-over-year. The increase was primarily driven by inflation including the impact of higher fuel price on our non-locomotive fleet, partially offset by efficiency gains from contract optimization and lower locomotive material costs. Equipment rents were 6% lower versus prior year reflecting improved asset utilization, stronger network velocity and improved cycle times. Depreciation and amortization expense was up 5%, driven by a larger asset base.

Core adjusted PSNO expense was $585 million. The year-over-year increase was driven by higher casualty costs and inflation, partially offset by productivity initiatives and operating efficiencies across the network. In reviewing the quarter, I'd highlight the strength of the underlying business performance and execution. Strong volume growth, disciplined pricing and continued productivity improvements enabled us to deliver another quarter of double-digit earnings growth. while absorbing several notable cost headwinds. Higher casualty costs and stock-based compensation represented a $0.04 impact to EPS and 120 basis point headwind to OR.

Year-over-year changes to fuel price growth were 130 basis point headwind to the OR. Despite these impacts, the underlying trajectory of the business remains strong. The combination of volume growth, operating leverage and disciplined cost management allowed us to offset these headwinds and deliver strong earnings growth in the quarter.

Moving below the line on Slide 17. And Net interest expense was $237 million or $231 million, excluding purchase accounting. The increase was driven primarily by interest on new debt, partially offset by lower commercial paper balances and debt repayments. Income tax expense was $335 million or $370 million adjusted for purchase accounting and significant items. We continue to expect the full year core adjusted effective tax rate of approximately 24.75%.

Turning to Slide 18 and cash flow. Year-to-date, net cash provided by operating activities was up 8%, driven by higher operating income. Our year-to-date capital expenditures were $1.4 billion, and we remain on track to deliver full year CapEx of $2.65 billion, a 15% reduction year-over-year. And year-to-date adjusted free cash was $1.3 billion, up 25% over prior year.

During the first half of the year, our disciplined approach to capital management delivered $2.4 billion of shareholder returns through share repurchases and dividends, reflecting a balanced and opportunistic allocation of capital. In closing, we delivered strong financial results in the second quarter, reflecting healthy volume growth, disciplined pricing, ongoing productivity improvements and effective cost management. The business continues to generate strong earnings and cash flow, while our balance sheet and capital allocation priorities remain unchanged.

As we look to the second half of the year, continued execution across the network, ongoing efficiency and growth initiatives position us well to achieve our full year guidance and deliver sustainable long-term shareholder value. With that, I'll turn it over back to you, Keith.

Okay. With that, operator, let's open it up for questions. Thank you, gentlemen.

[Operator Instructions]. Your first question comes from Chris Wetherbee with Wells Fargo. .

Obviously, a solid quarter. But I guess I wanted to talk a little bit about the -- what we've seen in developments with the transaction between UPS, in particular, the agreement with Canadian National. I just want to get a sense of how do you feel if it does change anything from a competitive landscape for CP? Sort of how do you feel like you fit into the dynamics here? And then the growth opportunities that you see from the combined network of CP and KC over the multiyear period of time in light of what we've seen so far?

Chris, you might get a 2-part answer here. When you say the agreement point out what specific agreement. .

So I guess there's so there's 1 that's contingent on the transaction 1 that's not, I guess, in terms of the EJ&E and then the potential access down through Texas, I guess, maybe start there. And maybe if you want to expand on it to include both of them, be curious or take.

Okay. Well, I'm going to go high level, John, I'll let you go into the market. So I try to decouple myself, but it's tough to be a couple myself from 17 years of experience, a lot of which the latter years entailed fighting for the right and the ability and the operational capacity to kind of decouple yourselves from the whims of the Chicago operating experience inside that inter loop.

So that EJ&E route that enters tied around Chicago to be. It's kind of the holy grail in Chicago from a network perspective. than when I have oily. I understand the payment separate it took, I also understand more so than others, I would argue the operational benefit of having an asset. So when I think about that deal, stand-alone, I think Jim good on Jim. He understands like I understand the benefit of having that capacity in that release valve and that through kind of interstate route around Chicago Well, when I put my son had on if I were to, and I think back in reflect, that's not unlimited capacity just gone away.

That is your insurance cost. And maybe today, you have latent capacity. 10 years from now that you have local capacity. And if they can suggest us because somebody else pays for the capital, there's unlimited right of way to build sidings and to build infrastructure at some point, and these are long-term assets and long-term decisions, there's going to be accountability for that decision. You wake up in the middle of Malden Chicago, especially if UP and Asher to realize their ambitions in the most heavily congested busiest location in North America, and now you're battling with UP trains and seeing trains for the same capacity. And then further think this thing out, if I have a bit, how does that impact the overall complex of Chicago now? You just put the Jay in play.

So the questions I have, and I think about this, and I haven't quite got to this part of the supplemental information that's provided. I spent maybe way too much time on [ 84 ] pages of corrections and -- then I read Jim's letter and then I got to a little bit of the CGP stuff. I'm wondering how that changes their merger plans and how that gets tweaked and how you integrate that in, number one, and I think about the day when the place melts down and how do you decouple now and you have no relief found.

So it gives me concern. So what did you get for that? You got access to Mexico, be on Memphis gateway you get the ability to quote to a customer, the 2 line move perhaps to the haulage rate as opposed to a 3, but it's still a 3-line move. It's still a router Memphis operationally. It's still controlled in dispatch by being a Pacific. We still get to the most problematic water point in Mexico at Eagle Pass, and now you've got 3 roads starting for the same capacity going to 1 railroad. They employ operationally going to our key markets that we serve is disadvantaged. So a lot of information to unwind and all that, Ken. I just think in the end, good for Jim to get access to Chicago. I hope that CN doesn't have buyers remorse in the future what they gave up versus what they got because I don't think they got a lot no longer see.

When it comes to the merger side, I think that it's a couple of steps for UP to solve a very problematic merger application. It preserves competition perhaps on those 2 to 1 and 3 to 2s, we're operationally feasible. So that helps take a couple of steps towards solving miles and miles and miles and miles and miles more problematic steps. And when it comes to access for CN coming to Kansas City, we've already got 4 railroads running between Kansas City in St. Louis, I'd say welcome to the party, come ready to compete because we will. We're not afraid of competition. We never have been as long as we do our jobs, and we leverage the benefits of our single line route. I'll stand at against and I'll stand there against you.

John, any commercial comments?

I just would add on the -- Chris, maybe the Mexico piece, as Keith said, we're not afraid to compete. But I don't view this as very different than maybe when CN had a connection and use the route over Jackson with the legacy KCS to get to Mexico. And then they pivoted to create a route over Chicago with the UP, I think, a Falcon or something to run down to Mexico. And now they've extended their hall in another interchange to Memphis to get out of Mexico. It didn't change our approach 3 years ago. So when they put it in place, I think we've demonstrated really strong growth on our MMX and it's all on the backs of the service.

So I just kind of view it as we've got a product that can't be replicated in the marketplace. It's the reason why in 2023, there was $100 million of what I consider, we call land bridge business flowing between Mexico and Canada. I see us at $600 million by the end of this year and a path to get to $1 billion. It's just a unique product that we're able to offer. And I'm sure there's going to be certain customers out there that the CMUP product makes sense for on the FXC or into certain markets, and that's fine. So I'll stand by that and Keith's comments on Kansas City, ring true to me. We have there's 4 railroads that come in and out of her existing today from into the east that we compete for business. But even I think back to in we were competing for the KCS and that was identified as such a big opportunity and lane by our competitor. And frankly, we just haven't seen it. So if they bring to light a big opportunity, it's -- it will be an opportunity for us to compete against it. And we look forward to that opportunity.

And there's one more point clarifying point, we got I think important to understand when John speaks to the business that we've won, we've competed for and that we continue to see a path to grow to from that $600 million to $1 billion over the future years. The lion's share of that traffic is coming from or going to Western Canada, not Eastern Canada. Not saying that some is not the least, but the biggest opportunities in the West and from a network standpoint, seen is dramatically disadvantaged to our network from those Western Canadian origins given that we go through Minneapolis -- now the West South of Mississippi, for them to get it to Mexico, whether it's over Chicago, whether it's over Memphis, whether it's over Jackson, they got to go to Chicago. They got to go east to come back West. That disadvantages route models to a material and significant way.

Your next question comes from Fadi Chamoun with BMO Capital Markets. .

John, you have been able to kind of deliver somewhere in the $300 million, $350 million of kind of pipeline synergy revenues over the last couple of years. It sounds like you're bullish on that pipeline. Is going into 2027, can you frame kind of what type of opportunity you see kind of idiosyncratic to some of these commercial efforts you're working on? Can we assume that this will continue to kind of play out in a similar fashion that it has done in the last couple of years. going to 2027? And a quick follow-up to Nadeem, just you mentioned several notable -- I just wondering if you can kind of elaborate a little bit what these are and how should we think about the expense in bridge as we go into the second half of the year. .

Yes. So I'll I do see a really good run rate to get to that, let's call it, $1.4 billion, $1.5 billion in synergies as we close out this year. And you're right, that's about a -- actually more than a $300 million step up in that area. I would call out that it's really coming from all the lines of business.

But as I particularly look, let's say, specifically to the next 6 to 18 months. We've just seen tremendous growth in our intermodal synergies specific to that and also our grain. We really didn't scratch the surface. And I'm going to say the early days in terms of leveraging this franchise in our grain network. And I think what we've seen with the strong crop in Canada actually a strong crop in our upper U.S. network. As we've got deeper and deeper into the shipping season, we've seen more and more markets across our network materialize. So that's been strong.

I want to say we're up 60%, 70%. If you look at grain out of our Northern Territory down into Mexico or the Southern U.S. market. And again, I can tell you we're -- I'm proud of where we've moved that needle this year, but I still think we're kind of in the early innings of really kind of figuring out those flows and what those cycle times need to be to compete. And frankly, I think I talked about it this previously. I just spent some time in Mexico looking at these facilities and the capability to enhance their throughput capabilities that will drive volume growth is still out there.

As much as I'm proud of that we've taken the MMX service value to about 70% capacity levels. I'm still challenging the team, particularly in this freight environment right now.of how we begin to push the envelope to what a second train pair could look like on the MMX. And that's really without not a whole lot of reefer growth that we're still working on that we're just seeing ramp up in that space. So I'm optimistic about that. And then maybe I'd also point out is as much as -- and I think Keith mentioned it, as much as I'm pleased about our closed-loop automotive program. There's still some outliers out there that I expect to make headway in over the next 6 to 12 months in contracts that I think will also look to leverage the benefits we can provide with that. So those are kind of the callout areas.

I'd just point out a couple of things, casualty, stock comp and incentive comp. We're about a $0.05 headwind versus a year ago, maybe around close to about 150 basis points. So I think about with those headwinds, if they weren't there, probably closer to a 60 OR I can just leave it at that.

Your next question comes from Jonathan Chappell with Evercore ISI. .

Thank you. Good afternoon. Mark, John just laid out a pretty broad-based growth plan. I know a lot of it is unique to CP, but it feels like, for the first time since the merger, you've had some real strong macro tailwinds that are building as well. I know you're going to add a little head count in the second half of the year, but lower than the volume growth expectations. When you think about the next couple of years and the resources you've created a lot of productivity thus far in the last couple of years. But how do you think about aligning resources with the type of growth profile that John is laying out over a 2- to 3-year period? .

Well, I think it's just the value of how we do business with CSR. John is talking about what he's doing in the coming months. We're in the background understanding what kind of crews we need or kind of locomotives we need to put in front of it. containers, box cars, whatever it may be. So we're steadily looking at the demand of equipment, people.

On top of that, I'm looking at synergies of the agreement that we just signed with the sign that we just implemented with the south of -- what I would say, south of Eastern Oklahoma down to the border at Laredo, which is the old mix out agreement, which point too much detail, but it's an agreement that I worked up on. It's almost like an hourly agreement. We talked about an hour agreement at the delay agreement. And that would take care of some of the head count that we need. We'll get some synergies plus head count out of that, and then we can use that headcount for the future business that John wants to do with grain but we still have opportunities with doubling up trains. We've got some opportunity with train length that we'll continue to work through, and that's just the southern part. Obviously, we had the iron agreement just until the North in North Dakota, Minneapolis, all of those locations. So we have Workday schedules. We could change with those to add people quickly. or lease time a day quickly. So that's what I would say. We would stay right out in front of John, and we'll communicate constantly to understand what's next, what's the opportunity Good news is that just don't come on board tomorrow. I mean we've got plenty of time to plan and we have locomotives that's coming on board as well.

Your next question comes from Brian Ossenbeck of JPMorgan.

Maybe, John, for you, can you just give a little bit of commentary on yields here. I know the headline number is a bit noisy with fuel and FX. So maybe some near-term commentary to help set the stage for the third quarter, but where underlying core renewals coming in, do you still have potentially some repricing or length of all opportunities that are still kind of trickling through as you get more of the legacy KCS and CP put together? Or is that pretty much done? So just want to hear a little bit more about that, especially in the stronger truckload environment?

Yes. We're still seeing a pretty good length of haul Brian, enhancement. I think this quarter year-over-year, about 3%. And I talked about some other land bridge opportunities and where I see some synergy growth yet to come. Those are pretty big length of haul opportunities that are needle movers. So there's some of that noise, I think, good noise still at play that sometimes can impact our mix a little bit on that longer length of haul business.

Pricing, I'm super pleased. We haven't taken our foot off the gas for -- I don't know, it's been a couple of years now that we've been on sort of the -- what I would consider right at or the higher end of our guidance. I think at our Investor Day, we guided to 3% to 4% over that multiyear plan. And I would say we've been at the top end, exceeded right now, we're probably right in that exact range. And we're not taking our foot off the gas there. I expect that to even potentially accelerate as we see what's kind of going on in the trucking space. And as we all watch inflation, over the coming years. So when I look at it, I think about the sense fire team like this. I mentioned where renewals came in, mix was a little bit call it 1 point or 2 of a headwind and kind of back into the balance was fuel and FX, Brian.

Your next question comes from Steve Hansen with Raymond James. .

Yes, thanks for the time. Keith, I think you might have referenced it earlier in directly, but I'm just curious how you think the deals or the concessions extracted by CN change your view of any potential concessions you might pursue? Does it put you in a stronger position, a weaker position? Or is it sort of are not really that relevant in how you think about it? .

Yes, I don't think anything to see is to would be as relevant to the things that we -- the last for as it's changed our math at all and had no impact.

Your next question comes from Brandon Oglenski with Barclays. .

Keith, I guess, sorry to stick on that topic. But I guess more broadly, though, do you believe that what P&C and has done has put this deal on any better competitive platform. And I guess I heard a little bit of contention there on the expanded competitive gateway pricing. So I don't know if you maybe want to elaborate on that.

Yes. Listen, I'm going to wait and let the regulator get into the lease, but I'll stay at a high level as best as I possibly can. I think the simple answer is no, I don't think it changes the math. I think that I'm going to give credit where credit is due. I think it's a few cents for in a positive direction versus where they were. I think it at least signals a bit of a realization that kind of their railroad empire building plans, we're going to have to bring more to the table to even be considered as a prime official case. I think that's important.

I think they did address and kind of back to what Steve said, I missed this point, They did address our concerns relative to undue control in the KCP terminal as well as the TRRA. So I thank them for taking that seriously and addressing that. But outside of that, the problems that were there before, and I kind of look at it this way. I look at it line would say I would say, an vise by experience. I have navigated and I was shaped by the experience that we went through in our own merger application in process. The knowledge that began navigating the merger process of the rules, the regulations, the statutes, the old rules, the new rules, coupled with the knowledge of how in our experience.

Now I read the rules and interpret the rules, which has been truly shape and impacted by how the STB members have done the same. And going back and reading the context of why the rules are written going back and reading to hearings, going back and listening and thinking and reflecting them mid-to-morgan's words, it lands that matters when you interpret the stocks.

And then finally, the last one I look at is kind of the applicants, the behavior past present, future integration history, day-to-day anticompetitive behavior or not. Is this an entity that when they present their facts to the customer, present their facts to the railroads, present their facts so their counterarguments, to the regulator, is it as they say? Or is it -- they believe there's often a difference in that. Your truth, with truth and truth, then I think this regulatory rider is going to get to the truth. And the truth says, these facts are problematic. What was true before their supplemental submission is significant reduction of competitive options. Their enhancement to CGP is some movement, and I'll give them that, but it's temporary. And it's not inclusive.

So if it's needed at all, is it not needed forever. If it's needed to solve the formula that says you must enhance competition, just stating your long-term solution to enhance competition, defining it as single-line service. If you go back and read the regulations in the hearings, that is not enough. Those are my words, that's on the Morgan's words. It's important, but it's not the only sole solution, and it will not solve enhanced competition in and up by itself.

Again, her words, not my words. Still create significant monopolistic glycosides market concentration, steel and now even more significant operational risk because now we've got the JM play. Still get significant concerns about anticompetitive behavior, past and present. And I don't think any of us would argue. The ball about eventual consolidation if this merger gets approved, that voter is rolling -- If you read the application, the supplemental Regens letter, I mean if I've ever read a letter that said, not only is this one's good, the second one is better. It's great for America. We need to go to and serve the public's interest in America. We need to be a 2 rail network operation. That's it.

And I've had a shudder thinking about that as a human as a consumer, right? I was reminded of we waited this decision yesterday afternoon when I went home, and I looked at my phone, and it's kind of topical because I get Jim credit, who uses a lot of analogies about flying through Chicago in airlines and direct flights. And when our red American Airlines grounded. System-wide regional airlines, mainline airlines, nobody can move. What about a world when only an American or United exists? And 1 of the 2 is grounded. What happens? That's mass chaos and airlines to apply that same solution to railroads. You've got 1 railroad that handles 40% of every move and forget about the misleading comments about GT Young's and what the same come on, heavily weighted railroad that moves a lot of grain and coal. Their GTMs are going to be naturally more than the railroad was more to intermodal.

News alert, a coal car in a green car was a whole lot more than say, 10 or 11 intermodal cars. So that's misleading. It's 43 states. In Jim's perfect world or UP's perfect world, it's 2 railroads. One of the 2 or both of the 2 because of a computer glitch gets grounded. That is too big to fail. And I can talk to each of you all day long and perhaps some of you are ask and answer. I'm not going to convince you. But that's okay. I don't need to convince the STB, this STB body, and I know from experience, they understand the graduate this decision. They understand those regulations better than any of us do. They understand the intent and they understand their mandate. And they have the authority to make the right decision. They have the independence to way the facts.

So again, I'll say this. If you're a shipper, If you're a concerned party, it's going to comment, don't get led down a false merit. Do your math, your own homework, form your own opinions and fill your comments, state your fact because that's ultimately what the record is going to be decided fine. And if those facts are known and understood, Nothing that UP just submitted changes it. The problematic facts, they lead us to a place that is not in the best interest of the public, not in the best centers of this network. That's the way I feel. That's what I believe based on my lands.

Your next question comes from Ken Hoexter with Bank of America.

Keith, you actually started out almost complementary of the deal of what Jim was doing. I would have said almost supportive, but I think your last answer suggests perhaps they'll not. But you did tell us in there mixing up CPKC in the mix with BN and CSX. I'd love to hear your thoughts there. And then Nadeem, did you just end your answer there with the 60% OR was that you're suggesting your launching point as to what we should look for into the second half, so maybe a sub-60% in the second half? Is that what you were throwing out there? .

Yes, that's fair. I think we're going to see sequential improvement in cents per RTM or a significant acceleration in volumes compared to the first half. And so overall, the revenues are going to be better. We're going to see operating leverage in my expectation would be to have less casualty expense than we had in the first half of the year. So I think some of those items can be very accretive to the earnings and the OR. .

Sam, to your question, I mean bottom line upfront, I'm adamantly opposed of additional rail consolidation for all those reasons I talked about. But if it's forced , we're not going to stand still, we can't stand still and compete to our best. So I'm not going to tell you what partner. I can make a value proposition case with a host of partners. But rest assured, this industry won't fit steel. If UPS come together, it's a matter of time, there's going to be additional consolidation. There has to be able to compete against that a lot that would be created. And in any of those scenarios, this team, this network offers pretty compelling value.

Your next question comes from Walter Spracklin with RBC Capital Markets. .

Yes. Thanks very much, operator. Keith, you and BN have both argued that progress can be made agreements can be signed without the need for mergers and certainly, this deal between CN and Union Pacific is not contingent on the merger. It happens immediately. I'm referring to the -- and the Eagle Pass through Memphis deal. Does this prompt you now or maybe you've already been doing -- couldn't you now or will you look to cement your own deals, your own the BN or might you have with SMX -- Is there opportunity to add on because to that with CSX? And is there any opportunities that you see when you look at your routing we're swapping or track right swapping with the BN might make sense as well. .

Yes, Walter, as a novel in either case, when you've got 2 willing parties, you can do a lot of things. I've looked at our network -- there's a menu of options. There's things we can do with then, there's things we can do with CSX, outside of a merger that, quite frankly, we could put a pretty compelling product in the marketplace to go head to head. Is it going to be single-line service? No. Is there going to be some advantages with that? Yes. But yes, it's -- again, if this thing becomes a foregoing motivation increase to be able to do those things. I think right now, people are waiting to see this industry outside of UP and NS and maybe now CN. They didn't want to merge. Our customers, if you talk to the customers, I don't care what seeing agreed to with UP, what UP is agreeing to with CN. What enhancements they made to CGP, put it all in the same basket. I don't think you're going to have a run to the bank or run to the STB saying, gosh, this is the best thing since lipreading we're going to support because this is a forever decision. You don't unwind this thing.

But again, if it gets wound up, we've got a responsibility to respond and we will. And as a result of this, we've never been closer to BNSF. We've never been closer to CSX. We've never developed the market intelligence that we're developing now in the motivation and the route options to present some pretty compelling value propositions on the table. So again, we won't sit still in a merger environment. We will sit still sort of a merger. Good can come out of this. The best outcome is no merger The best outcome is perhaps in the absence of a merger, UP and CN can do some good things together. That creates some value for the industry and to create some value for their customers. There's a lot of traffic out there to move.

And in turn, you're going to see CP do things with CSX with BN, BM and CSX, they can create a whole lot of different parties because people are thinking a whole lot different than they ever have. But those outcomes can occur, and UPG showed us already or haven't done so already in the absence of a merger which is exactly what the regulations require to do before they will approve the merger side note...

Your next question comes from Ravi Shanker with Morgan Stanley.

This is Madison on for Ravi. We're just wondering how you guys are thinking about capacity in your network as the up cycle comes?

Yes. I think I'll be quick with an answer, Mark, if you want to add. We -- if you keep in mind that our merger application made some pretty significant investments to prepare for growth. We've done exactly that over the last 3 years. And what we did not anticipate when we put the railroads together was an economic recession. So we're kind of built ahead for future growth. We're in a very good position relative to locomotives, relative to car capacity, relative to track capacity. The only thing we need to flex up on when the business and the growth comes is add incremental headcount.

Yes. I would say incremental headcount from the agreements that we put together. We've unlocked Shreveport, Louisiana, where we can go in all directions with one agreement. Again, we've got $275 million from the STB promises that we put together for them. We've got the connection to CSX, where we spent a lot of money, 49 hour track that unlocks a lot of capacity going. Again, we've said down in Mexico, we spent $75 million on top of the bridge that we just built, the KCS but that we finished. So yes, capacity is not going to be an issue. And again, in different areas, John and I will stay in front of that regardless of where we go with the business. We're committed to do that.

Yes. So we're well positioned for...

Lower incremental cost.

Your next question comes from Scott Group with Wolfe Research.

Maybe just like a bigger picture version of that question. I think back to the Analyst Day, we were supposed to get a lot of revenue growth with a lot of operating leverage and margin improvement in mid-teens, high-teens type earnings growth and John, I thought your slide about like the compounding volume growth is helpful, like and it's been good, but it probably like hasn't been as good as you thought at the Analyst Day. And I think to your point to that last question, Keith, like the macro environment has just been more challenging.

Like I guess, ultimately what I'm trying to ask is like, do you think we're at like an inflection point where you still have some of the synergy opportunity plus now maybe a more supportive macro where like it's all going to -- and now the buyback is kicking or it's all going to start coming together and we're going to see like more of a meaningful acceleration in earnings growth back to what you thought it was going to be. Is that kind of where do you think we are now?

Yes, I'd say it's undeniable since April of '23 that the freight environment is as bad as we thought -- we never thought it could be as bad as it was. Despite that, and that was really the point of that slide was to say despite that, we've been able to stack pretty impressive growth up with no -- not a supportive environment. So now looking ahead, I do believe, although all of our growth and a lot of our growth was supported by synergies and the new products we put in place as I said, we're still in the mid-innings of a lot of those opportunities. So I think your point is really spot on. You continue at the pace of product development filling in capacity that Keith and Mark just spoke about. And we started to get a little bit of a tailwind in some of these areas. I think that becomes very compelling.

And then Dean, do you think like the operating leverage accelerates with that? .

Yes, absolutely. I think Scott. I mean, as you know, the last few years, I think the industry as a whole has been expecting a much more supportive macro. I think we've learned that we can't hope for that macro to recover and we've taken a more conservative approach, and we've talked a lot about resources and capital investment, et cetera. We were on the front end of that at the beginning of the integration about beginning of our day 1, 3 years ago. And if you look at where we are this year, I think head count is down 500 people and volumes are up 3%, 4% and accelerating, and we're going to be able to accommodate that growth.

So when I look at 2027 and next few years, we can accommodate it with the capital envelope that we talked about, it's $2.6 billion, $2.7 billion, and that's with a higher coming in or a weaker Canadian dollar that has an impact on capital. So overall, we can accommodate this growth. And with the capital plan that we have, it's going to generate a significant amount of free cash, as you've seen so far this year. And that's going to help accelerate earnings. And so to me, the operating leverage story is just beginning. And you're going to see it in the back half of this year, and you've seen it so far in Q2 as well.

Your next question comes from Konark Gupta with Scotiabank.

Keith, when you sit down with your customers and stakeholders, do you feel that they are quite distracted by the ongoing industry developments -- and I'm listening to everything from the UPS merger to the CN UPT as well as the potential downstream effects that everyone was talking about.

Yes. I think probably the way we all feel about this thing. We've been dealing with this for a while. It requires a lot of attention. All these what-if scenarios, whatever it is, just getting on with it and getting to a point where we can kind of lock and focus on what we can control, and there's not all these variables, I think it's going to be well received. The customers quite frankly, John, you can provide a bit more color here, but everyone that I've engaged with I, again, not have one, that said we won't work consolidation. They said we want to protect competitive options. We want optionality. We like the ability to create competitive attention between 2 railroads when it comes to pricing and capacity and our capital decisions and our shipping decisions. And I think that's been a common thing that's resonated with us. .

Yes. And without a doubt, Konar, since really COVID where we've experienced sort of the increased fragileness of some of these supply chains. Our customers are looking for more options. And frankly, that is why we garnered so much support in putting CP and KCS together on our journey because we truly did enhance competition and open new markets. And I just think to your question, it is a distraction.

I think there's a lot of narratives out there and our customers are trying to figure out what is right and what is the correct source of the truth. And frankly, they've seen the benefits we've been able to create but I also think our questioning, are they really going to get enhanced competition out of what UPS are proposing.

And that's a key difference, John, what you just said. Our merger brought additional options to the table, which included a never before available additional single line opportunity, for instance, from Chicago to Mexico and in our case, beyond. So it was all additive to. Nothing was diluted. There were no options taken off the table.

That's completely different than the beast that we're dealing with now. It's a substitution for and according to the applicants, it's better than. But if you're the shipper, it still means less options. Do you have the same options tomorrow that you have today? Then poor if it gets approved, the answer is unequivocally no. You don't.

And customers, by and large, after all the years of consolidation in this industry, that does not resonate with the customer, we tell them the healthier options. I don't care what therapy you give them. They have the memories and the trauma but the prior consolidations in this industry. And some of the worst trauma, I'm sorry, UP, you caused it. And the thought of giving them more power and being exposed to that, again, requires a therapist in some cases. And I say that in jest, but I'm not kidding. The transportation decision-makers that suffered through that 30 years ago, I've been here 35, I've been railroading 35 gen railroads and 45. A lot of those decision-makers are in senior positions, and they still lose sleep at night thinking about those integrations. So operationally or commercially, customer you have fewer options, it doesn't resonate, but with a very small population that might be uniquely advantaged, but it's a small population. So it's single line service at what cost. And we never took the scale at our combination. We never threatened that. We just added one to the table. We didn't take anything away.

Your next question comes from Tom Wadewitz with UBS.

So John just had, I guess, maybe a couple for you end markets. So how do you think about coal like kind of I guess it gets less worse through the quarter. Is there a point where you say, okay, this is the new run rate for coal, that it's like, hey, the mines just can't do what they used to? Or are you optimistic that gets 2027, you get back to kind of where they were. And then I guess within ECP, that's been pretty good, but I think refined products to Mexico may be weak. So I don't know, any kind of, I guess, thoughts on those 2.

Yes. Thanks, Tom. So yes, definitely Q2 was -- what we are looking at is the worst of the worst in terms of impact to our revenue and our volumes related to the coal. I think by Q3 feels like 81 and progressively, it gets a little better to close out the year. We're staying really close with the customer there. I can tell you they are optimistic around increasing volumes. I would say we've definitely seen an improvement in their production. And our expectation is, and I think their view to the mining capability as they look to is to get back to those type of levels you would have seen last year.

And I know they want to even grow beyond that. So I think your characterization of less worse is probably right as we move into second half of the year. you're right. It's sort of the one area that keeps me up at night is the refined fuels into Mexico. It's a really good piece of business. And , I guess, supply chain solution that we've developed. It really has been pretty well nonexistent here for the last 6, 8 months. We start to see as things sort of improve relative to the situation in the Gulf. We begin to see that open back up a little bit. But as soon as things turn again, it closes right back up. I think the good news on that front is we're ready. That supply chain is solid. We've cut the customs processes and that in place. So as the market shifts and those arbs open back up, I think we'll benefit from that business again. I just can't tell you exactly when that's going to happen.

Your next question comes from Benoit Poirier with Desjardin Bank.

Yes. Thank you very much, and good afternoon, everyone. Just in terms of assumption, given the movement that we've seen in the FX and fuel, I was wondering if there was any change in your assumption for the year? And maybe specifically for the grain, John, you mentioned, are you counting on a stronger grain crop in the second half to kind of offset the coal weakness? Or are you still making 3- to 5-year average. .

Yes. I'll let in some of the macro assumptions. But on the grain front, I think we're pretty optimistic that we're going to close out Q3 on the sort of continued strength. I think the question will be sort of when exactly the grain harvest comes on. right now, I've seen maybe more bullishness relative to CPKs specific growing territory. So Southern Alberta, Southern Saskatchewan areas that have even last year weren't great in terms of rough conditions being better.

So we are optimistic for the purposes of our Q4, we've sort of modeled what would be the 3- to 5-year average. But I'll tell you last year, our volumes did not move at a record pace. We were a little bit slower out of our southern territory and then that kind of picked up, maybe a little bit different than what CN experienced in the fall. So even at that sort of average run rate, we see some uptick in terms of grain helping be supportive in that. And again, we also believe our U.S. franchise has a pretty good outlook on top of that, Ben. .

Ben, our assumption hasn't changed much of where at the beginning of the year, we were closer to $1.38 on currency. We're closer to $1.40, $1.41 recently. Obviously, fuel is very volatile, and there's timing issues related to fuel surcharge and the lag of what comes with the expense of that we hit directly. So overall, our fuel assumption has increased for at least for the next 30 to 60 days, and we'll see what plays out the rest of the year. But were effectively covered. I would just say that it may impact our operating ratio to an extent just in terms of the taking on those fuel surcharge revenues at a 100% operating ratio and the lag impact, which hopefully will turn become positive by the end of the year. .

Your next question comes from David Vernon with Bernstein.

So John, maybe as you think about how the business has grown over the last couple of years, can you help us frame what the cross-border Mexico revenue is on a total shipment basis? And how much of that is actually going Western Canada or West of Chicago versus Eastern or Eastern Canada or the points in the U.S. Just trying to get a sense for the revenue that has to stay on the cross-border Mexico stuff because you guys have delivered a lot on the synergy side with [ KCX ].

Well, I can frame it up this way, David. Specific to what I consider our land bridge business, I think I guided towards you continue a run rate to get to $600 million on that business this year. And you should think about -- as Keith said earlier, 65% of that is between Western Canada and Mexico in the balance of Eastern Canadian business. And I would tell you, it's pretty equally spread between whether that's intermodal business, ECP business, automotive business and grain business. Those are kind of the big 4.

This does conclude our question-and-answer session. I'd be happy to return the call to Mr. Keith Creel.

Thanks, operator. And listen, thanks, again, for everyone's time. It's a nice pull some robust discussions this afternoon. There's a lot of noise in our industry. There's a lot of noise in the economy, but we think the noise, from an economic standpoint, it's providing a very supportive backdrop that we control, we can control. We're set up a strong second half operationally, commercially with a bit of strengthening freight market demand at our back. We're focused on executing and meeting or exceeding not only our [ 26 ] cadets carrying a whole lot of momentum at '27. Thank you, and we look forward to sharing our third quarter results in October.

This concludes today's conference call. You may now disconnect.

Thanks, everybody, for joining us. Appreciate it. We're getting back on the transportation track. We are very excited to be joined by Canadian Pacific. This morning, we have John Brooks, EVP, Chief Marketing Officer from the company; as well as Mark Redd, EVP, Chief Operating Officer. Ashley is also here in the front row. Thanks very much for coming, guys. Really appreciate you joining us at the conference today.

Absolutely. Appreciate it, Chris.

Great. Well, I think probably the best way to kick off, which is what we've been doing is maybe just a little bit of a current market update, if you will. Maybe we'll start, John, with you on what you're seeing from a market perspective on volume, and then we can turn it over to Mark to talk a little bit about what's happening from an operations perspective.

All right. Well, again, certainly honored, Mark and I, to be here representing all the CPKC employees out there across 3 countries. It's crazy, Chris, to think about it that we just passed our 3-year anniversary here back in April of this combination of legacy CP traversing, of course, across Canada and into the U.S. and of course, the KCS down from Kansas City and into Mexico. And it has been a unique journey, but it's a unique journey because it's a unique property and franchise. And I sit here today, super pleased with what the 3 years have produced.

We continue to lead the industry in earnings growth. We continue to lead the industry in volume growth. And honestly, as I look to 2026 and how things are shaping up, Q1 was sort of how we expected. There was certainly some pull-ahead and some challenges from last year. But nonetheless, we stacked a record Q1 in terms of volumes moved on to Mark and his team to move. Now as I sit here in Q2, I would tell you that the volume trend continues to be positive and sort of week-over-week, we continue to see a little bit of an uptick.

So I'm pleased where we sit today. I'm as optimistic as ever around our full year guidance of mid-single-digit volume growth and hitting double-digit EPS growth. And I don't think anything has changed on that front. I can tell you, Chris, and I think you know this, we continue to be very disciplined in the marketplace in terms of pricing. I feel good about where we sit on that front. And frankly, as maybe some of this trucking capacity continues to tighten and some of those trends continue in the right direction as we look forward, I think there's further opportunity there.

And maybe I'll turn it over to Mark because he's running a pretty good railroad right now.

Yes, he's selling the business, right? So he's propping himself up here. It's looking good. So thanks for having us, really. I would say it's good to be at CPKC. The railroad is running well. We've got -- if I look at some of just the metrics off the top of my head, dwell, car miles per car day, double-digit. I mean, we're 10%, 11% better than last year. If I look at some of the day in noise that we did have last year, comparables to this year, the KCS, former KCS Southern property doing quite well as well.

So yes, so we're delivering what we said we would do, the synergies. We're propping up the synergies that John talked about. We also looked at the -- just the integration piece of it with our employees, with our culture. Certainly, dynamic. We have 3 countries to work through with our employees. And certainly, from a culture standpoint, we're implementing PSR, CPKC Living Well. So again, it's good to be here.

Absolutely. Listen, that's a great way to kick off. And maybe, John, we'll dig in a little bit more on the volume side. I think quarter-to-date, up a little bit north of 3% on RTMs. I guess when we look at the individual commodities, grain continues to be quite robust. Let's start there. So how do you think about the grain dynamic? I guess there's been a view that you guys are kind of running all out. I guess, is there a point when that crop from last year runs out and we go into a little bit of a pause? How do we think about sort of first half, back half of '26 from a grain perspective?

Chris, I have to tell you, like -- so yes, quarter-to-date, we're just right at about 4% and our Canadian coal is -- it's probably about a 3% headwind that we're covering on that, too. So I look at last year, we grew RTMs Q2 by 7% the prior year, 6% ex-coal, we'd be 7% again this year. We're stacking growth upon growth at CPKC. Certainly, grain is a huge part of it.

And honestly, I've said it in the past, I'll say it again. At CPKC, we've got the best, most resilient bulk franchise in the industry, and it's paying dividends. The grain is running well. As you know, we had a record crop across Canada. We actually had a record crop, specifically on the corn side in the U.S., and that's where we continue to see the strength.

How long it lasts? The thing that sort of keeps me up every night kind of wondering. But I'll tell you the -- certainly, the outlook to close out the next 3 weeks in early July continues. Our orders look very strong. We just kind of got through 2 weeks of the final seeding across the property, which sometimes the farmers pull back a little bit on their deliveries. And it's been pretty wet up in Canada here recently. So that's put some road restrictions on. So we've seen a little softer times, but I can tell you, orders for next week came in as about as strong as this time of the year I've seen.

So look, I expect to continue probably right into new crop to see a pretty steady or above-average grain shipments, certainly within Canada. And honestly, the U.S. customers are pretty bullish on sort of the outlook in the next few months on the U.S. side of our property, too. So between grain, if you think about our other pieces of the business in the bulk franchise, our potash business, continues -- export potash continues to be particularly strong. And if we can see some incremental improvement in our Canadian coal business, which we fully expect as we look to the back half of the year, I don't know that kind of presents itself a little bit of stabilizing effect or even a little bit of upside.

I would -- one thing I would add, I'd be remiss not to say it's following our PSR principles as well. So if I think about with seeding, if I think about EVR, some of the issues they may be having, I mean, we're pulling train sets. We're pulling cars out as we need. We're storing locomotives even for that short time period, just to save costs, save overhead that we can in the operating side. So again, we talked about a ramp-up next week where we've got grain hopper spotted elevators ready to load ahead of our competitor in some of the areas and certainly ready to push off this coming up week as we see orders restore themselves.

And then... Auto has also accelerated nicely here in the second quarter. So can you talk a little bit about sort of what you're seeing there? Obviously, the franchise is somewhat unique in the way that you triangulate that business using, I think, some of the opportunity in the network that you have in Texas there. So can you talk a little bit about what you're seeing on the auto side?

Yes. This is an area that, Chris, as you recall, as we look to bringing these 2 properties together, we really thought it was a, kind of, late part of the journey. Honestly, I thought it would have been about right now, we would have seen that really materialize, but it's an opportunity that we took advantage of and really were able to pull forward the opportunity.

And when I say that, it is creating this closed-loop network to where we're really taking our auto compounds, our production facilities in Southern Ontario the U.S. and Mexico and how we sort of link all that together to honestly, just give the OEM a better service product than they've ever had in the past. And we've had a lot of success. So you're right. There's uncertainty relative to trade and some of the tariffs and how production shifts may take place over the coming years.

Right now, the demand is strong. So again, I expect a pretty good run out here in the next few weeks to close out the quarter in the automotive space. I can tell you, I see an opportunity. There's still a lot of vehicles being produced in Mexico that are being short [seed] into the U.S. or even into Canada that just because of contract timing haven't come available to us yet. So I do see a pretty good auto opportunity even out here in the next 18 months in terms of new incremental -- incremental volumes.

And we'll see what the second half brings. Typically, we get into that July time period and you see retooling and plant maintenance. We're even talking to some of the automakers about the idea of producing through that period, which could present even some upside as we move into the summer.

And I guess, as you think about the full year, so the mid-single-digit RTM target, you're running a bit below that now, but obviously, volume is accelerating. So can you just talk us through how you think about what the progress would be that you need, I guess, 3Q, 4Q, some of the key points that you're looking for. Obviously, you mentioned you could see some different commodities do different things as they move over the course of the next 2 quarters.

Yes. I would tell you the cadence is exactly sort of how we played it out for the year. We knew, again, Q1 was going to have some pull-ahead challenges despite sort of us moving record volumes. I think we had about 2% RTMs. We expect Q2 to fall in that 3.5% to 4.5% range RTMs roughly, Chris.

And that kind of sets us up for what I would consider to say, let's call it, 0.5 point to a full basis point kind of sequential RTM growth as you think about Q3, Q4. I think that's how the year plays out. Nothing that I see out there right now gives me pause relative to this. I continue to see our bulk franchise performing quite well.

Intermodal is definitely hung in there for us. And I'll give you kind of 2 thoughts on that. One is our international business, although we're facing tough comps, is right hanging in there, better than actually I thought. And I can tell you sort of the view here in the next few months is we've got pretty strong deliveries planned in cargo on the water. And actually, that's with Lazaro not performing really great so far in the first half of the year, but we see a pretty good pickup on our Lazaro freight coming into end of June, July. So I'm actually pretty bullish on international, more so than maybe I was early.

And frankly, the Canadian consumer and the U.S. consumer on the domestic side, despite all the noise, are continue to be pretty resilient. So those volumes are pretty decent. Our transload import volumes that get transloaded for the likes of a Canadian Tire and Dollarama and others in Canada, continue to be pretty strong. And with the introduction of our new SMX product that I'm super bullish on, that is a great growth platform for this network. So I think we're going to be stacking double-digit week-over-week volume gains as you think about that product as we move through kind of the second half of the year.

And Mark, I wanted to kind of get your take on how you prepare the network to kind of manage that because it does sound like things are going to get a little bit busier as we move forward through the rest of the year from a volume standpoint, at least on a year-over-year growth basis. So I guess, how is the network kind of prepared to handle it? And then maybe we can weave in some of that 2Q OR commentary. I do think there's an expectation of some improvement in spite of what we've seen with the price of fuel. So how do you think about the network and how it can handle that volume?

Yes. I think in the past couple of years, we've put capital in our railroad. We've spent some money in Mexico to separate our switch and that we've talked about in the past where we can run trains, mainline trains and switch customers. We've twinned the Laredo bridge that opens up capacity for us. We've certainly put money into the old Meridian Bigbee that we bought. We've got that railroad up to 49 miles an hour. So we've placed capacity into the network. We have the people to cover it. We have good agreements that cover anything that John can throw at us. We brought on locomotives. We are probably about 166 of 170 delivery from Wabtec.

But I'd tell you what I'm proud of it and really super pumped about is progress coming back into the business. We'll have August where they'll start delivering 30 locomotives, Tier 4 locomotives to us this year, and that will migrate into 35 for the following year. So we'll be 200-plus locomotives on hand, replacing some of the older fleet, but also getting better utilization and fuel efficiency out of the ones that we do have.

But certainly super excited on where we are. You see it in the numbers. We've got growth that we can add an overlay into that. We've got growth on our trains of SMX and the MMX certainly can grow in that space as well. So yes, we've done a lot to get here, and we've backed off capital just a bit is only because of the money that we've put in over the past couple of years. So we're super excited.

And then as you guys think about sort of the 2Q, I think there's an expectation of OR improvement. I'm guessing nothing has necessarily changed as far as that's concerned. And then I think full year, sub-60%, I think, is the way you guys are thinking about it. Anything to think about from an OR standpoint, 2Q or full year?

No, I think we feel good about it, Chris. Look, fuel continues, will be a challenge. Stock-based comp, a good thing. We're watching that. We got to keep them on the rails, have a little bit of a casualty wobble here. But all that to say, sort of the thesis in terms of bringing on more volume, operating it in a disciplined way and having that output be that sequential improvement that we've talked about, nothing has changed. And honestly, as we look forward to full year in terms of our volume guidance, our double-digit EPS and the ability to improve that operating ratio as we spoke about, all is in line.

Yes. And I think double-digit EPS in the second quarter was also mentioned on the last call. I'm guessing that still sounds reasonably good.

That's right.

Fantastic. Let's talk a little bit about pricing. So I think there's been a lot of discussion around the transportation market broadly. Certainly at this conference, we've been talking a lot over the last day or so on the trucking market in the U.S. specifically. I guess maybe a couple of parts to this question. First off, how are you thinking about sort of pricing in the various end markets that you guys are very focused on? And then maybe we can think a bigger picture about the transmission of truck pricing in the U.S., how it impacts your franchise and when?

Yes. Well, look, I'll start by saying I believe we have been the most disciplined price leader in the industry, and we're not going to back off. We're not going to waver. We're not going to blink. My team is, frankly, part of their compensation is tied to their ability to earn price for the value of the service and capacity we provide. That's a finite product that Mark provides, and we want to get that value out of it.

So the pricing that I've sort of guided to the last couple of quarters, as I look at Q2, and it sort of continues to play out. I'm just going to say that 3.5% to 4.5% range continues to sort of play out. And honestly, as I look out over the next 18 months, as I look at Alyth, Chris, as I look at what you described on the trucking piece, to me, there's -- it feels like a little bit of a tailwind. And if some of these markets continue, trade stabilizes and we get some of this geopolitical things hopefully past us and USMCA kind of begins to sort of whatever that new end looks like begins to crystallize. I think all those things are supportive for that pricing piece of our business.

Specific to the trucks and how that materializes, it kind of moves in -- it doesn't move as fast as you might think. What happens first, and I think what we've definitely realized is the sphere or pie of opportunity specific to that has grown. Like as much as I would say, our MMX product, which is our train service from Central Mexico to Chicago when we introduced it 3 years ago, the timing couldn't have been worse. Like it was a tough market to introduce it in.

The SMX arguably couldn't be better. It's -- and I think what we're seeing is the band or scope of customers now interested in that product right out of the chute has been much bigger. The pricing piece, I think there's a little bit of a lag to how that plays out. But I was telling a group earlier today, it's not just that sort of natural intermodal piece, truck to a 53-foot dry van.

We're getting a lot of interest from shippers that are trucking today that are interested in boxcar or other types of movements or a combination of boxcar and intermodal that they can sort of diversify and try to find some savings to what they're facing in the truck markets today. But I do believe that pricing piece relative to that kind of just continues to play out as we look forward.

Yes. Okay. That makes sense. And Mark, I wanted to touch a little bit on some labor dynamics and how the network is operating in the context of those, I guess, as you think about heads and anything from a 2Q operating perspective around labor?

Yes. So I think just from headcount, we'll be balanced. I mean I don't -- we may be incrementally up just a bit just based upon when business comes on board. One thing maybe you didn't mention was the IBEW that we're -- they have a strike right now with the signal department. They handle the signals in Canada, about 300 employees for us. We're covering the business. We'll cover it through Q2 if we need to, certainly be back at the table whenever they're willing and able and want to. It's unfortunate that it happened, but you've got to take a stand on where your beliefs are and you got to do what's right.

In the U.S. side, we've been dealing with an hourly agreement. Certainly, the men and women in some of those areas didn't want an hourly agreement, which is fine. We have a -- and I think I said it last time, we have an older short line agreement that will be in place. It gives you really good flexibility. I know it well. I used to work under that short line agreement, and we do know it well. So again, that unlocks some opportunities for us to move crews around, move crew districts around, run double districts instead of single districts. So we'll see some savings out of that as well.

But from a labor standpoint, we've always said from the start, we've got to build that relationship. We've got to keep that relationship. That relationship is always important to us. Again, we're going to agree to disagree on some things. But certainly, when we leave the table, we'll understand what's important to both of us.

With those 300 folks, there's not necessarily any meaningful disruption in the way the network is operating on a daily basis.

Yes, not at all. We'll learn. The good thing about it from the company side as we learn that job a little bit and get a little more intimate with what they do day in a life, is there opportunity for headcount to come out. We'll be certainly looking at that as well.

Okay. That's helpful. John, I want to come back. You mentioned USMCA. That's obviously a topic of conversation. I think a lot of folks are thinking about, particularly as it pertains to your network considering you kind of -- you kind of run the gamut there. So can you talk a little bit about anything that you guys have heard, how maybe you think the process kind of plays out? Obviously, we won't know what the outcome will be, but how does the process play out? We're kind of getting near to the timing here, right?

Yes. Well, Chris, I think I would start and say that the thesis or fundamental of North American trade being good for all 3 countries. We're not wavering one bit. I think the foundation of our network traversing all 3 countries seamlessly and being able to trade and move goods, we continue to strongly believe that, that's the future regardless of what USMCA looks like, who is in Ottawa, who's in Mexico City or who's in Washington, D.C.

In terms of the process, we're trying to keep our hands on the pulse of it. Obviously, we read in the headlines and all that, too. I think our feedback so far that we've received is things continue to progress well and discussions are ongoing and robust between U.S. and Mexico. And I think we feel pretty good about directionally how that's going. Timing remains maybe a little uncertain on that. Honestly, there's been certainly recent discussions that took place between Canada and the U.S., a little less certain in terms of exactly where those stand and what's next on that front.

I think our belief is, again, whether these are now just bilateral agreements between countries or it is all together, I don't know if it really matters to us. At the end of the day, these look a little different. They're bilateral, but it still gets us to the end in terms of a stronger North American. That's where we're -- North America, that's where we're focused.

I would tell you, Chris, that with all this noise, there are green shoots and good opportunities that have emerged. And one piece that was sort of never in our thesis when we put these companies together was the idea of linking trade at a higher degree between Mexico and Canada. And that has definitely been something that we've embraced. The 2 countries have embraced. And frankly, the volumes we've seen grow to a $400 million-plus revenue stream from almost a zero revenue stream just 3 years ago. And we're continuing to see a lot of new opportunities still exist between whether it be steel or forest products or grain products or avocados and bananas out of Mexico into Canada or consumer goods going the other direction.

So that's sort of been a -- I wouldn't say it's a one-to-one trade-off or that. But certainly, it's been an area that we've been able to work on and we'll continue to work on and will be kind of this new revenue stream as part of this combined network.

Okay. And how do you think about the shipper positioning going into these discussions? Do you feel like anything is being held back? Is anything being pulled forward as you want to -- they want to get in or get -- or kind of hold off until we get a little bit more clarity on what we're going to know what the rules of the road are going to be?

Yes. I don't -- I would tell you, I don't think we've seen any sort of dramatic volume shifts right now like we did sort of pre-liberation Day, where definitely we saw an onslaught of movements. I'm pretty confident we haven't seen that today. To be honest with you, we're in the cycle right now. It feels like in some of these areas that are pretty heavily tariffs between the countries where you've got -- you get a pretty big buy by those producers or those folks needing those goods and then they're depleting the inventory as long as they can go without buying again. And then it's sort of the spike. That's kind of what we're seeing in those areas. And optimally, we'd like to see that smooth itself out with some sort of trade agreement.

And then I guess, Mark, you were talking a little bit about the Mexican part of the network. I guess, as we're sitting here a few years, I think you noted the 3-year anniversary of the transaction. As you're sitting here, I guess, where does the Mexican network stand relative to U.S. and Canada? Are there more opportunities there? I guess as you think sort of bigger picture operating ratio and how improvements in Mexico fit into that sort of earnings growth algorithm, what else can we expect down there? What needs to happen?

Well, I mean, I would say from a labor side, good news is that we've kind of settled our labor agreements this year with just cost of living and next year, we'll do some service rules, work rules with each other.

And they're year-to-year, right?

Yes, they're year-to-year. You do work rules every other year. So you get that opportunity. But yes, you're right. So -- but again, we've had such a good relationship. I would say it's never perfect, but I would say that you have a good relationship with the union and the other part of it is just kind of where we are. There's incremental things that we want, incremental things that they can see that they want to swap different things with. So there will continue to be opportunity in Mexico just from a labor standpoint, which allows us to do more, which allows us to pay a bit more and probably take a few more heads out of that system. As we continue to build upon some of the track structure down there as we continue to put the culture of what CPKC is our conscientious leadership culture, we certainly gain more ground in that area.

Remember, we focused on KCS first just based upon STB. We've been migrating down to Mexico, which is how we do business, what we do, PSR model, all of that type of stuff. So we've been working hard in that space this year alone. So we've seen a lot of incremental even from day 1 year-over-year just in Mexico alone. But again, you'll see probably two-fold in the United States on the KCS side.

That's helpful...

Chris, I'll tell you, I'm bullish. I'm bullish on Mexico. I have to get this in. A couple of weeks ago, I just spent a week down there, probably met with 30-plus customers, a lot of them new prospects, never moved on the rail before. To sell that property in the spirit and vigor of how we sell the U.S. property and Canadian property has never been done. And I'm completely convinced we are in inning 1, 2 of a growth story with Mexico. I think this network in the past was just a -- they just benefited from all the trade and things going on in Mexico and just sort of what it produced, we received versus an approach where we're going to go get it, and we're going to convert and we're going to teach and we're going to educate and convert truck to rail. I'm bullish on the growth platform for Mexico.

Let me add a comment because rest in peace, Pat Ottensmeyer always said whenever he felt down, he would want to go down to Mexico for a reason. And he'd say, just the people down there, they just gravitated to how they can do more, the pride in the workforce day in and day out as John went down with his marketing team as we go down with the operating folks and we talk about how we do certain things. That's just a pride and how they want to do business down there, just -- it overwhelms you. So certainly, they want to do more, certainly, they can do more.

And I think it's not lost on us that the last few years from a macro perspective haven't been necessarily all that conducive to kind of reaching some of the bigger picture earnings growth goals that I think you guys originally laid out post-merger. So I think as you guys are talking about these opportunities, are these the kinds of things that we can think about as we look out to '27, '28 that we can be part of the catalyst of driving that accelerating earnings power that we kind of thought we could get originally, but I think the economy had other thoughts, other plans.

100%, Chris. I mean I remember that Investor Day like yesterday. And truly, the only piece of the equation that isn't exactly sort of how we thought it would play out was sort of that organic growth, that baseline macro piece, and it just hasn't produced like I think it previously had. Now that being said, I think we've overproduced relative to the synergies and creating the value well, and that's been the differentiator. That's what makes this franchise unique to all our competitors out there. I do believe the story when you think and look forward with a fairly supportive sort of macro environment coming back at some point here, layering in sort of Mexico and sort of the early innings of where we are, layering in sort of an industrial development story that I think truth be told, just the uncertainty of the last, I'm not going to say, past 24 months, there's a lot of money still sitting on investment money that whether it be in Mexico for the whole near-shoring story or even in the United States. I think certainly, we've seen some of that come to roost here recently, but I think that there's still a lot of opportunity for this network in those 2 spaces that do play in that '27 forward story.

And I waited until there's 4 minutes left here, but I got to ask you the regulatory merger question. So I guess, as you're thinking about customer discussions, how you feel like the network is positioned, obviously, there's probably going to be some time before we have to necessarily address a potential combined UPNS. But how are you guys thinking about the playing field going forward?

Well, I would say, first of all, and I'll let Mark -- the thing is going to go 9 rounds and maybe 10 rounds. I think it's going to be a slugfest. I think you got an STB that you've seen now repeatedly at least twice or 3 times. say that they are going to hold this to the 2001 merger standards and those -- that bar is high. So they're taking that responsibility, obviously, very seriously, which they should because whatever transpires, and obviously, we've been very candid. We do not believe this is necessary. We believe there is balance competitively in the industry, and this is going to bring an unneeded giant to the playing field potentially, but also unnecessary risk to really North America in terms of if there was a failure that went with it.

All that to be said, I think we believe at CPKC, our network by design is most resilient. And if you then were to carry it forward and say, let's say, it did go forward. And then if there was another round of consolidation that took place, we believe between our franchise, our management team, we're a good suitor. So if that were to be part of this story, then we think we're in a great position there, too.

Anything from a network perspective that we should be thinking about competitively with you and a potentially combined UPNS?

Well, let me talk a little bit about -- John, I'll land on that first. But what I would say is kind of counter to that. If I think about SMX and I think about the work we've done with CSX, they have been a prince. I mean they have met us at the door service design. We put schedules together. We've done a lot of good things, 2 railroads, 2 Class 1 railroads -- that they can't work together. We've come together, and we've been able to do a lot of work together for Atlanta, for New Jersey, for Florida. At some point, we'll talk about Charlotte on this SMX and southbound as well, where we have North Mexico and we have the Dallas market that we work together on, and we put a good service product together. And again, it's two Class 1's working together.

Mike Cory and his team has done an exceptional job working with us on blocking, locomotives, everything we need to do to be successful. And it's about show me, and we're going to show you what that service can do, and we've been showing you what it can do. And I think that's what I would add to the merger talk. There is a way to do this even without a merger.

Yes. And just anything from a competitive standpoint within the network, do we -- are there any areas that you guys feel like you're really well positioned relative to a combined company?

Well, again, I think the fundamentals of our seamless cross-border -- look, like they would have the ability to move out of Mexico into the Northeast on a two- line carrier. That would be different than the three that have to do it today. So it would match up to our two-line haul. Does that give you concern? No, I do believe fundamentally, the routes and products that we've put in place are designed to be leaders in the marketplace.

Now look, again, I think part of the story, Chris, is you got maybe one company that arguably control 40%, 50% of all the freight out there. That brings with it a huge amount of risk. It does bring with that some concern on leverage and customer discussions and stuff like that. So -- but those are the things that I think the STB has now been very clear that they are really going to scrutinize and look closely at.

And whatever happens, I mean, our voice will be heard. If we have to deal with the STB publicly, whatever it is, if we -- if there is a merger, there's issues that come along with that, our voice will be heard.

That makes sense. Well, I think we are out of time. So thank you very much for joining us. Appreciate it.

Thank you.

Thank you, guys.

We're going to get going with our next session with Canadian Pacific Kansas City, CPKC. Keith Creel, CEO, is back at the conference. Thanks so much for being here, Keith. I appreciate it. And Keith, maybe just a couple of quick opening comments, and we got lots to talk about.

Yes, I imagine. Yes, imagine. So listen, high level, thanks, Scott. It's always a pleasure to come and address your conference and all the investors that are here with us and not with us listening. I can tell you kind of a 3-year check-in. CPKC just celebrated our third year anniversary of kind of our forever story. We brought this railroad together to create a very unique network, end-to-end network to enhance competition, increase competition and enable more markets to be connected and to grow. And that's exactly what we've done in spite of the macro. This railroad has created some industry unique results over the last 3 years.

This year, no different, in spite of a pretty challenging first quarter with quite a bit of demand fundamentally. The grain is running extremely well, strong harvest in Canada. Operational efficiencies is exceeding my expectations, and I've got pretty high expectations. The network is running well. Same is true about most of the bulk franchise, except for coal. We said this in the first quarter. I think right now, quarter-to-date, RTMs were up approaching 3%. If not for coal, it would be 3% more. So that's a bit of a headwind. We think will normalize, at least not be such a drag in the second half.

But again, in spite of all that, we're still on track to hit that CAGR of mid-single-digit RTM growth and low double-digit EPS growth. So the year looks good, and I think the fundamentals are supportive, and we're continuing the railroad exceeding expectations, 3 years into it, we're doing extremely well.

So maybe let's just start there. You talk about this 3-year journey. What's gone better than you would have thought? And what's been more challenging?

Well, the macro, obviously, I never expected a freight recession. We probably put the railroad together from a growth standpoint at the most challenging time. But in spite of that, because of the things that have gone well, our synergies, what we've enabled and uniquely created on a revenue standpoint, if we go back to our Investor Day, I think we guided to about $1.5 billion of revenue synergies by '28. We're going to clip that number early '27. We're going to exit this year close to that number, probably $1.4 billion. I think we exited last year at $1.2 billion. So we'll be between $1.4 billion and $1.5 billion. That's on the revenue side.

On the operating side, again, we're exceeding expectations there as well. So in spite of the macro for those synergies, price power, value of the service, integration of the railroad, those have been very, very supportive and accretive to our journey.

And you mentioned never predicted a freight recession. And listening, we had all the trucking companies here yesterday, and they'll tell you it's over. But I think they'll say it's probably more supply-driven in the U.S. than demand driven. Are we at a point where, in your view, macro becomes an additive to your story? Or are we not there yet? Just this is again more of a supply-driven trucks phenomenon in the U.S. and maybe not the demand tailwinds that you're hoping for?

Well, I think the demand is still too soon to call. I think fundamentally, the driver shortage is changing the dynamic. I think it's eliminating what has been for a long time, a very unnaturally depressed trucking price market. So as that adjusts and the fundamentals for rail has become more attractive. And if you've got a unique service, especially where growth has existed in spite of the macro given Mexico and given the United States, we're kind of in a sweet spot to benefit from both.

So we've grown in the macro when it's bad, I think it gets more supportive as it kind of neutralizes and becomes a tailwind. That's exactly what I see. So I think our story is a bit unique. So we don't have to have a whole lot of demand. If we just have kind of the unnatural dynamic that's been in the market eliminate itself, we're just going to push more traffic to the network. And with this product that we just introduced 2 weeks ago with SMX, which is replicating the model of the Midwest Mexican Express. Again, that's a game changer for us.

Can you -- can you touch on that more?

Yes, it's all about transit time. So what we created the industrial logic of what we did with our 180/181, which is our Midwest Mexico Express is take advantage of the route miles and make the border seamless and create kind of a train that can't be touched by truck going from Chicago to Monterrey and on to St. Louis Potosi, which feeds kind of the Mexico City market. We've done that. We've resulted in increased demand. I think for about -- the growth over the last 3 years. That train is 75% full. If it continues, I think we'll be in a place with a better macro. I feel very confident about this.

We'll probably add another train next year at some point. And that success, the opportunity is even greater connecting the Southeast in Atlanta to Dallas as well as to Mexico. So this partnership with CSX, when we envisioned the merger, the route didn't exist. That was kind of a bolt-on that we uniquely did literally the weekend of our Investor Day a couple of years ago. We've invested heavily in it. We've just launched a service now that allows transit times that are truck competitive. We can get to Dallas from Atlanta in less than 2 days. We can get to Monterrey markets from Atlanta in 3 days, and we can get to Mexico City in 4 days.

And again, a truck can't touch that. So in a market where truck capacity is tightening, where costs are going up, again, that's very supportive introducing it now, I would suggest it's never been in a better time to go out and improve the product and to grow the product.

I want to pivot for just maybe a few minutes to talk about the M&A backdrop, and then we'll come back and certainly, I want to spend some time talking about...

A few minutes. I'm going to hold you to that, okay?

Yes. So you probably -- you've been one of the more vocal on the merger. And one of the comments that you've made that I think was the most interesting to me was when you say the risks are too great. And they'll certainly make up the case that this is in the public interest and talk about taking share from trucks and that means for fuel and safety and all those sorts of things. But your comment is that the risks are too great. Talk about that, please.

I think perspective matters. And if you think about my journey, this is my 34th year in the industry. It started in the United States. It did start in Canada. I lived through the BNSF merger. I lived through the UP/SP, the two meltdowns, I lived through the Conrail as a young Operating Officer. So I understood at ground level, what happens when things go bad when it comes to operational risk. So if you think -- fast forward to today and you think about the scale that this creates, you think about a place like Chicago.

In Chicago, historically, if I go back to 2014, again, my journey has been a long one. I and Matt Rose sat in front of the STB when Chicago melted down and I got roasted because of Chicago. And the reality is my network was dependent upon the belt. I remember the day before I went to the hearing, we had 14 trains between Minneapolis, St. Paul and Chicago staged on our railroad waiting in line to get into the Belt. But the Belt is an asset we all use. And one of the two heaviest users, you put them together, they are the heaviest user is NS and UP.

So when I think operationally, what can happen if their networks get in trouble. You put a network together that large that is that connected to Chicago. And this is just one of many cases and it melts down. It affects all of us. It affects my network. If I go to the NS, and this is a very unique situation for us tied to these transactions over the years with the Conrail carve-out. Before I came to CP, part of the concessions are part of the agreements that were made, CPKC today and has had and will have for the future, trackage rights over the NS Mainline from Chicago that connect us to Eastern Canada through Toronto.

We have crews that operate out of our terminal in Chicago that live in Elkhart, Indiana, that changed crews on the mainline on the NS, which pro forma will become UP. If that terminal, and that's the first major terminal east in Chicago gets congested and trains start to bubble out of the yard into the mainline, my trains can't get to Toronto. So again, those are just a couple of the touch points and there are multiple locations. There's concerns in Kansas City, there's concerns in St. Louis. And not speaking just for me, I'm intimately knowledgeable about these operational risks.

But when you get to that point with the scale, with the gravity to suggest that there's not risk, that's bigger than me, it's bigger than Jim. Jim is not going to be here forever. I'm not going to be here forever. Ten years from now, 20 years from now, management teams have to run these networks in a way that benefits commerce in the United States of America. That's what the U.S. rail network exists for. And if it goes in the melt down mode because it's too complicated or because you don't have the right talent set to be able to figure out how to put up [indiscernible] together again, we all bleed. So it can't -- if it fails, we all fail.

Two just quick follow-ups. You have a Transcon network in Canada. It works. Could you argue, right, having Transcon in the U.S. reduces the risk around Chicago? And is that part of the argument for why it's in the public interest or something like that?

I think, again, scale matters. In Canada, there's 30 million people. I don't think you could financially support a third railroad, number one. The geographies, the distance between terminals, it's not even a fair comparison. In the United States, it's 10x that. It just is. There's way more complexity. There's way more risk. And so the argument to compare the two industrial logic, if you don't understand the nuances, it sounds good, it reads good, but it's actually not true.

Apples and oranges.

Yes, completely different.

And then I asked you on the Q1 earnings call, like is there any potential for, hey, we can agree here, we can agree there. And you gave, I think, a one word, no, right? Is there any sort of change in that one word, no?

No.

No. Okay. Fair enough. Okay. And then last one, and then I promise we'll move on. The -- if ultimately, right, hypothetical, right, ultimately, this is approved, is it natural then or needed or necessary that one leads to two or three or four?

Yes. I think it's inevitable. It's probably the best way to say it. I think we all have a fiduciary responsibility to equip ourselves to best compete. And if this pro forma occurs to suggest or think that any of us can set still, I think, is naive. I don't think that's going to be the outcome. Now how it all shakes out, who gets with who, who best fits with who, who can create the best synergies, who can create the best network to compete against that mammoth, -- that will be too determined. But does it suggest or think it's going to set still? No.

And the regulator knows that, too. This is the first step if it gets approved to a duopoly. I like this. I think Jim likes to talk about getting on a plane and going from New York to L.A. I want to go one way too, but I want to have the option. And if I go to Chicago, I think maybe some people floated this idea a couple of weeks ago of consolidating and going to potentially one main airline in Chicago. You put Delta together, United and American Airlines together. It didn't take long to say, no, I don't want to go to Chicago and have less options.

I want to go especially in Chicago and have more options, not fewer. And that's kind of the compare. If you consolidate the two railroads, think about the world, reconsolidate to two airlines. I just don't think that's in the nation's best interest.

All right. Let's turn back to CP, and then we'll get some questions if there are some. So earnings in Q1 were down a couple of percent, right? Guidance is we get to double-digit earnings growth for the year, right? To me, one of the big changes is cents per RTM down 4% in Q1, and it sounds like we're going to have a big inflection in Q2. I think I heard you or maybe John say last week, cents per RTM now up 10% in May. So talk about that inflection, how much of that is just fuel? How much of that is lapping carbon tax? How much is like underlying price mix? That's a big number, up 10%, right?

So you're hitting all the key points. So what was against us in the first quarter is not now. So we've lapped the carbon tax. FX has moderated. We don't have a big headwind from FX. The fuel surcharge is in place. And then our mix of business, we're moving more of the high cents per RTM business. Automotive growth is double digit for us. That's accelerating. So again, we're in a place now that we're in good shape for our guidance. When you look at it, I think in last month, it was 5% or 6% when we did our earnings call for April or 10% this month. We've got strong pricing power.

Again, we'll get back to that place where you're going to see 200, 250 basis points of OR improvement. The railroad is running extremely well from an efficiency standpoint. So again, I don't think we have any challenge getting to the rhythm as long as we don't have some kind of macro shock that I can't predict.

And that 200 to 250 margin improvement, is that -- that's -- I know you guided that's a Q1 to Q2 sequential. Is that what you're referring to?

Yes. And for the full year, we still have a path to margin improvement in spite of the fuel surcharge, which is going to be a bit of a drag against it.

Okay. And so overall, how do you feel you're tracking relative to that double-digit?

The year is playing out exactly the first quarter, the way we thought it would in second quarter, I think we're a little ahead. So we're in a good spot.

Good. I asked this also on the call, but maybe we've had a little bit more time to sort of think about it. Not a huge thing, but I still find it -- and you've got less of a lag than the others, but I still don't really understand why rails have monthly lags on surcharges when truckers and FedEx have weekly lags. So is that -- you've been a thought leader, you let them going from 2 months to 1 month, I don't know that.

You initiated a thought in my mind, too, and I actually had a discussion with one of our Board members about this that came from FedEx, obviously, and he explained the logic and the way they approached it at FedEx. But the history is a bit different in the rail industry. We have the most responsive fuel charge mechanism in the industry. It adjusts every 30 days. So is there a chance for refinement? Yes, there is.

But you also get to a history where historically, especially in the U.S., there were some pretty aggressive cases with fuel surcharge, where regulatory involvement. And maybe that shell-shocked us a little bit in all honesty. So I'm not saying never, but I'm saying right now, it's working pretty well. There's puts and takes, may not be ideal, but ours is pretty good. I think ours is -- in spite of all that backdrop, I think we're in a good spot. So I don't think it's worth risking.

Okay. I would think, given that history that it would probably have to be one of the Canadians that would lead that if that were to happen.

Likely.

Right. Okay. You talked about path to operating ratio improvement this year. Just thinking bigger picture longer term, right? A few years ago, you led the industry on OR. You think -- ultimately, you think you get back to that lead there? Just talk about the path to that.

Yes. The way we're looking at it is we grow the revenue and the top line and continue to operate the railroad well, we should naturally realize 1 point to 1.5 points, 100 to 150 basis points a year of yearly OR improvement, and that's exactly kind of the rhythm that we're on. So that ticks long, we'll get back to that mid-50s number.

There was a question -- I don't know if there's someone with a mic, but well, -- we'll get you the mic. So, maybe if you could walk back. I'll ask one more before and then the mic will come to you. Just talk about state of the network right now. When we look at like train speeds dwell time, like maybe there's like a little bit of pressure, but like that doesn't always tell the whole story. How is the railroad running right now?

You know what, I -- in all honesty, we just had the best first operating quarter winter that I've ever experienced in railroading. And I think it's a combination of investment, process, technology. We've done some very unique things using AI and algorithms and train speeds. We took a very -- I don't want to get too much in the weeds, but something very unique. Historically, in Canada, when it gets really cold, you have blanket slow orders. And you literally cover a path of railroad that might be for layman's terms, 5 subdivisions, 500 miles long.

You slow the train based on the temperature and you fly it to the whole 500 miles. This past year, using technology, we've eliminated and we've isolated and we go to certain segments and you only slow the train down on those certain segments. So you end up realizing train speed and you have a safer outcome. So using technology again, you get to a place where technology can give you still yield benefits. So that was beneficial to us. The investments that we've made, combining our operating systems last year as problematic as it was, and we've kind of lapped the date, we're right in the period when things were really challenging last year.

We learned a lot, and we've changed a lot, and we've integrated more. We can look at the network holistically, Canada and the United States now that we've got through the system cut over to run the railroad more efficiently. And then we're continuing to be better on process. I just shared this with one of our one-on-ones maybe 2 months ago, I took a trip from Shreveport down to Laredo. And just in that one trip, you identify probably between both segments, about 3.5 hours of train speed changes, 3.5 hours of speed. And you apply that to every train that moves through there, it starts to impact your bottom line on the asset turns.

We did the same thing last fall going from Shreveport up to Ottumwa. So again, we're in stages. You don't get it done overnight. We're investing. We go out there, we see things, we challenge things, we change things. That's part of the culture, pursuit of operational excellence that we -- that's part of what PSR is in all honesty. So it's a gift that keeps on giving.

One just really quick follow-up. So when new administration in the U.S. a few years ago started, one of the ideas was there's some big technology things that all the rails can do and can be beneficial to us. Does the fact that like there's now a merger trying to happen and somewhere else for it, somewhere else against it. And so there's a little bit of disagreement on this side. Is that preventing the industry from getting together on progress on some of the technology things that everyone wants to do?

I don't think so. I'll be honest, this drama that occurred at East Palatine it mobilized the industry, and I think it all made us realize, and I was part of those conversations, just because you have proprietary knowledge, if it makes the railroad safer and the industry better, we should share best practices. And that kind of initiated a renewed commitment to do that, and I don't -- I haven't seen this merger change that.

Okay. Good. Here's the question.

Keith, a quick question. You mentioned a lot around Chicago here in the Beltway and how that's an existential risk to the network if there's a melt down with NS and UP potentially and how that would impact your railroad. I think the question that Scott asked was also about if there is a merger, isn't that dispersing traffic to other gateway markets? And can you maybe just address that because Jim just said in the previous session that he would love to reduce his exposure in Chicago?

Yes. Some, but it's a rounding error. Last application I looked at it, and I don't think a whole lot has changed with this one. If they take 200 or 300 cars a day out of the belt, they're handling 2,800 cars a day. It's -- the end of the day, it means everybody gets 20, 30, 50 more cars of capacity. But it's not what happens when things are good. It's what happens when things are bad. And the reality is pro forma, they still remain and would be the largest user of the belt in CSX. And the way things work operationally, if you get into the details, when you protect your own network, and Jim speaks about this, too, and it's true, I agree with him.

Part of the dis-synergy of having two separate networks is you're going to protect your own, and we're all using the belt. So if UP's own becomes much larger and if normal things happen, I'm in proviso and there's a train coming in that's going to the belt, and it's got some cars that were misswitched into the train that maybe go to the harbor. -- where they normally should be going into the belt. Well, the operating guy or gal that's sitting in proviso, they're not going to stop that 200-car train and switch out 10 cars. They're going to put them in the belt and pay the belt charges and let the belt do the work.

Well, I think you could only go to just a couple of weeks ago, CSX made changes. The bar yard has put more traffic in the belt and the belt because it's a shared asset, switching cars by the same crews and the same leads, they're trying to digest that today. So think about the scale of a UP, if that happens when things go into meltdown because it's 40 below 0, like it was in 2014 or they have a significant derailment. And if they're taking 4 trains in a day, we don't get trains for 2 or 3 days, now they're trying to plug in 10 or 12 trains and everybody else that has to get in line.

You just can't separate yourself from that kind of risk. So as much as unless Jim says I'm exiting the belt, it's a problem because there's still significant users of the belt and the belt is part of their operating model. They can't exit the belt.

We'll get to you in a second. There's mic up here for David, if we can. You have a question -- sorry. Go ahead, yes.

Maybe just any update that you have on USMCA timing and how you guys are -- if there's any, I don't know, updated information.

Yes, not really. I know that I was in D.C. not long ago when the contingent from Mexico was there meeting with our counterparts. They're obviously -- I think it's news, they're more advanced than Canada. Canada is kind of holding the line and waiting, I think, my view, not their words, my words, they're probably waiting for a more optimal time. I don't think anybody is going to get in a hurry with the midterms. I don't think it's news to say that probably they're waiting, they'd be in Mexico, perhaps U.S. and Canada to see how all that shakes out and see how power shifts and what the courts are ruling.

I just think there's so many things up in the air on tariffs and elections that it says we'll get an answer later, not sooner, but it's going to get resolved. Trade is too important between the 3 nations. And the thing that excites me the most is when it does, then the money that's sitting on the sideline that is waiting to know where to be invested will be invested. It will get unlocked, whether it's more manufacturing in Mexico, more manufacturing in the United States or Canada. When it comes to us, we connect all 3 uniquely. And I think in the end, we benefit from increased trade uniquely.

So much like this merger, it's seasoning a lot of time, a lot of resources. I want the regulator to decide, is it complete? If it's complete, let's get through the process. Let's let the facts be known and heard and understood. Let's get to a decision. So we all know what's next. Is it status quo? Is it not? But being paralyzed to me, it's not good for investors. It's not good for customers. It's not good for the nation. We just need to get on with it.

I had two questions.

You will have one.

I will have two because you made me wait. First on operations. President Trump sent out a message last night in support of the Railway Safety Act, which looks like it would create restrictions and slowdowns for hazmat cars, among other things, to main crews, which I know you have strong views on. So one, what are your thoughts there? Are you worried about that passing and how that could impact operations across your rail and the entire network?

Two, the last few days, I've heard on the margins some frictional comments on pricing where one intermodal provider was saying that one of the rails was offering heavier-than-normal rebates to BCOs and potentially up in Canada, one of the rails was being aggressive on pricing on the intermodal side as well. So I wanted to hear your comments on both of those dynamics.

Okay. Let's start with President Trump. There's political math and there's common sense math. So worried is not a good word. It's too soon to be worried, but very aware that politically his voice matters. And that voice, that position is supportive of union's position on those -- proposed Railway Safety Act. Now common sense-wise, a lot of those things were proposed had nothing to do with that accident and do not make this rail industry safer and traps investments in antiquated technologies and sets us at a disadvantage when we should be investing and innovating. So this process is going to play out.

I'm not going to dismiss President Trump's tweet. I read it yesterday, and it's not helpful, but there's still going to be a battle based on fact. Congress will come together, the T&I committee, I think they start tomorrow. So we don't know yet what this amendment is going to entail. Is it going to be exactly the RSA provisions or not? I'm not sure. But there's a lot to occur between now and then. It's got to go through the House. It's got to come out of the T&I Committee, it's got to go through the House. It's got to go to the Senate. It's got to be coalesced together. This is a long drawn out process.

And I'll just jump in and say we'll have -- on our next panel, we have a rail regulatory panel, we'll have the AAR there, and so we'll get some...

So we're going to challenge as much as we can with facts. Now the part about rates and I call it kind of ghost to the past. I see some of those things sometimes and what's going on. I hear rhetoric about share shift. I happen to know the share that shifted, and I'd say it this way. If it's a customer that we had that expects me to discount my business, my service, my rate to retain their business and when my cost is lower, I can't make money on it. I can't make the math work. I don't know how my competitor does. And I don't chase business.

We didn't build this railroad to create bidding wars and chase business. We're going to pick our partners. We're going to be strategic. They're going to value our service. We're going to be fair to them. We're going to give them a unique product, and it's not going to be at a bargain basement rate. It's got to earn cost of capital. It's not just contribution plus. It's got to earn its seat on the train. So to me, that's choosing to walk away from business. That's not shared wins.

We have a few minutes left. Just a couple of more things I just want to touch on, Keith. So you talked about from a -- let's talk markets for a minute. Coal comps are going to start getting easier, right? Grain comps inevitably will start getting harder. Where do you see -- as you look ahead -- and we know what Q2 is doing, but you look ahead to the back half of the year, where do you see best growth potential? Where do you see the most risk, if anywhere?

Well, let me correct the narrative on grain. Grain comps actually because of what happened last year, farmers sit on the product. They didn't move. So literally, we've got a whole lot of compare opportunity where it's going to be much more favorable this year through December.

And then it goes all year.

Yes, absolutely. The behavior didn't change until January, honestly, so that's good. When it comes to coal, I'd say the compare has changed. The shipping will change. We've had very close discussions with Elk Valley now, what used to be tech. They're going to make some mining changes. So they think the second half is going to normalize. So it's not the headwind, we think second half, still going to be a drag for the year. And then the balance when it comes to potash, intermodal, domestic as well as international.

I was in Southeast Asia last week. I was in Taipei. I was in Singapore. And our main customers, strategic customers, they're bullish on the demand that's moving in all honesty. So again, I think that sets us up well. And I think this macro change that's occurring when it comes to trucking, I think that's very supportive, and I think we remain in a position of strength.

We talked about the inflection in RTM, right? One of the other big changes that I see in the business is CapEx now is at a sort of lowest level in years. Cash conversion is getting meaningfully better. At the same time, you're no longer trading at a big premium versus other rails. Like how do you think about those two things as it relates to capital deployment?

Well, Chris rightfully and Nadeem rightfully decided that we've been spending at a very high rate, given the integration, given the investments. We got to a point infrastructure-wise where we decided to shift to locomotives. We haven't done that since 2011. We bought 100 last year. We got 100 this year. And likely we'll have 100 next year to modernize our fleet. So we got to a place where we need to reduce the spend. So we took it down about 15%. We've taken the money redeployed.

We've increased our buyback. So it's more about balancing and managing the balance sheet overall. And I think Chris and his recommendations and the team are doing a phenomenal job doing it. I don't expect that to change. I don't know if you want to add any color to that, Chris.

No, I think that's exactly it. So we've taken capital down to $2.6 billion to $2.7 billion this year. That feels like a number that we can sustain for the next couple of years. And we don't believe in hoarding cash on the balance sheet. We believe in returning to shareholders. So you saw us buy back 4% of the stock last year. We've announced a 5% buyback program this year. We've raised the dividend in the last 2 years, and I think you're going to see a continued strengthening shareholder return profile.

Tony, did you have a quick one?

Very quick, how do you personally define enhanced competition? And second, do you foresee a world in which they get a merger approved but burdened, they go through it in any way, you can live and thrive as four independent carriers?

Four independent carriers against that mammoth?

Yes, one mammoth who are all cooperating because you've got access to places you wanted to. You picked some good assets.

Yes. But I think you're naturally at a reach disadvantage, and I know this well being the smallest guy. I think that scale matters. So I think that warrants the industrial logic, you got to do something about it. And then the earlier question is my views on concessions essentially -- enhanced competition, okay, got it. I just want to -- let me just say this, it's not just defined by intermodal benefits. It's intermodal, too, it's rail to rail. It's both. You can't just talk about one side of the ledger. And at the end, I'm going to go to Linda Morgan's words. To enhance competition, the benefits got to be greater than the harms, and it means more choice, not less choice.

And to me, when you're suggesting and excluding 99% of the traffic, effectively, the CGP, which is, as I understand it, the applicant's definition to enhance competition to solve to the regulations, it's only 1% of the traffic. And some of the most exposed traffic when it comes to less options and market concentration is excluded from CGP. Automotive, automotive parts, bulk trains, it's just okay. If it really enhances competition, then put it all there, but you don't. So I just think those are fundamental facts that you can't get away from that when they're fully heard and understood and debated, and they will be.

UP is going to have their day to explain it. We're going to have our day. Everyone will have their day and the regulator ultimately are going to draw the line in the sand and say, this is what the law says, and this is what we believe to be true, and I think it could possibly lead to a no. I think the facts are that compelling. I'm not going to speak for the regulator, but I do believe as long as the regulator can remain independent, and I believe that will happen, that they're going to make this forever decision based on those facts. And I don't think the facts are supportive of solving enhanced competition. I just don't think it happens.

Real quick, I know we got to wrap. You made a comment, Keith, you're not going to be here forever, right? I was just thinking about this -- I think end of this year, early next year is officially your 10-year anniversary as CEO of CP. I don't want to age you because you're...

I'll be 58 next week. Okay. I'm -- still I'm not 60. I got a lot of runway left in me, Scott.

Any -- do we need to start thinking about succession planning at CP or...

We have been thinking about succession planning or I have since 2017, my very first Board meeting. I think it's my responsibility to my shareholders. If I get hit by a bus tomorrow, this company is bigger than me, it's got to run. We have developed very capable people within our company in all key positions for succession. So that's number one. Number two, this is my legacy. We're 3 years old. When I feel that the company is ready to hand over to my successor and continue to build upon the success we've created.

Again, it's bigger than me. It's not my ego. I'm going to step aside. That's not happening today. It's not happening tomorrow, but this company is prepared for that day when it does happen.

Hopefully, no time soon.

No time soon.

Thank you, Keith. Thank you, Chris. That was awesome.

Thank you.

Great. Good morning, everybody. Welcome to the start of day 2 of our 33rd Annual Industrials Transportation and Airlines Key Leaders Conference. I'm Ken Hoexter, BofA's Air Freight and Surface Transportation and Shipping analyst. To kick us off this morning, we have Canadian Pacific Kansas City's CFO, Nadeem Velani; and COO, Mark Redd.

Nadeem has been CFO for 10 years now, and we welcome him to his second time here as CFO, and I know there were many more times at your prior shop. Mark, welcome to BofA for your first go around since taking over the role in 2019. This is CP's 19th time participating in the 25 years we've hosted the event. So we thank the company for your dedication and participation.

Also from the company, we've got Ashley Thorne from Investor Relations in the audience, joining us for the seventh time here going back to her KSU days. So with that, welcome. Good morning, and Nadeem, let me turn it over to you for your thoughts on the state of the market and maybe just also in that, if you want to include 3 key takeaways you want us to walk away with.

Sure. Well, first of all, thanks for having us, Ken. It's great to be here. It's been a great start to the year so far. I think Q1 was a little noisy with some of the headwinds tied to FX and fuel. But overall, volumes are trending kind of in line with what we expected so far this year, 4 months in. We just celebrated our 3-year anniversary of CPKC, which it's amazing to think about. It's already been 3 years, but we're very pleased with how the integration has gone, very pleased with what we've been able to deliver.

We've led the industry in volume growth, EPS growth over that period. I think we've integrated well as a company and the culture. And we look at kind of the near-term environment. We're pleased, as I mentioned, how we started the year. We're moving a ton of grain on both sides of the border, Canada, U.S. and into Mexico. We've got a significant crop in Canada that's going to serve us well through the bulk of the year, no pun intended.

But I think that's going to give us a big base of growth that we're seeing. When we look at kind of the intermodal side, international, our alliance with Gemini has served us well. We feel good about what we're going to be delivering, continuing to deliver on the international side. Domestic. We've seen growth with Americold, a new facility that's come on in Kansas City, and they're set to open additional facilities on the Canadian East Coast and into Kansas City.

So that's going to continue to serve our domestic volumes. I think when you look at kind of the state of the trucking market where we're seeing some capacity kind of come off and even pricing accelerate. We feel good about what that could mean for overall domestic volumes on our network. So feeling good broadly about where things stand from a volume point of view, seen some headwinds on the coal side, which we'll continue to face. But overall, our mid-single-digit volume growth outlook for the year, we feel very confident about -- we've seen our first quarter, cents per RTM was a headwind. We saw the impact. Some of that's tied to fuel surcharge timing and FX headwinds from the Canadian dollar being quite low a year ago in the first quarter of 2025. Well, we've seen that turn into a positive. So into -- as we sit here, 4.5 months into the year, cents per RTM is actually positive year-over-year. In fact, for the month of May, we're up 10% year-over-year on cents per RTM.

So it's not only the headwinds gone, but it's turned into a bit of a tailwind. From a free cash shareholder return point of view, we announced a 17.5% dividend increase. It was our first dividend increase since we've formed the new CPKC. We're also doing balanced shareholder returns. We're in the midst of a 5% share repurchase program. So certainly looking to be disciplined in our capital deployment and reward our shareholders.

So overall, feel good about where we are 4.5 months into the year, feel good about what's in front of us in the next 6 months. So let me turn it over to Mark.

So just as far as operations, if I look back at the quarters, we come out of fourth quarter quite well with operations expense savings. Q1 didn't disappoint. I know that we had -- you always have weather in the winter -- it was pretty spread across the network this year. We had some ice storms down south where they will recover real quick. Snow really just been the problem for the first quarter, but ended well. I mean, a solid year-over-year.

If I look at this month, kind of the second quarter, we're starting out very strong. When it's disappointing, when I was look a year ago and I look at Day N, I think about what Day N brought us from Louisiana, Mississippi, we had some service issues down there, but recovered quite nicely. If I look at compares year-over-year now, you'll see double-digit compares of how the railroad has improved.

And I think that's really, if you see just getting through the headwinds of terminal operations, how we handle equipment through terminals, we're seeing more synergies with each other. We're seeing the operating system as one, not multiple. So with that, we can convert into better savings, better management execution, operating execution.

If I think about just kind of where we are leading in the second quarter, certainly, record performance so far this quarter. I think about 3 takeaways. Nadeem kind of talked about the macro, but operation is doing well. We're converting our locomotives. We're converting the sidings that we put together for the STB plans. So we're doing well in that space.

Speaking for John, his pricing is good with the service metrics that we're giving him to deliver. He can convert in pricing, he has done well in that space. Although we've had macro headwinds, I mean, we're set up for success throughout the year. We can control what we can control with fuel savings, with different initiatives that we do internally and getting more comfort on the macro. Yes.

Awesome. It sounds like not much going on. So I guess I'll throw it over either of you or Keith. I mean, Keith, let's get this out of the way, right. Keith's been very vocal on too much rail consolidation already despite being the last to acquire a company.

Why is the Transcon merger not fait accompli

Just by announcement and where we are in this process? Why -- what's his updated thoughts on the resubmitted filing? I know you guys had a press release out pretty quickly? And where do you see the sustainable issues with the potential merger?

Well, first of all, we don't think it's necessary. We don't think that putting that much power in the hands of 1 combined railroad is good for the economy. It's not good for the supply chain. It puts a lot of risk and puts a lot of pricing power in the hands of 1 railroad. You think about the 2001 STB new rules, it still has significant threshold to achieve. And we don't think this application necessarily achieves this or this combined network would serve the public interest or serve the interest of shippers. I think it puts the economy at risk, supply chain at risk. When you think about what it could mean to downstream effects, what it could mean to changing the landscape of the rail industry, if you were to allow this to occur, you're probably going to see further consolidation, which, again, is probably not in the best public interest long term.

When you think about what they've offered is [ CGP ] or any sort of remedies. We don't think that's necessarily something that's going to alleviate the impact of that -- the power of 1 dominant rail and the risk that, that would have on the supply chain. So I think the STB is going to take a very thorough assessment and thorough regulatory review and certainly don't feel that it's fait accompli. And I think the momentum shifted. I think labor has come out. I think there's customers that are going to come out and we'll see what transpires the next few weeks here with first response from the STB, but I think this is far from over.

Yes. If I could just add something. We talked about 2001 and despite we're the ones that took over KCS. I think we all knew KCS would be taken over at some point. It was just a matter of when and who. And the way we fit well with KCS, Kansas City Connection, CPKC now, I thought it was -- it's the right thing to do to connect that railroad. And the rest of the rails have this high bar they've got to achieve. And frankly, I mean, with their submission, UP hasn't done that yet, in my opinion. for sure.

Sure. KCS, it was a different -- under a different rule.

Well, they left it out, so it could... And you got it. So Mark, you kind of started off your overview with the service levels, right? I mean velocity is at multiyear highs, dwell near decade lows, cars online are falling, train length up 7%. I mean, I can go on. I'm sure you'd love to talk about a bit.

So it seems like a renaissance of service post the integration. Maybe just give us some thoughts on what's going on? And is this just the start? Or are we kind of seeing the benefits post merger of what you can achieve?

Well, I think the tail is you kind of look at an integration standpoint of a day in. But if you go back day 1, you can see year-over-year, we've improved every year. So I think the team that we put together and the things that we do from our PSR measures. The way we handle cars, the way we do service design, locomotive utilization, I mean, it's putting the pieces together for a CPKC network, not just CP alone.

So as we unleash and unlock some of the capacity that we've had from the STB merger application that we put together, the $275 million we spent just to build out those capacities. I think that's what's unleashed and unlocked this railroad. This railroad flows better with each other, not just stand-alone against each other. And I think that's really what's shown with really the differences between this railroad that you can run through Kansas City, you can run through Shreveport with blocking back and forth. In my mind, it will continue to get better and better each year.

Okay. It sounds great. Nadeem, I guess, on the flip side, you just reiterated targets mid-single-digit volume growth for '26. What, about 4% -- I'm sorry, we're at 4% for the year. So I guess we're aligned with that, but you're facing tougher comps in the second quarter now. Intermodal, you mentioned 19% growth last year in the second quarter. You've got another 11% facing in the third quarter. Coal is down upper teens. Alternatively grain, you mentioned setting records. So maybe walk -- maybe just do a little bit of walk us through how we got there.

So I mentioned the grain. I mean, we're seeing significant strength in grain. That's going to continue. Canadian grain crop is a record crop. We're going to see volumes continue to be significant double-digit growth through until at least the end of August until the beginning of the new crop year in early August.

But -- so we feel good about that. U.S. grain as well, strong crop. We're moving a lot of it. When you look at what -- where we are kind of near-term comps, we've got some very easy comps. Mark mentioned the Day N system cutover challenges we faced a year ago, where we had some service disruptions through the bulk of the second quarter, even into the third quarter to an extent. So certainly some easy compares from that perspective.

When we look at 2025, we had prior to Liberation Day a year ago, there was a pull forward of volumes that we saw in Q1. So that was -- the dynamic of that created a tougher comp in Q1 for us this year, but creates an easier comp in post April 1. And we've seen that translate so far this quarter. Volumes are up 3.5% so far. And so when we look at the pull forward that we saw in autos, for example, that's going to start accelerating our auto volumes year-over-year.

The business development, the merchandise side, that's what I look at a little bit more of the state of the economy as far as some of the overall merchandise volumes, and we're starting to see some benefits there or some improvements on that side, both on -- even on the lumber side, but we're seeing it in the refined fuels in Mexico. We've seen overall the energy kind of market be stronger. metals, minerals, despite some of the tariff noise on cross-border Canada and the U.S., we've seen that start to accelerate.

So overall, we feel good about where things are on the merchandise side, on the bulk side. And again, intermodal, we're starting to see some of the benefits of our Gemini alliance, that's continued, some market share gains on that side and then some of these Americold initiatives that are taking place that we've seen kind of on the domestic side.

And fuels, I'm not going to say the freight recession is over by any stretch, but it feels like we're on the cusp of that turning. And that feels -- when I look at, again, the trucking capacity, trucking prices and the rates, probably as optimistic as I've been in some time when I look at that market as a whole, so I think that's going to serve us well, certainly on the volume and on the pricing side. And we're seeing it with our 180/181 train that's starting to accelerate and our new SMX product with CSX, which I think is going to bode well for the growth of that product.

Okay. So yes, maybe delve into that part of the -- one of the things we saw immediately post merger was the lengthening of trips, the benefit of getting cross-border, extending that. You've now got an agreement with CSX. Maybe, Mark, do you want to talk about what's going on in terms of the network with Meridian & Bigbee, kind of how you're extending the network and talk about the opportunity to keep going on increasing the length of haul and getting more traffic on the rail.

Yes. So length of haul, I mean, we can see that clearly in automotive. I mean we're handling traffic from Canada to Mexico to and from. So you can see that length of haul in the automotive business increased significantly. What's good is this M&B purchase that we had 2.5 years ago, just after KCS, it's unleashed and unlocked competition, okay?

When you talk about competition, you talk about UP and NS, you talk about CPKC and CSX, what we're doing with CSX. We've been out on a train trip. We've been on the railroad with each other. We've been planning this. We may have lost it 2 years ago, but today's time, we did realize just due to the fact we put $58 million into the network, rail ties, ballast, everything you need to do to improve service. Now we're running 49 miles an hour. CSX has done the same thing.

We've introduced SMX again. And again, this -- you got to understand the service is 3-day service from Northern Mexico. Southern Mexico is 4-day service. If I look at just competition to the MSLLC Dallas to Atlanta, we are actually faster than Norfolk Southern's MSLLC route. So there's a lot of good things that's going to come out of this purchase of M&B and the alliance that we have with CSX and how we can partner together and grow that business.

So your in-region competitor was talking about winning some share in intermodal and some other areas, yet in the first quarter, maybe because of the comp issue, it looked like it. Now you've caught up and maybe even caught them and now you're talking about accelerating to their flat growth, you're looking at mid-single-digit growth.

So on the team, you had told me absolutely not, we're not losing share. Maybe convince me it's not a share issue. And I don't know maybe the go-forward targets make that easier for us, but maybe just talk to me about that a bit.

Yes. Well, certainly, it's not a share issue. When I look at 1 quarter, we had some headwinds that we faced. We had plastics plant that shut down, some refined fuels in New Mexico that stopped moving and some of the headwinds I mentioned on the coal side that affected our volume. And so that was CPKC specific as opposed to market share shift. And if you want to look at volumes, I think this quarter, 6 weeks in, we're up 3%, 3.5%. Last I saw on Monday, they were down for the quarter.

So if you want to look at market share shifts, I think that's -- we'll let the facts speak for themselves. One railroad is growing 3% plus, one is down for the quarter and doesn't have the strongest of outlooks from last I heard. But -- so I'm not concerned about market share shifts between us and Canadian National. I think they're going to -- they've got their own growth story. I think they've got some opportunities on their network. We're focused on our combined 3 nation network and our opportunities within CPKC.

I think pricing has been strong and I'm not concerned on that front. I don't see that share shift game being played. I think they've seen what can occur if you start going down that path and what impact that, that can have on their network and on their service. And so I think those lessons have been learned a long time ago at CN.

Yes. You target doubling EPS from '24 to '28. Given where we are today here almost midway through '26, is that still achievable? Do we need to recalibrate from this point forward? Is mid-teens still the good outlook? Or given the lower base, do you need a higher growth to meet that target?

Yes. So I feel good about double-digit -- low double-digit EPS growth for '26. When we set those targets, obviously, it was a different environment from a macro point of view and some of the tariffs and some of those headwinds certainly weren't expected and some of the geopolitical challenges that the economy is facing.

That being said, if this feels like the longest freight recession of my almost 30-year rail career finally comes to an end, there could be an opportunity for accelerated growth into the back end of this year and into '27, '28. We need to achieve kind of mid-teens EPS growth, which isn't unachievable. Certainly, if you get -- we're doing double-digit EPS growth on the back of a pretty weak base economic growth. We still see a path for additional synergies into the next several years. If you get a more robust macro, we're now getting the benefits of share repurchases and some of the benefits below the line. Certainly, mid-teens kind of EPS growth is certainly achievable in a better macro environment.

All right. CP recently came up with some hourly agreements in the U.S. I think it was BLET and SMART-TD. Is that the last conversion you were waiting to do to hourly? Is that just the U.S. now and we're still standard in Canada? Just maybe talk about the differences in your thoughts on that.

Yes. One would just start labor in general. I think hourly, we have an hourly agreements out for ratification. We're probably about a week away, week 10 days to get that vote back. But regardless, if we get that vote or not, the fact is we've served some notices to and from the union and won some notices that at a minimum, we'll be at a mid-south agreement, which I'm accustomed to. That's actually where I started railroading.

So we do have an hourly base, daily rate base regardless going forward, which -- what it does for us is it takes away work crews in and around Shreveport, work crews across the -- what I would call the KCS Tex-Mex property to better align crew districts to get synergies from crew districts and obviously, cycle times for all the trains that run in and around that area.

If I look at Canada, I mean, I think it's the same. We'll continue to do what we've done for many years is just negotiate back and forth, take a look at what's beneficial to us, take a look at what's beneficial for the people in the field and work together and negotiate through that. Same is Mexico. The good news about Mexico is we've landed on salary increases for this year and next year, which is kind of unheard of. We're a year out. Typically, you do it every year, but we've had some good conversations. And frankly, we've got a good relationship with the leadership of the union in Mexico.

We'll continue to work through work rules. There's many different things we've done in the past 3 years to remove some of the redundant type worker, meaning locomotives moving in the yards and things like that, where we can do it with existing crews and multiple stops across the network where we can pick up and set out. So there's a lot of good things that we're doing on that labor front. And if you remember 3 years ago, when we talked in Kansas City at Investor Day, we knew at that point, the first thing we need to do is get in front of our union leadership to make sure they understood we hear you. We're going to work together. We're going to figure out how to make this railroad very efficient.

Okay. So Nadeem, you mentioned in your opening comments kind of May was up 10% on cents per RTM with fuel, right? So maybe talk about pure pricing. I know that you mentioned kind of the market is rational, it's still doing well, still above inflation. I know inflation has picked up. Do you want to talk about how it's going on the core pricing?

Sure. Yes. So we're -- long term, our view is in that 3% to 4% range in a decent kind of environment, which we've been able to achieve. We've been closer, I'd say, in that midpoint of that, around 3.5% pricing recently. I'd say that, that's driven by the strong service, as Mark mentioned, record performance from a service perspective.

And so we've been able to price to that service. And inflation while it has come up, for us, it's been actually -- we've got long-term labor agreements in place and our inflation is in that 2% to 2.5% overall when you look at, obviously, labor and ex fuel surcharge, which has its own mechanism. So yes, we're pricing slightly above inflation and pricing to the service and to the benefit of the shippers, right? So our customers are benefiting from this better service and so...

If I could just add one thing as far as labor stability, if you realize this hourly agreement that we're working with the SMART & BLE, I mean it's a year in arrears, but it's 8 forward. So imagine that we get 8 years of labor stability in an agreement where we don't have to negotiate for a very long time. So it's just really good for pricing and understanding what future looks like.

Yes. Maybe explain just a sense as to why is this better in terms of this shift when you go to hourly from the mileage based?

So there's a couple of things it does, okay? Number one, it gives you standard off days for the employees. That's what the employee gets out of it. They get a higher rate of pay. You lose -- you get flexibilities within terminals, flexibilities within yards to where -- I actually don't have a yard road concept anymore. I usually -- I'll typically have just one job can do anything anywhere, anytime, and you set your railroad up that way.

I can put pools on anywhere we like. You can move people around as needed. And at the end of the day, if we were to get ourselves in trouble for whatever reason, we can put officer crews on trains as well, which is unheard of. We do it on the DM&E, the old DM&E property. We don't do it on the Soo line. But with this agreement, we have it in and around Kansas City with the implementing agreement we did with KCS, but also moving forward, we'll have it across this railroad, including Tex-Plex.

So let's say, Houston becomes a problem like it was 4 years ago just prior to the CPKC merger, we can actually put officers on those trains and move them around as well. So it's very unique. It's -- it gives a lot back to the employee as far as standard time off days. We can work 4 and 3 rotations. We can do a lot of different things with flexibility, but it also gives the carrier flexibility to get work done as well.

Everybody understands that. So right now, somebody is in Kansas City and they can only go west. That's their territory. They can't go east. So if you have trouble east, you can't move them. And now you can take people and move them around.

Yes. I would say more Shreveport. Kansas City is an hourly agreement. Shreveport is the same way. Literally in Shreveport, you've got 4 seniority rosters, okay? And I can only go certain ways out of Shreveport. What it does for us with this rock plant that we have just north of Shreveport, we would have to go 75 miles, swap crews and go to destination. But now we can run 1 crew to destination. And you can see in our MMA, the rock out of this facility has more than doubled. I guarantee it's doubled to this point to where we can move rock out of that facility out to these locations like Monroe, Rayville, Greenwood, just different places like at around Shreveport, very beneficial.

I don't want to belabor the point, but does this start to get thinking of whether it's autonomous trucking or other things that you could do to run things from that plant to your network, to your hub and then move on? Do you start thinking about different things like that, that could change how you operate?

I think what we would do is look at crew districts as a whole. I think crew districts down on the Tex-Mex, we've done some work on the Mid-South, a little bit of work on the KCS. But as you get an hourly agreement, you can unlock double crew districts autonomous truck and things like that. I mean, we're going to sit back and watch what's going on and understand what's going on. I wouldn't really have that conversation at this point. But certainly, how we look at crew districts and how we can move around switching yards and things like that. That would be the benefit for us.

It was certainly a discussion yesterday night before. I mean, I think just going from theoretical to more start commercial a few years away, but still accelerating. Nadeem, I want to come back to you kind of you talked about kind of the costs and how revenues are accelerating. So operating ratio in the last 5 years, you've averaged a 250 basis point sequential improvement from 1Q to 2Q. You noted despite the negative from higher fuel surcharges, hey, no reason we can't meet or perhaps beat that. Do you get even more confident, I guess, given what you said about pricing, given what you said about volumes here? Is that kind of an easier bogey? And is there a accelerated target on that?

Yes. No, we had a great April. I feel good about where we are a couple of weeks into May. So halfway through the quarter, I feel just as confident as I was when we announced our results that we'd achieve sequential improvement in the OR and continue to deliver year-over-year improvement for the year. We were sub-60% in 2025. And I think despite the headwind from fuel surcharge on just the translation or the calculation impact on the OR from a higher fuel surcharge, we still see year-over-year improvement and yes, I feel good about that.

Okay. And kind of structurally, you mentioned sub-60%, right? So can this be -- if we're starting to see these gains and operating leverage with the volumes, can this be a mid-50s railroad? Is that your kind of -- your thought on operating level?

Yes. So as I mentioned, we've been in this freight recession. And I think a big component of that to what's impacted the railroads is not being able to forecast or predict the volumes or you're protecting service and you're protecting resources, assuming a certain level of volume growth year-over-year and then it doesn't materialize and you get a higher cost structure associated with that and your margins are -- don't improve.

I think what we've seen this past year is just a concerted effort to not chase those volumes and not expect a comeback in the macro. And so we've been holding tight on labor. We've been sizing the fleet when we think about kind of the overall assets, sizing the fleet to a more a softer growth number expectation. And with that, we've seen operating leverage as volumes kind of start to materialize in this kind of mid-single-digit level, you're going to get the benefit of operating leverage.

And so what do I think? I think 100, 150 basis point type of improvement year-over-year kind of on a sustained level, if we can get a more beneficial macro and really get that operating leverage, you could start seeing some real improvement in the operating ratio. We were 62% and change a couple of years ago. We're sub-60%. I think the goal is not to get to mid-50s. The goal is to focus on what we think is a true core metric of shareholder return is return on invested capital. But should your margins improve from getting closer to the mid-50s level over time if we can get some consecutive years of a stronger economy and get the benefits of operating leverage, benefits of the labor agreements, as Mark mentioned, and better service and strong pricing? Absolutely, that's something that long term is achievable.

But you said -- I just want to clarify for this year, you said despite fuel year-over-year improvement from the sub-60 year-over-year improvement not to 100, 150? Or is that is the...

No, I'm not saying 100, 150 basis points. I'm saying longer term with a better macro, that's achievable.

Just want to clarify. And then last we talked, you were targeting about $1.5 billion in synergies post-merger. Has that -- where are you on that path? And what's the target?

Yes. We're -- by the end of the year, we'll be at that -- will be close to $1.3 billion, $1.4 billion EBITDA synergies for the year on an annualized basis. Yes, I think we still see opportunities ahead, at some point 3, 4 years into the merger, it starts shifting as to whether there are synergies or pure growth as a combined entity. But certainly, the benefits of the combined network growing as a combined entity, I think that we've seen -- we've been able to outperform the industry. And I think there's a path to additional synergies into '28 and '29.

Okay. I just want to get a couple of numbers ones in before we wrap up. So you reiterated your $2.65 billion CapEx, but you added some new locomotives. Maybe thoughts on -- is that growth? Is that replacement? How are you thinking about the purchasing?

Yes. It's a little blend. I mean we've got some older locomotives we're taking out of the fleet for sure. We'll have some for growth as well. So it's a balance between the 2. We've got 2 vendors, strong vendors that's in the U.S. We're going to utilize both of them. Certainly, I want to say 300 -- about 300 and change, I believe it is past couple of years that we've -- we're working toward, and we haven't gotten all on board yet.

We'll certainly start taking the Q3, Q4, we'll start taking the progress rail locomotives. We've got 35 of those coming this year, 30 more next year for 65 -- total 65 package. We bought the 170 from Wabtec. So doing well with those.

For fuel efficiency as well.

Yes. So employees, you mentioned that briefly, kind of 19 -- I think Mark was talking about employee base, 19,500, but you noted you would climb a bit through the year, right? Is that -- how do you plan staffing with mid-single-digit volume targets?

Yes, I think very low single-digit increase, so maybe 1%.

Okay. And then you're now at, what, just over 3x debt-to-EBITDA, continues to fall from 4.5x post deal. You're comfortable at 3x leverage, trend more.

Yes, I think 2.75x long term. I think we've seen our multiple compress, and we've seen some opportunities to accelerate our buyback and take advantage of this pullback. And so that's what we've done. So slightly elevated near term, but long term, 2.75x is, I think, a reasonable level.

And we're about to go into the summer; thoughts on USMCA renegotiations, impact on ops business?

Yes. I think it's going to be a long process. I don't think it's going to be a July 1 type of renegotiation, certainly on the Canada-U.S. side. I think it will take some time. I think there's a change in administration on the Canadian side as well. And so it will take -- it will be a long negotiation, I think. And -- but I think overall, we feel positive as far as the impact that Mexico, Canada and U.S. have on trade and the ability for those 3 nations to continue to work together closely. And I think we're going to benefit as a tri-nation railroad on trade across those 3 nations. I think I'm not too concerned about the impact of not having a renewal July 1 by any stretch.

All right. I guess if I were just to lastly talk about your buyback, right? If I think about your cash generation going forward, right, you're accelerating the top line, generating -- you're talking about increasing ROI, which yields improving free cash flow. You've got a 5% buyback. How do you think about deploying that capital going forward?

Yes. So I think we're going to be balanced. We want to do both dividends and share buybacks. I think we all want to -- still want to invest in the network. We pulled back our capital because we had an additional kind of pull forward as part of the merger and the integration.

So number one, we're always going to focus on investing back in the business where there's opportunities and where there's opportunities to generate high ROIC projects, which we still have on the network and across it. So I'd say that $2.6 billion to $2.8 billion CapEx is going to be kind of consistent over the next several years. What remains we'll kind of return to shareholders kind of being mindful of that 2.75x, 2.8x type of debt-to-EBITDA. And depending on where the stock is, it will be a combination of buybacks and dividends. So...

So if I were to summarize our discussion here, right, services, almost record levels and improving mid-single-digit volume growth, good solid growth across the board. You've got some easier comps coming up, which started off tougher comps, pricing up core 3% to 4% with fuel up double digits and can accelerate operating ratio. You talked about the top end of your target despite the fuel impact -- or I'm sorry, in that range -- in line with historical sequential improvement average. Buyback 5% done within the next 12 months. Anything else you'd want to throw in a wrap-up?

No, it sounds like terrific.

All right. Perfect. Nadeem, Mark, thank you so much for joining us.

Appreciate it.

Good afternoon, everyone. My name is Bo and I will be your conference operator today. At this time, I would like to welcome everyone to CPKC's First Quarter 2026 Conference Call. The slides accompanying today's call are available at Investor.cpkcr.com. [Operator Instructions] I would now like to introduce Mr. Chris de Bruyn, Vice President, Capital Markets. Please go ahead, sir.

Thank you, Bo. Good afternoon, everyone, and thank you for joining us today.

Before we begin, I want to remind you this presentation contains forward-looking information. Actual results may differ. The risks, uncertainties and other factors that could influence actual results are described on Slide 2 in the press release and in the MD&A filed with Canadian and U.S. regulators. This presentation also contains non-GAAP measures outlined on Slide 3.

With me here today is Keith Creel, our President and Chief Executive Officer; Nadeem Velani, our Executive Vice President and Chief Financial Officer; John Brooks, our Executive Vice President and Chief Marketing Officer; and Mark Redd, our Executive Vice President and Chief Operating Officer.

The formal remarks will be followed by Q&A. In the interest of time, we would appreciate if you limit your questions to one.

It is now my pleasure to introduce our President and CEO, Mr. Keith Creel.

Okay. Thanks, Chris, and thanks, everyone, for joining us on the call today. As always, I want to start by thanking our 20,000 strong family of railroaders across these three great countries that deliver the results we're out of the share they're going today. So for the quarter, the team delivered revenues of $3.7 billion, volume growth of 2% on an RTM basis. Operating ratio was 63% and earnings of $1.04.

Overall, strong execution across the board operationally, commercially and financially, and they did this in a very dynamic environment. Certainly, the first quarter's results, we saw some impacts from volatile fuel and FX markets. That said, that tide has turned, and I'm very pleased with the underlying performance and our strong start in the second quarter.

When I step back 3 years in our journey at CPKC, what gives me continued confidence is not just the quarter itself, but the trajectory that we're on as a network and as a company.

On the operating side, the network again performed exceptionally well in the first quarter, building on our strong momentum from 2025, delivering first quarter operating results, record levels, reflecting continuous improvement we've seen since the merger. Productivity, velocity and asset utilization all continued to move [ fires ], which tells me two things. First, the railroad is structurally better. And second, our people are executing with discipline each and every day. The gains are translating into better service capacity, improved efficiency, and that's exactly how we intend to continue to railroad.

On the labor front and the safety side as well, I'm going to spend a couple of moments talking about our people. As we recently announced, reaching long-term tentative agreements with both [ Smart TD ] and the [ BLAT ] on the legacy KCS is a significant milestone for this company. These agreements improve quantity of life or our railroaders while providing the operating stability we need to continue driving performance and service reliability in this key growth corridor.

Looking at safety, our focus remains unwavering. We made progress on the personal injury side. And while train accident frequency increased from an all-time low last year, our fundamentals remain extremely strong.

On the commercial side, the franchise performed very well. We delivered solid volume growth across the network led by the record grain and continued momentum from our unique North American footprint. The exceptional grain volumes were supported by record harvest and our ability to efficiently connect Canada, the United States and Mexico.

Automotive, International, Intermodal and our MX service also contributed. FX mix and were macro factors pressured yields in the quarter of course, Regardless pricing discipline remains strong. And as we move through the year, the yields have improved as comparisons normalized and market conditions that became more supportive.

On shareholder returns from a finance perspective with our balance sheet in a position of strength and the business generating strong cash flow, we announced a new share buyback program to repurchase up to 45 million shares.

Yesterday, we announced a 17.5% increase to our quarterly dividend. We're certainly pleased to be in a position to continue returning cash to shareholders, particularly amidst a volatile market.

So in closing, looking ahead, we feel very good about where we are. The network is running extremely well. Our unique growth drivers continue to remain firmly intact, comparisons improved moth of the year and most importantly, we have a team that knows how to execute and a franchise that continues to differentiate itself. We're going to remain focused on disciplined execution, strong service and delivering long-term value for our customers and our shareholders. Mark, over to you.

Yes. Thank you, Keith, and good afternoon. I want to start by thanking our operating employees who delivered first quarter operational results across the -- our record first quarter across the North American network. The quarterly results demonstrate a tremendous job providing strong service, delivering efficiency, managing costs through the winter. As we reflect on the 3 years as a combined company, our team has done a tremendous job of safely executing on our vision delivering resilient and industry-leading service for our customers.

Now turning to the quarter. I'm very pleased with our network performance, which reflects a clear pattern of continuous improvement since the merger. Now as I step back since the first quarter of 2024, I can see our train weight and length has increased by 9% and 7%, respectively. Our locomotive productivity has improved by 8% and while the fuel efficiency has improved by 2%. Our velocity across the system improved 4%.

These results highlight our progress as ongoing productivity and velocity gains continue to drive improved cycle times, better asset utilization and dependable customer service for '24, '25 and as we look into '26 for the first quarter. And while these results are encouraging, we still see opportunity ahead, we are executing several focused velocity initiatives across the key North-South network to drive further improvement in the velocity in our fluidity capacity.

Now turning to labor, and I'm very pleased to share that CPKC reached a tentative long-term agreement with [ Smart TD ] and [ BLAT ] unions. This is an 8-year agreement covering approximately 1,700 train service employees across 11 U.S. states. Once ratified, our hourly agreements will be largely optimized across our U.S. network. This represents a key labor milestone and positions us for a drive -- for additional operating improvements.

Importantly, these agreements bring meaningful improvements in pay, but also quality all for our railroaders by delivering the stability and flexibility we need for operating efficiently and reliable over the next decade.

Now turning to safety. Our focus remains on sustaining strong fundamentals and disciplined execution across the network. As I look at our [ FRA ] personal injuries, we landed at a 0.91 and our train accident frequency was 0.93. We continue to make progress in our first wind performance.

And while train accident frequency increased year-over-year, it follows an all-time record low in Q1 of 2025. We remain committed to our Homesafe program and to continue driving continuous improvement across our network.

Now turning to resource and capital, we remain well aligned with our growth outlook, expect continued strong productivity improvements in 2026.

From a capital perspective, we have received 36 of the 100 Tier 4 locomotives in addition to the 100 million that we delivered in 2025. These locomotives are delivering meaningful improvement in efficiency and reliability, particularly across the Canadian network.

We are continuing to drive and deliver on our merger-related capital improvements, these upgrades continue -- or combined with focus and velocity initiatives improving speed and our velocity on the critical North South network.

I'm also pleased to share that we have completed capital improvements on our portion of the [ SMX ] East West corridor for shippers to Mexico, Texas and the U.S. where now speeds up to 49 miles an hour on this network.

In closing, the network is operating from a position of strength with record performance supported by sustained improvements in efficiency, velocity and service, our investments in capacity, power and safety paired with the labor stability, and we are well balanced and resource network or reinforcing our ability to deliver reliable services volume growth. As we look through 2026, we remain focused on disciplined execution, delivering long-term value for our customers and our shareholders. With that, I'll pass it over to John.

All right. Thank you, Mark, and good afternoon, everyone. I'm pleased with our first quarter performance and the way this network and team continues to deliver and execute for our customers. .

Despite a very high bar, this franchise again produced a record Q1 RTM growth, now 6 of the past 7 years, with the only exception being the strike year in 2022. This quarter, we again delivered solid volume growth across the franchise, supported by strong grain shipments, continued pricing discipline and contributions from synergies and self-help initiatives.

While mix and macro factors impacted since per RTM in the quarter, our underlying performance remains strong, and I'm encouraged by the momentum to start the second quarter.

Now looking at our Q1 results. This quarter, freight revenue was down 3% on a 2% RTM growth. [ Cents ] per RTM was down 4%. We continue to deliver strong pricing with renewals exceeding the top end of our long-term 3% to 4% outlook. Yields in the quarter were impacted by FX, the removal of the federal carbon tax in Canada and negative mix. Now in April, since per RTM has inflected positive supported by our pricing, lapping the carbon tax removal, macro tailwind from higher fuel prices and moderating mix headwinds.

Now taking a closer look at our first quarter revenue performance, I'll speak to in FX adjusted results. Starting with our bulk business. Q1 was a record quarter for grain across revenue, RTMs and carloads with revenue up 14% and 12% volume growth.

Canadian grain volumes were up 13%, supported by record harvest that's up 20% year-over-year. Our U.S. grain volumes rose 12%, driven by a record corn crop and higher volumes to Mexico and the Pacific Northwest. This performance highlights the strength and diversity of our franchise as customers leveraged our unique North American network to access new destination outlets, driving a 50% increase in trains from Canada in the U.S. and Mexico.

Now looking ahead, we expect grain to continue to deliver outsized growth deep into the current crop year. In potash, revenues were down 2% -- on 2% volume growth. driven by continued strong demand for export shipments. With solid demand fundamentals and [ Canpotex ] fully committed through the first half of the year, we continue to expect potash to be a solid contributor to our base business in 2026.

To round out bulk, coal revenue was down 11% on a 10% reduction in volumes. This reduction was driven by a number of unexpected production-related issues at customer mines that impacted shipments through the quarter. As a result, coal alone reduced Q1 RTMs by over 1%.

While we expect volumes to stabilize in the second half of the year, we expect coal to continue to be a headwind in Q2 and on the full year.

Moving on to our merchandise business. Energy, Chemicals and Plastics revenue and volume declined 5% in the quarter. This decline was driven by lower refined fuel volumes to Mexico reduced [ PEMEX ] heavy fuel oil shipments and the impact of a plastics plant closure late last year.

Looking ahead, we are seeing our ECP volumes continue to stabilize, supported by increases in crude market share wins and self-help initiatives.

Our [ Forest ] Products revenue declined 14% on a 10% decline in volumes. Volumes were impacted by tariffs on Canadian lumber exports to the U.S. along with the broader macro softness in housing in the pulp and paper markets.

Now similar to ECP, we are seeing this business also stabilize with a focus on offsetting headwinds through truck conversion synergies and market share gains. Encouragingly, we delivered record volumes of building projects into the Texas market during the month of March and orders have continued to improve as we move through April.

Metals, Minerals and Consumer Products revenues were down 1% on 3% volume growth. Growth in this space was supported by strong industrial development pipeline and synergies, including new long-haul business in sand, stone and other aggregates supporting construction activity across our network. This strength was partially offset by ongoing impact of tariffs on our cross-border steel business.

Overall, we remain very encouraged by industrial developed momentum on our network and expect to continue mitigating tariff headwinds and through targeted sales campaigns across our network.

Moving on to the automotive sector. Revenue was down 6% and 2% volume growth. Our auto franchise delivered another quarter of volume growth from new business wins, including land bridge shipments from Mexico to Canada with a 13% increase in our average length of haul in this business unit. We delivered this performance despite challenging compares from pull forward shipments ahead of tariffs last year.

While uncertainty remains in this area around production levels and automotive sales, we expect another year of outperformance in growth in automotive driven by our wins in 2025 and new opportunities that will come online later this year.

Now closing with our intermodal business, revenue was down 1% on 3% volume growth. I'm pleased to announce that we extended new long-term contracts with Hapag-Lloyd and Loblaw companies cementing the foundation of our intermodal franchise and unlocking new growth initiatives with both across Canada, the U.S. and Mexico for years to come.

In International Intermodal volumes were up 8% and on business into the Port of Vancouver, including continued growth with our partners at [ Gemini ]. Now looking ahead, comparisons will be more challenging in the second quarter before new product offerings come online at the port of [ St. John ] and also at [ Lazaro ] and they pick up in the second half of the year.

In domestic intermodal, volumes were down 1% in the quarter, our [ SMX ] train was up 12% year-over-year in Q1, marking the ninth consecutive quarter of double-digit growth on this train. This growth was offset by a slower ramp-up of our Mexico volumes in January, combined with demarketing low-margin business in domestic intermodal on our Canadian franchise.

I'm also encouraged by early traction on our [ SMX ] service and partnership with the [ CSX ]. Following infrastructure investments made across this route over the past year, I'm excited to announce that we will formally launch a faster SMX product next week. The SMX will offer customers truck-like reliability linking North sum of North America's largest production and consumption markets between Mexico, Texas, Georgia and Florida.

Looking ahead, we are encouraged by the timing of this launch as we are seeing early signs of incremental truck to rail conversions driven by higher fuel prices, tighter regulatory enforcement and reduced trucking capacity.

Now to close, our results reflect strong execution, record grain volumes and continued unique contributions from synergies and self-help. With good momentum to start the second quarter, more favorable comparisons ahead in improving yields, this network is primed to deliver another solid year of growth.

And with that, I'll pass it over to Nadeem.

All right. Thanks, John, and good afternoon. This quarter's results reflect strong execution and cost control across the network, which drove solid financial performance. While the quarter was impacted by fuel and FX headwinds and very pleased with the underlying performance of the business.

The resilience of our network and our growth opportunities remain intact. Our core performance continues to be strong, reflecting the strength of our franchise durability of our operating model and consistent execution by our team.

Now turning to our first quarter on Slide 12. CPKC's reported operating ratio was 66%. Our core adjusted OR was 63%, up 50 basis points from last year. Diluted earnings per share was $0.94 and core adjusted diluted EPS was $1.04, down 2% versus last year. The year-over-year decline included approximately $0.04 of impact from foreign exchange and $0.03 of impact from changes in fuel price. We also saw an additional $0.01 impact from FX losses on cash and net working capital below the line.

Taking a closer look at our expenses on Slide 13, I will speak to the year-over-year variances on an FX-adjusted basis. Comp benefits expense was up 2% versus prior year. During the quarter, wage inflation and higher stock-based compensation were partially offset by continued productivity gains from improved train wage and workforce optimization. We expect to generate continued strong labor productivity in 2026, with head count up modestly on mid-single-digit volume growth.

Fuel expense was $458 million, down 4% year-over-year. The decline was driven primarily by the elimination of the Canadian federal carbon tax on April 1, 2025. Along with improved efficiency and benefit from our contract discount, partially offset by the impact of changes in diesel benchmark prices.

Our 2% improvement in fuel efficiency drove $8 million in year-over-year savings from improved train weights and locomotive productivity. Materials expense was $127 million, up 3% year-over-year. The increase was primarily driven by volume-related expense and inflation, partially offset by efficiency gains from contract optimization and lower locomotive material costs. Equipment rents were $95 million, flat versus last year, driven by efficiency gains, offset by volume-related expenses. Depreciation and amortization expense was up 4% driven by a larger asset base. Purchased services and other expense was down 3% versus prior year. The improvement was driven by productivity and in-sourcing initiatives, partially offset by cost inflation.

Now moving below the line on Slide 14. Other expense was $20 million, a $13 million increase year-over-year, driven primarily by FX losses on cash and net working capital. Net interest expense was $228 million or $223 million, excluding purchase accounting. The increase was driven primarily by interest on new debt partially offset by lower credit facility and commercial paper balances as well as debt repayments.

Income tax expense was $275 million or $305 million adjusted for purchase accounting and significant items. We continue to expect the full year core adjusted effective tax rate of approximately 24.75%.

Now turning to Slide 15 and cash flow. Net cash used in investing activities was down 6%, primarily driven by 7% lower capital spend. We remain well on track to deliver full year CapEx $2.65 billion, a 15% reduction year-over-year.

We also maintained a balanced and opportunistic approach to shareholder returns, deploying $680 million through share repurchases in the quarter. Along with dividends, shareholder return spend increased 69% in Q1.

I'm also pleased to share that yesterday we announced a 17.5% increase to our dividend, reinforcing our commitment to balance shareholder returns.

In closing, with the network continuing to run well, toughest quarter from a comparison perspective behind us and a strong start to the second quarter, we are well positioned to deliver another year of strong results. The business is executing at a high level, generating strong cash flow and providing meaningful capacity to return cash to shareholders. I fully expect as we return to double-digit EPS growth here in Q2 and the second half, and we'll deliver on our full year double-digit EPS guidance.

With that, let me turn it back to Keith.

Thank you, gentlemen. Let me go back to the operator, and we'll open it up for questions. .

[Operator Instructions] We'll go first this afternoon to Fadi Chamoun with BMO Capital Markets.

Yes. Thank you. to I think the year was always expected to kind of start slow from a volume growth perspective versus the mid-single-digit guide for the year. Maybe if you can, John, share with us what you are hearing from customers, what does the pipeline look like in the segment that you expect to kind of lift you to that mid-single-digit range as we go into the balance of the year? And if there's any framework to think about what Q2 volume potentially you're kind of looking for?

Yes. All right, Fadi. So yes, it was certainly an interesting Q1. It just genuinely started off slow, and then we had some pent-up demand and actually February turned out to be quite strong in March sort of as we expected, as I mentioned, we definitely weren't counting on the drag related to the coal side of the business.

Now looking ahead, I'll tell you, just about everything outside of our coal business has inflected positive. I'm quite pleased despite the tariff headwinds that remain out there and some of the challenges, particularly in our ECP space that we faced in Mexico with refined fuels. Despite that, they've clogged their-self even back to sort of flat year-over-year on strong demand and growing demand in crude and also our plastics business.

So look, I fully expect our bulk business, that being Canadian grain, U.S. grain and potash to continue to provide really strong numbers as we move through Q2 and into the back half of the year, Fadi.

I'm definitely not counting on our coal business, and that's going to have to be a headwind that we're going to have to sort of race or make up for. As I look at our merchandise ECP forest products business, as challenged as those areas have been.

As I monitor our car orders, we after week in those three segments. We've seen a pretty steady increase. When I said we sent record volumes into Texas of building products in March. To be honest with you, a lot of that was Canadian stuff coming across border. So that's a really positive sign and a sign that we haven't seen for quite some time. And I'll tell you, I think a lot of it's driven by there is product moving in some of these traditional lanes. It's been moving truck. And I think what we're starting to see is some of this stuff slip back over to rail, not only in a little bit of an intermodal tailwind in that front, but also a carload tailwind we're seeing in some of these areas. So I do believe that's positive. We're going to watch it. I'm not spiking the football at all. But certainly, there's some upside there.

And then as I go down the list, we're going to continue to outperform in the automotive sector. The team has just done a really good job to put pucks in the net and there's some stuff that's coming on yet. There's a little bit of pent-up demand that was moved in the first half of the year that we're going to see.

And then finally, on the intermodal side, I couldn't be more excited about our SMX product. That thing is going to pay dividends this year. We're going to see growth in the back half of the year on that partnership with the CSX. I think we proved it with the SMX you develop a product that can compete head to head with trucks, and they will come. And the fact that we're launching this in a really, I think, improving environment is only going to help I think our sellers to go out and try to fill that train up. So I hope that helps.

Yes, sure. Maybe one follow-up on this [ Loblaw back Lloyd contract ] you target. Is this a renewal? Or is there a scope change in that relationship?

Well, maybe a little bit of both. They are contract renewals that we -- prior contracts that we had in place that we've extended for long term with both. I think the neat thing about them and really because of the breadth of this new network, we've been able to intertwine a whole lot of new opportunities within those -- both of those contracts. It's frankly staggering the amount of trucks that a company like Loblaws utilized coming up from Mexico or the United States and how we can create and develop new solutions, not only dry van, but refer solutions with them.

And also, as we've talked about a lot with Hapag-Lloyd, I'm excited about the opportunity to how we are continuing to grow our St. John. We're excited about what the future might hold with them if, in fact, that progresses and goes forward as we look to next year. And Hapag continues to win not only in the Mexico, intra-Mexico market, Fadi, but also we continue to slowly build volumes going northbound and all that coming out of Lazaro.

So they are traditional contracts that we're extending forward. but they also have quite a bit of sort of new tentacles related to what this network brings to the table.

We go next now to Chris Wetherbee with Wells Fargo.

I maybe wanted to pick up on what sort of the dim ended with in terms of the guide for the rest of the year, a slower start for earnings growth sounds like 2Q, you're expecting to reaccelerate into the double-digit growth range for earnings.

I guess we heard from John about some of the top line opportunities. Maybe just sort of help fill out sort of the walk from where we were in 1Q to the ability to get back to that double-digit year-over-year EPS growth in 2Q and beyond?

Sure Chris. So a couple of things. Number one, we're Q1 was very much according to plan. Like when we look at -- John mentioned the revenue cadence, Operationally, Mark and team had the railroad running very well. And pleased with some of the productivity initiatives.

So -- but that being said, we had our toughest comp from a currency point of view. So Canadian dollar was quite weak a year ago in January, and that it's created quite a headwind year-over-year. You saw it in the sense for RTM and that's probably a bit of a surprise as far as the overall sense for RTM, combine that with fuel and the carbon tax surcharge that went away.

So effectively, those had headwinds dissipate. And in fact, fuel turns into a bit of a tailwind. We saw the headwind in March with spot fuel increase our costs right away, but we don't get the fuel surcharge until delayed. And so we saw that results here in April. And so as we look at Q2, I feel very confident both with record volumes that we're moving today, April is going to be a record month for us across the board in CPKC history and combined the two companies.

So the top lines perform extremely well. The railroad continues to run well, the FX headwinds, we even had some unique things as far as below the line that impacted us just with the volatility on currency, that goes away. And so some of that noise disappears and the underlying business continues to perform and gives us strong confidence in that strong double digits here in Q2 and a very good back half in what we see as far as both from a volume point of view and what we can deliver with this lower cost base. So we're pretty bullish, Chris.

We'll go next now to Kevin Chiang at CIBC.

You talked about some of the headwinds related to the coal franchise. I think some of that might be related to maybe some of the adjustments, [ Glencore ] is making to the [ Elk Valley ] resource, play that they acquired from [ Tech ]. Just wondering, do you see this as primarily a 2026 issue and they ramp up in '27? Or is this an adjustment that could take a little bit longer and bleed into next year potentially?

Yes, Kevin. So honestly, I think the feedback so far is we're going to probably continue to struggle somewhat through Q2. I do believe there's some optimism around some things that they want to deploy the second half of the year that could bring some upside to those volumes.

Now at the end of the day, I think the lost opportunity these first 4 months in the next couple of months will be hard to make up in terms of sort of full year compares. But we remain optimistic that the second half of the year, and I think they remain optimistic that the second half of the year will be better.

I know they continue to work through some of the permitting in issues that have been out there for quite some time now. I don't really have any additional feedback at this time. And what that looks like timing-wise with the federal government.

We knock now to Tom Wadewitz at UBS.

Keith, I wanted to ask you about -- I know you get this last couple of calls, but I just saw that kind of news today as the rail coalition against -- or the coal issue against the rail merger. And shipper groups, team screws, rail coalition, CPKC, [ CBNSF ]. So what is your thought on that? It seems like something different than what we've seen in the past. I guess the what you think the group may do and just how we should maybe try to understand that as part of the process with UPNS.

Well, I think at a high level, Tom, the group is more of a collective voice, the unified board very similar voice. We've not been very bashful about this. We have very strong views against the merger and the risk that the merger entails represents for our industry. Many others do as well. The momentum continues to build, we encourage, continue to encourage all the stakeholders to make sure that they share their views because at the end of the day, this is in a 3-, 4-year decision. This is a forever decision.

So to -- in my mind, push forward with the merger that creates such and such scale unparalleled for this industry in a forever way, that not only creates that entity, but most likely triggers an a vital duopoly is essentially putting the nation's rail network at risk. And I just don't believe and I believe there's probably a lot of people that feel the same way that I do that UPNS are entitled to do that. They're not playing with house money. This is the nation's economy that depends upon a robust and fluid and efficient rail network. We've had tremendous consolidation I believe, and I believe others believe were consolidated enough.

And at the end of the day, the facts will bear if we're correct. The market concentration as much as some have been decisive in their comments about it. It's much more than 39% GTMs and comparing yourself to a heavily GTM's railroad that moves a lot of grain, it moves a lot of coal in the compare that's essentially west of the Mississippi railroad, Mississippi River, we're talking about 43 states. We're talking about Trans National, the entire continent. So at the end of the day, that's a lot at risk and at stake. The facts will bear it out. I don't think it's as simple as the applicants are presenting. And I believe Jim and Mark are going to present their best story. I'm looking forward to reading their improved story. The last one, obviously, was grossly insufficient. In my view, and I don't think I'm the only one again this year is that view. So again, I think that consolidation and that coalition that you see is just a unified voice of a common concern. Enough is enough. We've had enough consolidation and for what, who benefits versus us at risk.

And in the end, those rules that the STB will govern by and I believe this body will be very independent in assessing all these facts. At the end of the day, all the facts stack up and a measurement is going to be made and to meet public interest and to demonstrate enhanced competition. And then all the benefits are going not to exceed the harms. And I just think it's impossible with the set of facts that are going to be presenting given the scale and the market power and the operational risk that it represents.

So again, more to come. Let's get the application tomorrow. We're all eagerly looking forward to receiving it and reviewing it. I'll be in Missouri when I receive it. That's the show-me state, I'm looking for something to show me to feel differently. And at this point, I don't.

We'll go next now to Jonathan Chappell of Evercore ISI.

John, as far as this ramp in RTMs, are there other opportunities in energy that have kind of presented themselves recently, given what's going on in the Middle East, whether that's crude by rail, frac sand, NGLs any line of sight on kind of real volume moves there as these hostilities kind of prolong themselves much longer than anyone anticipated?

Yes. Thanks, Jonathan. Geopolitical events sort of I instantly begin to look to the sort of 3Fs, food, fuel, fertilizer, they're usually benefits of when you see these types of things globally. And I do believe we're seeing shoots kind of across all those areas.

I'll tell you, though, I wouldn't say anything significant has really emerged specifically in those areas. We are definitely seeing an uptick in our plastics business. We have, I would say, very spot-related type of crude opportunities that we've seen come on, maybe some unique fertilizer opportunities here and there.

Nothing I would consider honestly, super needle moving. The needle movers that are emerging are really tied to fuel price and tied to trucker regulation and release capacity and those things. That's really where we're starting to see the needle move.

And as I mentioned, everyone kind of instantly looks at intermodal as the big beneficiary there. And certainly, we're going to see some of that, and we're deep into those discussions on the intermodal front. But as much as I'm starting to see it across our consumer base, our merchandise customers in that. And -- so that becomes pretty exciting because that's a really good business. And the challenge will be the team, how do we make it sticky? How do we not allow that truck to convert or that shipper to convert that to rail, how do we then make them stick with rail. I think there's a great opportunity for that right now. So yes, that's what we're seeing.

We'll go next now to Walter Spracklin with RBC Capital Markets.

I'm comparing the U.S. rails here and how they did in the quarter relative to the Canadian rail is coming a little light. I'm just wondering if there's any divergence you're seeing, I don't know John, you're the best one to answer this. But economic divergence, is it tariff related? Is it the truck regs that are helping U.S. and not Canada? And -- it is related to that divergence? I know the Feds in Canada have been talking a lot about larger projects. But speaking to our engineering construction companies, they're not building it in their pipeline yet. So curious if you're hearing any rulings about any project development that would -- if there is that divergence, kind of contract that divergence a little bit here as we go into 2027 and close out the year?

No, I don't think so, Walter. Our industrial development pipeline, and I think that's kind of what you're somewhat referring to is pretty robust, like it is -- you look at our -- again, MMC, that business unit is and that is largely our steel franchise which was heavily dependent on cross-border steel that is still effectively shut off. But I don't have the numbers exactly in front of me. I think RTMs are up 5% plus. We haven't seen that for quite some time. And I think we are benefiting from some of these industrial development opportunities, construction data centers, that partners like [ Martin Marietta ] in fan movements, rock movements that are all supportive of this that I think you also heard from our peers in the U.S. There's no doubt our competitor in Canada and us, we're still facing pressures relative to some of these tariffs in steel and forest products in that. But I'm also pretty encouraged about what our U.S. franchise is producing. So I'm going to say no. I don't think there's a big divergence by urgent there.

Walter, it was simply in both cases, if you look at the yield, you look at the cents per RTM, I think there was an underestimation of the impact of currency on cents per RTM. We had some added headwinds from FX below the line, which, again, go away and then the carbon tax goes away. So I think that's what drove the a bit of a softness on the top line was really the sense for RTM.

And again, that's a temporal issue that goes away. There's nothing structural. I think structurally, if you look at the Canadians are performing from a volume point of view, from an RTM point of view. I think we're both kind of top of the pack. So no change whatsoever.

Yes. And even to add to that, Walter, like our automotive franchise, and I said it saw a 13% jump in the average length of haul. And I think overall, in the quarter, we were up 3% on our length of haul.

The truth be told that we just had a lot of areas, short-haul steel business to the border that is not moving. We saw kind of a slow start to our automotive franchise coming out of Canada into the U.S., again, fairly short haul, high sense for we saw a really good growth, 21% growth of our -- what we call our land bridge business. That's business linking Canada and Mexico.

So it just kind of had a perfect storm of business mix, and then you throw on top of it, record grain movements, which is on average a little lower since per RTM against the total book and those pressures, those mix pressures that Nadeem described I think came through much heavier than even we expected.

We go next now to Ravi Shanker at Morgan Stanley.

Keith, would love your views on the upcoming USMCA negotiation, obviously, a big catalyst for you guys and your peer. What do you think are the potential puts and takes and kind of the boundary of outcomes there, do you think? And how might you react to that in both directions?

I mean at the end of the day, the bottom line is I think we have three nations that depend upon each other to trade. I think we're in a unique position to enable that trade, Ravi.

Short term, I would say, buckle up. President Trump has been consistent in his expectations. His objective through these negotiations, a renewal disagreement as it might be renewed, there will be some bilateral negotiations between Canada and the U.S., there'll be bilateral perhaps first between Mexico and the United States and some trilateral.

But again, at the end of the day, it all leads to increased trade between the nations and even a rebalanced trade balance favoring the United States still involves this network. So we're in a good place. We had growth after the last round. We'll have growth after this round. This network is in a very unique position to participate in some are all a part of that.

Got it. As a quick follow-up, is there any variability to your guide based on the outcomes there? Or do you think it's going to pretty straightforward? .

No, it's not dependent on that. .

We'll go next now to Brian Ossenbeck at JPMorgan.

Wanted to clarify, Nadeem, if you talked about stock-based comp, I might have missed it, but I wanted to see what that headwind was during the quarter and how we should think about that for 2Q.

And then for John, we're hearing a lot more about truckload conversion for obvious reasons, but I don't really recall hearing that too much in the past before the merger. So maybe you can help unpack what's different this time? Is it more of the investments like that SMX and some of the other cross-border stuff you've been doing? Or is there actually more from like for legacy CPKC, is also able and willing disruptors are willing to kind of convert more over to your network as well. So just some thoughts on what we're seeing here now versus prior history would be helpful.

Brian, stock-based comp was about $15 million headwind in the quarter, so a little over $0.01.

And Brian, I would say, actually, when we put our [ TransCon ] intermodal product in place at CP in the day, we've actually had a lot of success as legacy CP in growing that truck conversion business across Canada.

We didn't talk about it a lot, but a lot of vendor conversions with customers such as Canadian Tire or even Loblaw, who we talked about earlier. So that's actually been a pretty good story and our growth in our reefer business, even across Canada also was a pretty good truck conversion story.

Specific to CPKC and most recently, it's all about the MMX and the great product that Mark and his team have put in place, and we've been able to execute and grow. I'll tell you, we -- again, we started with 0 on that train and we're probably running north and south about 70% capacity.

Now we've done a heck of job to grow that, and we've just grown it frankly on the speed and efficiency of that service. And honestly, I believe if this year continues to shape up and these fuel prices continue to stay where there are, we're going to pile on quite a bit more freight onto that thing. And there might actually be some discussions about but another train payer could look like. I'm not bullish on it.

And I think we've been very transparent about the SMX, we introduced it during our original Investor Day. I think collectively, we saw a vision to create a best-in-class product, a competitive product into the Southeast. And frankly, you just look at -- I think it's close to 40% of Mexico trade with Texas, Georgia and Florida. It's just right in the wheelhouse of this product. So it's exciting that we got a partner in [ CSX ], who is highly motivated. We've got a strong sales force in Mexico, in the southern part of our U.S. that is pounding the pavement and selling the benefits of of this product. So again, I think a lot what you're going to see under that product is all going to be truck to rail conversion.

And John, I would just add just the competition between the railroads now with the new service and from our train [indiscernible] [ Keith ] took with the leadership with CSX, we've been able to get that railroad up to 49 miles an hour. So we've got a premium package on that end of the railroad that was Sean come here, I guess, in a week.

Yes. Look, I expect to run -- we're going to run under 40 hours between Dallas and Atlanta. I think this thing is going to fly.

3 Days, Atlanta to Monterey.

And will be 3 days or better, Mexico to Atlanta. And with our secure border with our bridge capacity in that, it's going to be a really good product.

We'll go next now to Brandon Oglenski at Barclays.

And John or Mark, maybe this is a good follow-up. I mean I think part of the success you had with MMX and maybe you can tell me I'm wrong, but it's controlling the journey from end to end, right? So how are you going to ensure that operational integrity when it's not just your network, it's running on, but you're also partnering with CSX on this, right? So maybe can you elaborate on that? .

I can start, Mark. I'll just tell you this. The CSX team is all in. They've invested in that franchise just like we have to get those rail speeds up. There's not been a blink, not been a waiver, whether it's Mike, Cory and Mark working on what the ultimate product looks like or myself and Mary Claire and her team working on how we go to market and what customers optimally fit onto that train. So you're right, it is unique. But I also think here is going to be a great example of where you put two Class 1s together, your partner, you get like-minded and you go attack some very specific markets with the best-in-class product.

And frankly, we put a lot of capital on both sides. We put some sidings in. We've increased the capacity and we get fixated on Atlanta's beyond Atlanta for CSX, how can we continue to grow and build product beyond Atlanta on their side and help them get down to Mexico and Wiley as well. There's plenty of business to go into Wiley.

Let me -- Brandon, let me put the exclamation point on that expectations are set from the top. This whole initiative is something that I've personally been involved in since day 1 in partnership with the CSX.

Steve is committed to this. I'm committed to this. So top to bottom, bottom to top. These two organizations are mobilized and equipped to create a unique market solution that makes that border seamless that can be replicated in the marketplace. That's what our renewal Spirit looks like. That's what creating your own self-help looks like. That's what strategic partnership looks like. That's the difference, and it's untenably unique. We have work and commit.

We'll go next now to Konark Gupta with Scotia Capital.

Going back to the yield comment earlier on in the call. inflecting up in Q2. Is it referred to as up from last year's Q2 or it's up sequentially from Q1. So just trying to unpack that there?

And also, any sense of fuel in fact, as we move into the next 3 quarters? I think you are going to be covering some of the costs of the fuel surcharges to any sense on EPS or OR impact?

It's up relative to last year quarter-to-date, about 5% since for ITM. Can you repeat the second question?

Yes. So on the fuel side, I think it was a $0.03 headwind in Q1. As you cover the fuel cost, the surcharges, what do you expect the EPS impact to be in Q2 and the second half?

Yes. So we'll see a small impact in Q2. the fuel price will be basically a bit higher than we saw in the full quarter in Q1, of course, we'll have the full 3 months of elevated prices, but we should be able to offset that with our fuel surcharge. So net-net, we'll have a small positive. If you think about the delay in the fuel surcharge that went from March into April and Q2.

Basically a delay of earnings from Q1 to Q2, think about it that way.

Yes, just making sure like the EPS impact is not going to be as noisy in the future quarters.

No, especially with currency and as you asked about Sense for ATM and so forth. So effectively, A lot of the -- I mean there's obviously going to be volatility, it's kind of the world we live in. But I'd say that the worst is behind us, and we'll start seeing in fact, a positive certainly from the fuel surcharge. So that's what gives us confidence in our Q2 being much stronger as we lap some of this noise with the carbon taxes, et cetera.

The next is now to Ken Hoexter with Bank of America.

So Nadeem, just appreciate the double-digit EPS outlook and it's accelerating. Maybe just parsing some mix contributions, I guess, the last 5 years, you've averaged about a 250 basis point improvement in the operating ratio from first quarter to second quarter. Can you give any thoughts on that level given the impact of fuel that you just talked about with [ Conarc ] and kind of the volume growth that John is targeting? And then same thing thoughts for the full year. can you beat last year's sub-60% target on an adjusted basis? And I don't know maybe your thoughts on cost headwinds should you focus on -- I think you brought up incentive comp before synergy targets post the merger? Maybe just wrap that all up on the cost side.

Yes. Thanks, Ken. So I'd say that the same level sequentially year-over-year, the historical sequential improvement is pretty much in line. So we do see, despite the fuel surcharge headwind on the OR because there's a push of revenues effectively from, as I just mentioned, from March into April, you see a bit of a benefit.

So I feel comfortable with that historical sequential improvement of that 200 to 250 basis points is doable. And for the year, I have confidence that we can improve the OR year-over-year despite, again, the headwind from -- potentially from fuel surcharge. I think a lot of our cost takeout, cost initiatives and productivity initiatives that we have in place. Puts us in a position to still be able to improve OR. I think we were 59.9% last year. I think we could improve on that for 2026.

I think another point to not overlook is we're about the lab day in last year, it's something we all like to forget, obviously, something we learned a lot from. But certainly, a lot of unnecessary costs in pain and velocity and assets that started the first of May, went through effectively the worst of it even through August. So certainly, we'll capture -- recapture that with a very fluid network cost is going down, revenue is going to go up. Those will all be very beneficial and supported to the comments that had in May.

Go next now to Scott Group with Wolfe Research.

Keith, I'm wondering, do you think there's a potential path to a settlement where maybe you're -- I don't know, support of maybe not that, but maybe less opposed to a merger.

And then I just had a random like thought question on fuel. Like the truckers all do weekly lags, FedEx, UPS used to do monthly lags. Now they do weekly lags on their fuel surcharge like ultimately, it doesn't really matter, you're eventually get made hold. But like why do you think the rail still have these monthly and for some of the rails 2-month lags on fuel? Why does that make sense though.

I'll be simple in my answer, Scott. I think there's 0 chance of a negotiated agreement. No. We're full stop, numbers are needed. I'm not interested in negotiating.

Got it. I think this is a great idea. I would remind you, we've already got -- we definitely have the fastest reacting fuel surcharge, I believe, in the industry. I do believe there also is tariff notification laws or rules with the STB that probably somewhat governed both here in Canada and also in the U.S. on how we could announce those changes and still meet those regulations. I'm all about brainstorm an idea how we can figure it out though.

We'll go next now to Stephanie Moore with Jefferies.

Great. Simple one for me here. Maybe just wanted to get a sense on how we can think about maybe some of the capital return increases, particularly the buyback [indiscernible]. Is there anything you're signaling here that you want to highlight?

No, I'd say that we're generating a significant amount of free cash. I think long-term CP and there's always been a -- one did not sit on cash. And we've been very successful as far as buying back stock at value-creating levels. As we sit here today, we see that continue. And so certainly, share buybacks are going to always be a part of our shareholder return philosophy.

We also added to our dividend payout and increased our dividend by 17.5%. And that's just reflective of being balanced. So we speak to our shareholders and the evolution of our shareholders. There's those that also like dividends. We are at the lowest payout ratio in the industry. So we have room to grow there. But we just see ourselves as the growth opportunity is larger there'll be time to do the dividend at a more meaningful level, but we needed to start ratcheting that up a little bit, but we still see buybacks as a meaningful value creation opportunity.

We'll go next now to Ariel Rosa with Citigroup.

I actually wanted to stay on the buyback comment. Keith or Nadeem, I believe you guys made the decision to pull forward the timing of the buyback last year because you felt the shares were undervalued. Here we're looking at the stock is up about 15% year-to-date. It's not necessarily a comment on over time, we continue to think stock compounds nicely. Obviously, that's -- there's a compelling case for that. But has there been a shift, I guess, in the appetite for the buyback relative to the dividend, it's a fairly sizable dividend increase? Just trying to understand how you're thinking about that. And then obviously, as the share price moves higher, does it make it harder to hit that target to repurchase 5% of shares? Or are you pretty committed to that level of buyback?

So last year, we had a 3.5% program or 4% program, which we completed, and we're quite aggressive. The stock price in Canadian dollars was closer to about $100 and $607. And we saw an opportunity value creation. That was coming off the heels of strengthening our balance sheet and having good discussions with the rating agencies.

And so we had similar discussions when we completed our buyback in November of last year. And that's why we came to the conclusion again to announcing our new buyback in January. We made it a little larger, and part of that is just showing the resiliency of our balance sheet and our ability to continue to service our debt and the diversity of our franchise and the growth story, et cetera.

I think we took advantage of an opportunity in the market to go to take on some additional debt prior to some of the geopolitical noise that raised rates. And so I think we very advantageous timing.

And so we see an opportunity to continue to buy back the shares. We're not going to hold off. Are we going to be strategic and buy back at value-creating prices, yes. So there's times when we will pause. And given all the volatility in the marketplace, there is opportunities sometimes to be strategic. You're never going to complete -- you can't get subcu on some of those things, especially when you have a $45 million or 45 million share authorization. But I fully expect we will complete it we'll complete it by the end of the year. And like we see today some near-term pullback with some volatility in the market, we could take advantage of that, and we will.

Thank you. And ladies and gentlemen, we have reached our allotted time for Q&A today. I would like to turn the conference back to you, Mr. Creel for any closing comments.

Okay. Just a few comments. Listen, we started the second quarter with a lot of momentum. We're in a very good position to operate to execute operationally, commercially and financially, that's exactly what we're focused on and intend to do in the second quarter to continue this very unique value-creating story at CPKC. We look forward to shares results soon. Be safe.

Thank you gentlemen, again ladies and gentlemen, this brings us to the conclusion of CPKC's first quarter earnings call. Again, thanks so much for joining us, everyone. We wish you all a great evening. Goodbye.

Good morning, ladies and gentlemen. My name is Cassandra Quach. I'm the Vice President, Chief Legal Officer and Corporate Secretary of Canadian Pacific Kansas City Limited. In keeping with indigenous protocol and building respectful relationships between indigenous and nonindigenous peoples in Canada, the United States, Mexico and in the communities in which we operate, I would like to acknowledge that the indigenous peoples are the traditional stewards of the lands and waters where CPKC's head office is located and where each of us is participating from in this meeting.

Today's presentation and Q&A session may contain certain forward-looking statements and forward-looking information within the meaning of the Canadian and U.S. securities laws. Further information about CPKC's forward-looking statements and forward-looking information are available in the company's annual report on Form 10-K and CPKC's other filings with Canadian and U.S. securities regulators, each of which can be found online on SEDAR+, EDGAR and at investor.cpkcr.com.

Good morning, ladies and gentlemen. My name is Isabelle Courville, and I have the privilege of serving as Chair of the Board of Directors of Canadian Pacific Kansas City Limited. I'd like to extend a warm welcome to all of you attending the 2026 Annual Meeting of Shareholders. We're glad to have you with us today. [Foreign Language]

This year's meeting is being held virtually via live webcast, allowing all shareholders to participate regardless of where they are located. Shareholders can vote on all business brought forth and submit questions for consideration just as they would at an in-person meeting. Voting will remain open until all resolutions to be voted upon have been put before the meeting.

With that, I welcome all of our shareholders and employees joining us virtually from around the globe. Joining me at the meeting today are Keith Creel, President and Chief Executive Officer; and Cassandra Quach, Vice President, Chief Legal Officer and Corporate Secretary. Also present from our Calgary head office are our Board nominees for 2026 and our senior management team. As indicated in our proxy circular, representatives from our auditors, Ernst & Young LLP are available to address any questions.

We will be considering the regular business of an annual meeting, including the appointment of CPKC auditor for the upcoming year, the election of our Board of Directors and our annual nonbinding advisory vote, say on pay and say on climate.

There will be a Q&A session at the end of Keith Creel's remark. If your question is not answered during the meeting, we will follow up via email after the meeting. As in previous years, most votes have been -- have likely been cast in advance of the meeting by proxy through the various available channels. That said, your right to vote and participate in the meeting is important, and we fully support that participation.

Registered shareholders and duly appointed proxy holders who have not voted or wish to change their vote may vote online by clicking on the Voting icon. The polls are now open for voting on all 4 items of business as described in the proxy circular. And voting will be closed after discussion on all business items is completed.

Registered shareholders and beneficial shareholders who have appointed themselves as proxy holders can submit questions online now or at any time during the meeting by clicking on the Question icon. All meeting materials, along with an audio recording of the meeting, will be available on CPKC's investor website following the meeting.

With that, I call the meeting to order. I will act as Chair and Cassandra Quach will act as Secretary. I appoint Colleen Nielsen from Computershare Trust Company of Canada to act as scrutineer for the meeting. The secretary has deposited with me an affidavit establishing the sending of notice of the time and format of this meeting to each shareholder entitled to vote, to each director and to the auditors of Canadian Pacific Kansas City Limited as required by law.

The scrutineer has confirmed that a quorum is present. The scrutineers' final report will be kept with the records of this meeting. I declare that the meeting has been regularly called and properly constituted for the transaction of business.

Before we begin the formal business of today's meeting, I want to take a few moments to reflect on 2025. First, I want to congratulate every CPKC railroader for consistently delivering on the promise of this unique and powerful railroad in 2025 despite trade and economic instability, CPKC's exceptional railroaders delivered again for our customers and the supply chain that depends on the service we provide. Led by President and CEO, Keith Creel, our team has achieved significant milestones in operational efficiency, market reach and sustainable growth while our reliable and resilient supply chain has supported North America's economic prosperity. CPKC delivered robust earnings growth, fortified our balance sheet and increased our dividend program, along with a new share buyback program, reflecting our commitment to shareholder returns.

[Foreign Language]

In 2025, CPKC continued to give back to communities on our network. In August, the CPKC Women's Open held in Mississauga, Ontario helped raise a record $4.5 million to support heart health in the province. In December, the CPKC holiday train traveled through hundreds of communities across Canada in the U.S., raising over $2 million and 175,000 pounds of food for local food banks.

Giving back is core to our values and central to our vision as a company. Sustainability continues to shape the way CPKC operates, invest and innovate, driving progress toward long-term resilience and value for shareholders. This includes new fuel-efficient Tier 4 diesel-electric locomotives and the continued progress of our pioneer hydrogen locomotive program, which demonstrates a potential pathway towards a low-carbon future for the freight rail sector.

As in past years, in 2025, the Board actively engage our shareholders, focusing on several key themes, including updates on CPKC's climate strategy, executive compensation, talent retention and succession planning. We also engaged shareholders about broader industry considerations, including potential further consolidation and evolving trade policy dynamics. This dialogue provides valuable feedback and helps inform our governance approach.

Based on shareholder input, and recognizing that climate strategy is best assessed over a multiyear horizon, the Board has decided to move the say on climate vote from an annual basis to once every 3 years while continuing to maintain robust annual disclosure and ongoing shareholder engagement.

We continue to evolve the Board to reflect our identity as a railway that's serving 3 countries. As part of our succession planning, I am pleased to share that Gordon Trafton has been appointed Vice Chair. Additionally, the Board welcomed Marc Parent as a new director in January and has nominated Kate Stevenson for election today. On April 14, we proudly celebrated the third anniversary of the historic CPKC's combination. The Board remains actively engaged in monitoring our integration progress, which includes compliance with the Surface Transportation Board condition and achieving targeted revenue and expense synergies.

CPKC railroaders remain dedicated to working and growing together as we continue to shape the future of railroading on this continent. Thank you, shareholders, for your ongoing commitment to CPKC.

[Foreign Language]

We will now proceed with the formal business of today's meeting. Please note that after the formal business is concluded and the meeting is terminated, our President and CEO, Keith Creel, will address shareholders, after which there will be a Q&A session. The secretary and I will either move or second all motions with respect to the business of this meeting. If you have any questions, please submit them now by clicking on the Question icon on your phone, computer or tablet.

There are 4 matters set out in the notice of this meeting to be voted on by the shareholders. We are conducting voting on all items at once online. If you are a registered shareholder or proxy holder, and if you have not already done so prior to today, you can vote now by clicking under Voting icon on your phone, computer or tablet.

The polls will close once all of the business matters have been presented. A voting user guide was distributed to shareholders with the meeting materials and is available online at CPKC's investor website at investor.cpkcr.com. I kindly request that the secretary read out the items that are being voted upon.

Thank you, Madam Chair. Again, if you have submitted your vote prior to this meeting, there is nothing for you to do unless you wish to change your vote. Each shareholder or proxy holder may vote on all matters at this meeting, in particular: one, the appointment of an auditor by selecting either for or withhold; two, the company's approach to executive compensation, commonly known as say on pay, by selecting either for or against; three, our approach to climate change, referred to as say on climate, by selecting either for or against; and for the election of directors by selecting the names of the nominees for whom they wish to vote and selecting either for or against for each nominee. As set out in our proxy circular delivered prior to this 2026 Annual Meeting of Shareholders, the CPKC Board unanimously recommends that you vote for items 1 through 4. Preliminary results will be announced later in the meeting after voting on all matters has concluded.

The first matter in today's meeting is the receipt of the consolidated financial statements as included in the 2025 annual report. A copy of the annual report has been made available to the shareholders in either hard copy or electronically. A copy of the annual report is available at investor.cpkcr.com and may also be found on the annual meeting site. I now place before the meeting the consolidated financial statements of the company and report of the auditor thereon for the year ended December 31, 2025. The first item of business to be voted on is the appointment of an auditor. I move that Ernst & Young LLP, the appointed auditor of Canadian Pacific Kansas City Limited to hold office until the close of the next Annual Meeting of Shareholders.

Madam Chair, I second the motion.

The next item of business is a nonbinding advisory vote to approve compensation of CPKC's named executives commonly known as say on pay. I move that, on an advisory basis, and not to diminish the role and responsibility of the Board of Directors that the shareholders accept the company's approach to the compensation of the named executives of Canadian Pacific Kansas City Limited as disclosed in the company's proxy circular delivered prior to this meeting.

Madam Chair, I second the motion.

The next item of business is a nonbinding advisory vote to approve our approach to climate change, which is also referred to as say on climate. I move that, on an advisory basis, and not to diminish the role and responsibility of the Board of Directors that the shareholders approve the company's approach to climate change as disclosed in the company's proxy circular delivered prior to this meeting.

Madam Chair, I second the motion.

The final item of business is the election of directors. In accordance with the articles and bylaw of Canadian Pacific Kansas City Limited, the Board of Directors has determined that 14 directors are to be elected at this meeting. The following are the 14 director nominees as set out in the company's proxy circular and delivered prior to this meeting: The Hon. John Baird, Isabelle Courville, Keith Creel, Amb. Antonio Garza, Arturo Gutiérrez Hernández, The Hon. Edward Hamberger, Janet Kennedy, Henry Maier, Marc Parent, Matthew Paull, Jane Peverett, Andrea Robertson, Kate Stevenson and Gordon Trafton.

I move that the persons nominated be elected directors of Canadian Pacific Kansas City Limited, each to hold office until the close of the next Annual Meeting of Shareholders or until such person's successor is elected or appointed.

I second the motion. As discussion on all business matters has now concluded, I declare that the polls are now closed. The scrutineer has provided a preliminary report based on the proxies received prior to the meeting. I call on the Secretary to report on the preliminary results of the votes. I note that the company will report a detailed final voting results, including those votes submitted online at the meeting once the tabulation is complete after the meeting.

Thank you, Madam Chair. I would like to report the following results: Ernst & Young LLP has been appointed auditor of Canadian Pacific Kansas City Limited with 99.88% of the votes in favor of their appointment.

The say on pay vote received 87.48% of the votes cast in favor of the resolution.

The say on climate vote received 88.72% of the votes cast in favor of the resolution.

Each of the 14 nominees has been elected as a director of Canadian Pacific Kansas City Limited with at least 95.84% of the votes in favor of their election.

I adopt the preliminary report of the scrutineer and declare that the 14 director nominees duly elected directors of Canadian Pacific Kansas City Limited and business matters voted on have passed. I direct that the scrutineers report be annexed to the minutes of this meeting.

Ladies and gentlemen, your duly elected directors of Canadian Pacific City Limited are: The Hon. John Baird, Isabelle Courville, Keith Creel, Amb. Antonio Garza, Arturo Gutiérrez Hernández, The Hon. Edward Hamberger, Janet Kennedy, Henry Maier, Marc Parent, Matthew Paull, Jane Peverett, Andrea Robertson, Kate Stevenson and Gordon Trafton.

As there is no future business that may properly be brought before the meeting, this concludes the formal business of the meeting. I wish to thank you all for participating, and I now declare this meeting terminated. Keith Creel will now provide his address to shareholders. If you have any questions, you may submit them by clicking on the Question icon at any time. Ms. Quach will then read back the questions after the CEO address. Over to you, Keith.

Thank you, Isabelle. Shareholders, fellow railroaders and guests, good morning. Welcome to everyone joining us online from coast to coast and across the globe. Earlier this month, we marked 3 years since our historic combination. I'm filled with immense pride as I look back on these first exciting years of CPKC and everything that we've achieved together in 2025. Therefore, it's with heartfelt gratitude and respect that I applaud the dedication of the hard work of our 20,000 railroaders across the North American network whose talent and drive made last year a true success. In 2025, we delivered best-in-class earnings and volume growth. These results demonstrate the opportunities and the advantages of our unique network which provides and what our world-class railroaders can achieve together.

Even as the North American economy faces challenges and uncertain trade policies, we continue building our foundation and unlocking the possibilities of our 3 Nation network. We created this network to drive growth into uniquely connect North America. By executing on that vision, we've continued to create differentiated results. We introduced new ways to make products, concentrated on what we could control. We turn challenges into opportunities, such as connecting new markets through our land bridge, linking Canada and Mexico. We've enjoyed unique growth across our North American trade corridors enabled by the strength of this new network.

We started 2025 by dedicating the Patrick J. Ottensmeyer International Railway Bridge. With that dedication, we honored a leader who was instrumental in creating our uniquely North American railroad. The additional bridge brand more than doubled our capacity to move freight through the border at Laredo, Texas, the most secure and efficient railway trade corridor between the United States and Mexico. We're delivering on our commitment to create new competitive service, options like our Mexico Midwest Express service, which has continued to grow, taking more trucks off the road and providing our customers with truck-competitive rail service between Central Mexico and Chicago.

Now we're going to build on that through our Class 1 connection, new with CSX and our Southwest Mexico Express service connecting Mexico, Dallas, Atlanta and other Southeast U.S. markets. In 2025, we celebrated with Americold as they opened their first co-located coal storage facility in Kansas City. We joined them in announcing a new coal storage facility at Port St. John, which is opening this summer. Together, we are building a new supply chain for coal storage. In September, we hosted Canada's Prime Minister Mr. Mark Carney at a grain terminal in Mexico, where CPKC unit train carrying Western Canadian spring wheat, grown and harvested in Manitoba arrived after traveling 5,140 kilometers or nearly 3,200 miles. That moment give us a powerful opportunity to showcase how CPKC truly connects the continent and the power of our network has to create new supply chain possibilities.

Across our network, thousands of acres of developable land giving us room to grow. We're using that land to offer new solutions to help our customers grow their businesses. That same spirit of innovation drives our railroaders to deliver a more sustainable future. Rail transportation already offers significant environmental benefits, and we are investing in rail technologies that further contribute to a cleaner, healthier planet.

In 2025, we upgraded our locomotive fleet with 100 new Tier 4 locomotives and are adding another 100 to our fleet in 2026. We continue to invest in alternative fuels such as hydrogen and biofuels while continuing to focus on maximizing efficiency and minimizing emissions. At CPKC operating safely defines who we are and what we do.

In 2025 as well, for the third consecutive year, CPKC led the industry with the lowest FRA reportable train accident frequency among Class 1 railroads, building on Canadian Pacific's legacy of 17 consecutive years of industry leadership. Our Home Safe program has been embraced across our entire network, keeping safety foundational and protecting the communities where we live and work.

I'm proud of what we've accomplished this past year, and I'm equally excited about the opportunities we have ahead of us to further strengthen our railroad and to provide even more value to the customers we serve and to you, our shareholders.

Today, during these times of economic uncertainty with our unrivaled network that connects North America, the fundamentals of our success remain firmly in our control. This is a forever story and we're just getting started. Thank you.

Thank you again for participating in today's meeting. For the Q&A session, we appreciate and look forward to addressing your questions. Madam Chair, Mr. Creel, there are no questions.

Thank you, Cassandra. Ladies and gentlemen, that concludes management Q&A session. [Foreign Language] On behalf of CPKC, I would like to thank each of you for attending this virtual annual shareholder meeting. We look forward to meeting again next year.

All right. Good morning. Thanks for coming back here for the third and final day of JPMorgan Industrials Conference on the transport track. I'm Brian Ossenbeck. I've been covering the group for a little while here for the firm. Really happy and excited to have Canadian Pacific Kansas City here, CPKC. We've got President and CEO, Keith Creel; VP of IR, Chris de Bruyn. So thanks, guys, for coming. Really appreciate it.

Happy to be here.

Imagine D.C. is your second home these days, Keith, but we'll save some of that for a little bit later. I want to start with the fundamentals and focus most of our time there. So the network is really building a good momentum into last year. Obviously, weather came, kept coming, but where are you performing right now and sort of versus your expectations?

Well, listen, always an opportunity. I'm proud to talk about the team and the performance. This year, we started -- carried a lot of momentum into 2026, operational momentum, obviously, and we have maintained that. So the first quarter, I've been very pleased with the performance of the team. Their ability to improve terminal dwell, network fluidity, car cycles, control cost. So at the end of the day, PSR is about controlling what you can control. I can't control the markets. I can't control the macro, but we create solutions instead of excuses. And I can tell you this operating team has done a phenomenal job from a safety standpoint, from a fluidity standpoint and converting the capital investments that we've made as we prepare this network to grow.

We started this journey. We're a 3-year-old company almost. We're approaching our birthday or 3 years of our forever story. And we came together to drive growth and to connect these 3 nations uniquely. We had a very well-thought-out strategic plan to be able to do that, and we've integrated the companies, and we've continued to create differentiated results.

So what the macro has not given us. Again, we've made our own luck in connecting new markets, whether it's our land bridge connecting Canada to Mexico or Mexico to the U.S. or Canada to the U.S. and all those spaces, we've continued to enjoy growth in the industry, which is unique in this macro environment that's been enabled by this new network. So again, we're in a good position. We felt all along this quarter would probably be the most challenging from a compare standpoint given last year.

Last year, we had some pull-forward stuff with all the liberation day coming when it came to tariffs. So from a compare standpoint, it was pretty challenging, also maybe from a mix standpoint and also from a fuel standpoint and then carbon taxes. So we've kind of navigated all that. We still see growth. We're experiencing growth this quarter, and we see very clear sight to our full year guidance. So the year is playing out as we expected.

Okay. Great. I know you just said you're not going to make excuses and weather always comes, but we've heard a bunch of times this week already how much the impact of weather was on the quarter, above normal, but also the impact of fuel because clearly, that spiked up pretty significantly. So I don't know if you can give us a little bit of context on those 2 items?

Yes. The fuel piece, listen, that's something I can't control. And obviously, the fuel price has gone up. So from a headwind challenge, I think we're seeing -- I don't know, Chris, correct me if I'm wrong, I think it's about $0.04 on earnings headwind impact. So we'll recover that. Our fuel surcharges will kick in. So next quarter, that will kind of go away, but this year, it's certain -- this quarter is certainly a headwind for us.

Other than that, though, operationally, from an expense control standpoint and a fluidity standpoint, yes, we've had winter. Yes, we've had challenges. But I'm kind of a guy that I don't want to hear the excuses, I want to hear the solutions. And that's the way we run the railway.

Just this week with snow, with some minor outages we've had, given those network challenges, we had a big storm this week. We get the team together to meet, it's the preparation that makes the difference. It's how you prepare for those storms, and it's the perspective and the approach you take. So we went through a lot of preparation last week and preparing for it, and I told the team this week, and I said that to me, it's a rounding error. I don't want to hear excuses. I want to hear what we're doing differently as long as we've got our people positioned and we're able to move the snow. We're a Canadian railroad. We understand what snow is all about. And frankly, that's exactly what's happened. So we'll continue the momentum. We'll finish the quarter out strong, continue to operate safely, and we control our own destiny.

So one of the things I couldn't really prepare for and obviously can't control is just the conflict in the Middle East. So you're also at the TPM, Trans-Pac Maritime Conference, a couple of weeks ago. How did those meetings go with ocean carriers and forwarders and people in the supply chain because obviously, things change basically as we're all arriving in Long Beach.

Yes, it's -- yes, very topical. That's for certain. But much like us, there's so much uncertainty in it. I think that the CEOs and the senior leaders I met with from our steamship customers, they don't expect nor do I expect this to be a long-term thing. I think it will resolve itself, hopefully, sooner rather than later, and things will get back to normal, if there's anything normal anymore.

But I don't think it's going to have a long-term impact. And obviously, they're concerned about bunker fuel availability, some of those things that you got to have to run the business. But again, long term, I don't see it changing a lot. I think we get back to whatever normal is anymore, but certainly not what we're dealing with today.

So one of the things that we've seen on the ocean side is Hapag making a bid for the assets of ZIM, which assuming that goes through, how would that impact CPKC, because I think there's a pretty strong relationship with Hapag over the years?

Yes. Hapag is -- for those of you that don't know, that's -- we're their single largest transportation provider in the world, a long-standing relationship, very strategic partners. Rolf and I actually met when we're out in L.A. a couple of weeks ago, and he's really excited about their continued growth. So this acquisition, obviously, there's a lot of work to make it happen, but obviously, they wouldn't be pursuing it unless they felt like they could get it approved.

And if and when they do, then it's going to be accretive for us because that growth -- that traffic, obviously, that ZIM moves today would fall into Hapag ships and the [ Gemini alliance ], and that's uniquely going to be served by our network, whether it's discharging in Halifax or -- discharging in St. John or discharging in Vancouver or discharging at Lazaro Cardenas, we're going to benefit from it.

So when we think about maybe going hopefully back to some sort of normal with trade relationships in the U.S., USMCA renegotiations coming up. What are some of the opportunities and risks from your perspective? And we've heard a lot about Canada diversifying away from the U.S. Obviously, that would take some time, I would think. But is that something that you're also strategizing for as a possibility?

Yes. So actually, I spent some time yesterday visiting with folks here in D.C., and I spent some time at the Mexican Embassy. They actually start their negotiations. Secretary Ebrard came into town yesterday. So they feel confident they're in a good place. I think the relationship between President Trump and his administration in Mexico is healthy and strong, and I see a path to resolution.

At the end of the day, they want a good relationship. They understand the U.S. has concerns. President Trump is very clear in what they are, and I think they came prepared to make a deal. So the approach I think they're going to take is more of a bilateral for now. And then eventually, when it gets to a point where there's trilateral issues that involve Canada, then obviously, they'll come to the table as well.

So Canada, a bit behind Mexico. Mexico is leading in this regard. And again, in spite of all the rhetoric and maybe the tension, I think at the end of the day, when Canada and the United States really get into the nuts and the bolts of the negotiation, I think both parties understand free trade is important between these 3 nations. Trade between Canada and Mexico is important. I think Canada is going to have to give some, and I'm sure that in the negotiation, the United States will move as well.

But in the end, I think we land in a good place, and you're going to see trade increase. And the most important thing out of all this to me is a bit of certainty, because there's been a lot of investment, especially in Mexico, foreign private investment that's kind of sitting on the sideline, waiting to be put into play because they want to know what the rules of engagement are. So once we get beyond this, I think we end up in a good place and uniquely for our network because we physically connect all 3 nations, we're going to play a part of that success.

So you mentioned Lazaro. How is that positioned in terms of imports, both for domestic market and also cross-border because they've had a number of challenges over the years, as you well know, including some of the uncertainty we're just talking about. So is that something we're going to start to get more calls on that ports and more partners starting to ship through there as we get more certainty or maybe that's even starting to ramp up?

Yes, that's already started to ramp up. That's literally back -- I take you back about 3 years ago. There was a lot of unreliability in Lazaro coming into Mexico because of some of the protest and the blockings of the track. And we had a lot of meetings. I had several meetings. I actually met with the Governor of Michoacan, which is the state where Lazaro Cardenas is located. And he made a commitment to me 3 years ago that they understand the opportunity. And as I explained to him, we have one chance to get this right.

If we're going to create this network and we're going to talk about modal shift and growing commerce and product coming through Lazaro Cardenas, we have to have reliability. He made a commitment and he's kept it. As they've needed to when they've needed to, they've addressed the concerns of those that were protesting. And if someone feels like they need to protest, they're protesting other locations outside of the rail network. So as a result of that, we've now got steamship lines and Hapag is one that's critically important with the Gemini Alliance where they're starting to ramp up discharges.

Customers have kind of gotten beyond the uncertainty and they trust the supply chain now. So we've got domestic products that's increased. We had about a 15% growth rate last year. That's continuing to ramp up this year as they go into the sales cycle. We've got Hyundai that's growing over that gateway as well. So we're positioned to continue to grow that gateway, both domestically intra-Mexico as well as cross-border coming into the Texas markets.

So you mentioned coming into Texas, the Southeast Mexico Express that's been in place, I think, for a little while, but now you're starting to really ramp up with some of the investments coming online. So how do you expect to see that ramping up throughout the rest of this year? And I guess, how shippers really reacted to that option?

Yes, that's something that the shippers are learning about and getting excited. And kind of essentially, you create the vision. We bought the railroad that was kind of a niche add-on after the merger. We announced at our Investor Day a couple of years ago. But we bought a railroad that was essentially a [indiscernible] railroad. So we got to create a mainline.

So the last 2.5 years, we have been investing. We've raised the track speed. CSX has done the same. Literally, at the end of this month, we're going to have some of the last track speed increases that we'll be able to put in place. And we now have an infrastructure that will take you from Atlanta essentially all the way to Monterrey in 3 days and then middle Mexico in 4 days. So much like our 180 and 181 service that we put in place about a month after we became CPKC, which has grown substantially because of the reliability, we're going to have a match coming out of the Atlanta, the Southeast market.

So it's going to originate on the CSX. It will come over the Meridian Speedway with us and straight into Mexico. And the beauty of it is it can't be replicated by competition because we have the best route going into Monterrey going into Central Mexico. So there's 1.8 million trucks that are crossing that border every day. We're creating the infrastructure and the reliable service. And I had a conversation actually. I met with Steve at CSX a couple of weeks ago, and I explained to him our journey on 180 and 181. And I said, Steve, listen, your team is going to come to you and say, this isn't a trainload length train. And listen, we're all sensitive to cost, but sometimes you have to build it. You got to put it in the marketplace. You got to make the upfront investment and grow it.

And once you do and you prove the product, that's when the Amazons of the world are going to trust it. That's when the parts that are going to and from Mexico are going to trust it. That's when that service-sensitive truckload that is better served by the railway is going to get on the service, and we're going to grow with it. So he's committed, I'm committed, our teams are committed. We're out selling it now. We're getting a lot of interest. The service is going to go into place next quarter. So literally, we're less than a month away, and we're super excited about it. It's going to be a best-in-class service, truck-like reliable, truck-like competitive and it's going to take trucks off the road that are going to and from North and South Mexico and the Southeast of the U.S.

So we're just in Laredo area a couple of months ago and certainly a lot of growth and opportunity, but also disruption and uncertainty with some of the political and cartel-related violence, unfortunately. So how is that really impacting sentiment from some of the shippers from the investment from your perspective in that area. So it's easy to see the headlines, but it's a little harder to get a sense in terms of like if that's actually changing perspective on the ground?

Yes. So at a macro level from a headline, as the media usually does, often you can misunderstand the gravity of it. So the gravity that we saw on TV, which was shocking. Number one, it wasn't that bad in all honesty and certainly not on our network because that was not occurring in our core network. But what it does is it raises awareness. The security piece and the reliability of our border crossing at Laredo is unparalleled.

We have invested significant money in creating for our customers secure transit through that gateway. We don't have the kind of challenges that perhaps our competitor in Mexico has. So our history and our reputation is different. It's because our product is different. And even customers, I'll tell you this, this is a very topical discussion that's kind of -- I've always knew that it mattered but having a customer to tell you that's pretty compelling.

So just, I guess, last month, February, once a year, we bring our sales and marketing team together, and I call it an alignment meeting. And we go through kind of celebrate a little bit what we did, but most importantly, what has to be done. And then part of that process, we have a customer panel. So we bring 2 or 3 customers in because we want to hear the voice of the customer. And one of these particular customers is a 2-decade-long transportation decision-maker for a very large United States manufacturing company that produces some products in Mexico. They ship to Canada for retail stores. They ship to the U.S. for retail stores. We have, with our new company, went to them and sold a concept that is unique to the industry because of the reliability of the service.

So we have not only an intermodal product, which is using 180, 181. We also have a box car product. So we're moving new box cars. That contract is ramping up now. And in the conversation, some of our sales folks asked this particular transportation manager for this large manufacturer, why now? And he explained that one of the most valuable pieces of this, number one, their contracts with their retail stores, if they don't get the product to the shelf because it's products that we want as consumers today, when your washer and dryer breaks, you need one now. You need a refrigerator now, not next week. They have penalties in their contracts.

So if the truckload doesn't make it, it's a 10% penalty for the cost of the product, which is substantial. So that safety piece and reliability piece is important. So this product was being 100% truck for Mexico and they were experiencing the cartels because when you get on the highway, that's where some of these activities take place. So they're jeopardizing their reputation. You get on the rail, it's a different experience. So the reliability of the supply chain, not just in transit, but equally as important, the security piece. It is a material difference.

And the issue is, if you have one manufacturer like that, that starts to see the benefit and the reliability of this product we put in the marketplace, when one starts to win with it, it becomes competitive advantage and their competitors want to start to win with it as well. So it's one of, I think, what will be many of this repatriating a business that's been 100% truck to railway because of this infrastructure we've created and that's unique to us and our value proposition.

One of the other challenges, as you well know, of course, is just the imbalance in the trade between the U.S. and Mexico. So I think Americold ramping up Kansas City areas, that's, I think, going to help offset some of that in terms of going south. Obviously, it's probably never going to be fully balanced, but are there opportunities like that to kind of help the full fluidity of the network?

Yes, that's always been kind of a challenge. There's -- you could say there's 4:1 north versus going south on the rail, and that's not the case for us. Again, because of Americold is a piece of it. That opened in August. That was a 3-year journey, took significant work and effort. It came to fruition now. They've got the facility built on our land in Kansas City. And we literally, probably last month and 2 weeks ago, we now have Mexican Senasica inspectors that physically live in Kansas City, working in our facility. So they're inspecting and bonding and then that border becomes seamless.

So that was a big step. That started at about 200 southbound loads. Next month, we're going to be up to 600. So again, Southbound offsetting that imbalance, and we still continue to win traffic on 180 and 181. Just last week, we got some business awarded. I think there's 2,000 annual loads that are coming north, but we got another customer we won that's equal that going south out of Chicago. So again, you've got a product that we're able to offset. So we're not 4:1, we're probably 3:2.

But again, that's part of our sales team's focus on what we can do to ideally get to 1:1, and that's a perfect world. We won't get there, but it's compelling growth either way. So it's something, again, that we're working hard to overcome, and we're having a unique outcome because of the reliability of the service.

You mentioned Americold being located on your line in the network in Kansas City. Are there any other colocation? I mean, we've heard about them over the years. They seem to come like once every 2 or 3 years, but can that accelerate? Or do these things really just take time to get the strategy and everything put together?

Yes. No, there's been a move a foot since we announced the first one to look at the second one. Americold is a very strong -- became a very strong partner for us strategically. They're focused on growth and differentiating the product in the marketplace. And this is something unique where they've co-located inside our rail terminals and create the bookends.

So we're very close to announcing a second location down in deeper in Mexico that's going to serve the Mexico City market. And actually, they're in the process of building an Americold facility that's going to be completed next month or the month after that's going to come online in St. John. So we've got a bookend now that's going to bring water to the game and create this ecosystem that doesn't exist anywhere in North America that's very unique to Americold and CPKC.

So we'll continue to grow. They're looking at other opportunities as well. We're going to have Mexico penetration. We're going to have Eastern Canada. And then next, we're going to start looking, and we've got a couple of locations identified in Western Canada. It could be in Calgary, it could be in Vancouver. So again, there's -- it's a multiyear journey. There's much more growth still left to be achieved with those strategic partners.

So last -- I think it was last Friday, STB unanimously rejected the petition for, I guess, further investigation into the Meridian Speedway, which we've talked about a little bit over the last year or so since that came into the headline. So I guess what does that mean for you, business as usual? Any impact on shippers, anything else going forward?

Yes. No, I think, number one, that whole issue over the Meridian Speedway, it's a difference of operating philosophy. I came to the table when we took control of the network. And actually, when the company was in trust, I took a train inspection trip. I was invited. I couldn't obviously provide any interference or any views, couldn't exert any control, but Pat invited me to participate in a train inspection trip over that speedway.

And the Speedway, if you go back to when it was created, 2006, between NS and KCS, NS invested a significant amount of money to create a partnership. It's an LLC. They have 30% ownership. KCS had 70%. Now CPKC has 70%, but we operate it. And as a result of that investment, they're entitled, there's a commercial agreement to exclusivity and to certain service parameters on transit times that are defined in the contract.

When I came, I took that trip, I saw a bunch of long trains running that weren't KCS trains that were congesting and impacting all the KCS trains because essentially, what happens, you've got a 300-mile stretch of railroad that's defined. There's 3 sidings that can handle a train over 8,500 feet. The people that made the agreement, the investment, the money that [ KP/NS ] spent allowed multiple sidings to be extended to run an 8,500-foot model.

As PSR starts to evolve and people think they know how to implement PSR, KCS started down that path, and they think PSR is just run big trains. Well, you got to have the network built out to accommodate big trains or you kind of give away inefficiencies and create delays and it doesn't work. And that's what I saw.

I said, listen, the only people that are benefiting, it's the NS, it's not KCS. We're actually subsidizing their operations. So when we took control, they were still doing the same thing. And I said, guys, that's not good railroading. We're going to run an 8,500 model, and everybody would get across the railroad better. So we started down that journey. Jim came back at UP and Jim wanted some -- us to work with him to run long one way. So we agreed for a short period of time to run one long eastbound. And then we kind of fast forwarded. It was never forever, and we had some other disputes and issues and concerns. And I said, listen, I'm not going to continue to subsidize. So we're going to go back to 8,500 feet, and that's what we did.

And what we saw, what we realized, not a surprise to me, when you run it the way it's designed to be ran, we started saving train delays. So everybody's trains got across the territory faster. But that didn't fit UP's operating model. So a dispute was created under the thought that we're not keeping our merger commitments, that we're affecting their service. It's an impacted gateway. And we said, number one, it's not impacted because it's nothing new. It was here before, it's here after. It's not affected by the merger. Number two, your service is good, if not better. You just need to measure it the right way.

So that dispute kind of rolled out. They filed with the STB, NS filed with the STB. We obviously stated our truth, the facts, understanding the agreement, which is an agreement between NS in CPKC, not CPKC and UP. And ultimately, that's what it all boiled down to. So the final ruling came out for the STB on Friday and essentially says there's no issue. Keep running it the way it is. It clarified the issue. But what it says to me, most importantly, above and beyond all that, is that in spite of what either party might like or want, the facts matter. And this regulatory body as they review disputes, as they review this merger application, the facts are going to matter. And in the end, that's going to lead them to their conclusion and their decision.

And I couldn't ask or expect nor could this industry ask or expect any more than that. To have an independent agency that understands and will get into the facts and they're doing their very best to protect our industry, which is what their mandate is to do what's best overall. In spite of what any of the individual railroads may want or not want, I think that's a good place to be. So I was very pleased, not just because they agree with us, but most importantly, because it stated their independence and it said again, the facts are going to matter in anything you put before us.

And I can't in the history of our industry, what's before them now when [ UP/NS ] refiles their merger application is going to be the most material and important decision in our rail industry's history and in our nation's history when it comes to commerce and getting it right, and they know the gravity of that and the importance of that decision.

So definitely agree facts will matter. Like you said, we'll see some more information here by the end of April, but we also have some interpretations in some of the standards. And so if you think about truckload conversion, enhanced competition requirement, I don't -- if you go back and look at the primary, the testimony from Linda Morgan, like I don't think she would agree with truckload and increasing competition. But I'd be curious to hear your take. We're going to talk about that a lot more today in the panels, but can it really help a shipper who's going 4:3 or 3:2?

Yes. I would agree with you. Linda Morgan is a very deep thinker. She was kind of the architect of the new merger rules. It was made to stop and pause consolidation. We consolidated enough in this industry and essentially said, if you're going to do any more consolidating, it's going to meet a very high standard. Only if it meets those standards of enhancing competition and serving the public interest, will we approve a merger?

And if not, then you're either going to -- the applicant is going to -- it's going to be disapproved and/or they're going to get concessions, not of their choosing. That will help solve to what it would require to enhance competition and serve the public interest. So I've said all along, it's much deeper, much broader than just taking trucks off the road. It's about shippers' options. It's about customers' options. It is about 3:2s. It's not just about 2:1s.

And in all honesty, when you think about enhancing competition, there's going to be 4:3 concern. You get to a place where you're so consolidated where you only ultimately in the end, and they know this is true, too, to have healthy competition, it requires balance. And if you get into the nuts and the bolts of BNSF when they merged and what kind of created the impetus and the need for UP, which was SP-UP to exist to maintain balance in the West. Same thing with the Conrail carve-up in the East, that doesn't change. You create this Goliath of UP/NS, which is going to be 7x the size of CPKC. It's going to serve 43 states, 40% of all the traffic in the nation, 40% of everything is a lot.

So from a GTM basis, RTM basis, in scale, CPKC, we were 5%. They would be 40% if it's approved. So it's so consequential. It creates so much market power. You have to get it right. And then to compete against it, if they were to approve it, then those that are left, you've got to prepare yourself to compete as best as you can against that kind of size and scale. So they know, just like I know, that will be, if they approve it, what likely triggers additional consolidation.

So that being said, they know that it's not just UP/NS. They have to think long term because it's a forever decision. So the gravity of this is much more than just taking trucks off the road. And I think that was reiterated when they said the application was incomplete. It grossly fails -- my view, grossly fails to address all of those concerns. So this next application, they've taken a lot of time to prepare it. I commend them for that because the gravity of it is that important, and I look forward to reading it. So when they file it, I think they're planning to file it April 30.

I said this last week in Chicago. I've got very strong views about it. I don't think it's necessary. I don't think it's the right thing for the industry. I think it creates unhealthy imbalance that will drive additional consolidation. And at what cost, why do we need it? But if I'm wrong, when I see the application, I'll be the first one to say I was wrong. I just don't think knowing what I know about the industry and understanding the regulations the way I do, what they have to solve to the marketing impact, the operational concerns regardless of the market concerns as an operating officer, something that big, if it gets in trouble, we all get in trouble.

Those are all, to me, undeniable concerns that have to be addressed in that application. And to Linda's words, the benefits are going to have to outweigh the harms. The benefit box is going to have to be fuller than the harm box or you're never going to satisfy a definition that says you're serving the public interest. That's the bottom line. So let's wait and see what it says, but it's a big hill to climb. It's a mountain. It's a mountain Everest as far as I'm concerned, and I just don't know that it's going to be navigated.

So one of the benefits, whether or not it enhances competition, however that's defined is clearly back to truckload conversion. When we look at some of the stats and what you guys reported for your targets quite a bit behind, at least for the time being. Maybe you can talk about how that's progressing versus expectations. Clearly, a lot has changed since the merger. But then when you look at what UP and NS is proposing, like it's another 2 million loads and a lot of that's intermodal, and that's going to be obviously a long-term strategy or effort, but it seems like that's a pretty big lift. So can we really count on that being just overall in the benefit bucket when it's been just a very difficult thing to do, convert and keep it off the truck?

Yes. I think it's -- and again, I'm biased from my own experience over the last 3 years. We committed in our merger application that we saw an opportunity to take 64,000 trucks a year off the road, and it would take us about 5 years to get it done. And long story short, we're at about 40% of the rate now. Now listen, we've had headwind with the trucking rates have been down, capacity has been high. Some of that's getting corrected.

But the benefits we've had is -- we're talking about going over the border and the complexity of Mexico to the United States and making the border seamless. And that's primed opportunity to me for road to rail conversion. 64,000 compared to almost 2 million. I mean that's -- I think I said this before, I kind of -- everything is relative. I think about what that means. That's more than every intermodal load we moved in our entire network last year in growth. That's a lot, number one. That's a big number.

Number two, if you're going to get it, you're going to have to reinvent yourself because the truckers aren't going to roll over. And selling that kind of service is not the same as selling the railroad service that we have today. You got to have truck-like reliability. You've got to have investment. You think about Americold to get that balance, that Americold represents a 3-year journey. It represented tons of work to get Mexican inspectors, get the processes changed with both governments, to get those people domiciled in the United States. To create this ecosystem, Americold had to come to the table. I think they invested $127 million. It took a while to build it.

So this stuff does not happen overnight and certainly not in a 3-year period. So I'm not saying it can't be done. I'm going to take Jim and his word. I think it's a high aspirational target. And I think it's a lot more complicated. It's going to take a lot tougher sledding than he imagines or could imagine. And I know that's true about me, how can it not be true about that. And I think the regulator understands that.

So again, if you go back to what Linda Morgan says, the representations you make about all these merger benefits, they're going to look at them in a very skeptical way as they should because historically, it's easy to say all these wonderful things, and it's the shiniest newest toy and it's got all these benefits. But what you say and what you do and what you convert is -- history says is different. So in this case, they're going to be very more -- very skeptical. They're going to poke holes in it. So again, once they submit their application, I hope it's very much more definitive and robust about how they got to those numbers and why they believe that to be true so that the STB can say, is it $2 million or is it $1 million?

They're going to hedge it themselves. I'm not going to speak for them. But you can look at our story and our history, and I think we've got a pretty good track record of doing what we say we're going to do, and it's not been easy. We're getting there. We're at 40% in the ecosystem, and it's going to grow more, and we'll be in a much better position this time next year. But that journey with Americold specifically started 5 years ago. So to say you're going to get all that done in 3 years, I think it should be looked at with skepticism.

So maybe I'll come back and finish up with something more CPKC specific. I mean, I think this time last year, we were talking about the land bridge and talking about shipping French fries to Mexico from Canada. Clearly, a lot has happened since then, and the pipeline has grown pretty substantially. So maybe we can wrap up with that land bridge, the opportunity and sort of the pipeline that you see because trade uncertainty is going to be there. But like you said, opportunities, you got to go out and get them. And clearly, it seems like there's been a few that's fallen in your view?

Yes. So Brian, it's a great point. With every crisis comes opportunity. And this whole trade tribulation issue has really created an awareness in Canada and Mexico to diversify markets. And again, we come to the table helping them do that. So whether it's French fries that are coming out of Alberta that are going to Mexico that in the past may have shipped by truck and have been shipped by truck, they're coming the rail now. We've got the ecosystem with Americold with the facilities being built now to be able to be that modal conversion.

So that's all stuff that's starting to grow with us. It's really, really, really exciting. Petroleum products, grain products, I think 2024, traffic between Mexico and Canada was maybe 2% of our revenue. Now we're north of 3%. I think it's almost $0.5 billion over the last 2 years of new incremental revenue, and we see another $100 million this year. So again, this unique network has enabled that. And now that you have people paying attention to it, and it's part of their planning and part of their supply chains, it's something that will continue to grow for us that we've uniquely enabled that we're excited to participate in.

Okay. Well, we're a little bit over time, so we're going to have to end it there. But thanks a lot, Keith and Chris for being here today. Really appreciate your time today.

Always a pleasure. Thank you so much, Brian.

Thank you.

All right. Good morning, everyone. Welcome to Day 3 of Barclays 43rd Annual Industrial Select Conference. I'm Brandon Oglenski, airline and transport analyst. And very excited to be kicking off day 3 here with Canadian Pacific Kansas City, and joining us from the company, Keith Creel, President and Chief Executive Officer; and Chris de Bruyn, Investor Relations and Treasury. So very excited to have him here. I think we're going to have a lively conversation. But I'm sure you guys have been through the fire side now, if you can pick up a little keypad there. We'll go through an audience question number one.

Do you currently own CPKC? Yes, overweight; two, market weight; three, underweight; and four, no. Go and vote really quick. Appreciate everyone participating. We do publish these after the conference.

Okay. Question number two, please. What is your general bias towards CP right now? Positive, negative or neutral.

And then question number three, please. In your opinion, through-cycle EPS growth for CPKC will be above peers, in line with peers or below peers? Thank you, go ahead and vote.

Well, gentlemen, thank you for coming here to Miami. Really appreciate you being here. I think a lot of folks in this room and at this conference have been talking about railroads and specifically M&A. And Keith, I mean, I want to ask a lot of questions about your business too, but obviously, that's a topic that I think has been close to every rail CEO here. We just had Jim Vena on stage yesterday. Obviously, they have the view that this is going to be pro competitive. But I think CPKC's had a slightly different view on the proposed UP-Norfolk merger.

Well, I would say that would be correct. I've been very transparent about our feelings relative to, I guess, 2 aspects. One, CPKC's view; and then two is someone that's been in this industry now for 3.5 decades and have lived and experienced consolidation of this industry, the last round back in the '90s and early part of the first 10 years of my career, I've got some pretty strong views about the risk that those consolidations entail and what they represent.

So from a CPKC standpoint, that's the first place to start. And for my responsibility, most support it. The threat of consolidation or the reality of the UP-NS combination, I guess, better said, is not that concerning to me in and of itself. Given that we're North-South network, there's very little of our business, it would be directly exposed to the competitive dynamic that they would represent going East and West, in fact, less than 1% of our revenue. And I think if you look at their own submissions, it's about 30,000 carloads. It's about $100 million. So yes, it's $100 million is $100 million.

But that said, if the deal were to get approved, I'm confident based on my knowledge of the regulations, the law as well as the competitive dynamics and the regulators themselves having the experience that we obtained in achieving our consolidation 3 years ago that the deal to get -- if it gets approved again, it's going to be with significant concessions that would allow us opportunities in markets to participate today in bringing customer solutions that at the end of the day, would drive upside opportunity for us. So I think that's the first place to start. So it's not a threat of competition.

The issue of concern to me, most importantly, for the industry is unnecessary consolidation. And again, the risk both in operational integration, day-to-day operation of something that big, literally a Goliath in the industry relative to the operational concerns as well as the market power and the concentration it creates. And then layer on top of that, especially, and this is not a secret, if you've been in this industry, if you think about any 1 railroad that's never been bashful or hesitated to use their power, their size, their scale to try to impose their will on customers on other railroads. It's Union Pacific historically, and this is [indiscernible], obviously, Union Pacific was the product of significant consolidation. They came as they are today back in the '90s, a very painful process through the 2 meltdowns that they created and their integration itself.

But since then, there are numerous cases and instances of other railroads, customers, use of embargoes or abusive embargoes, there's a litany of issues of concern. So again, it's not competition that concerns me. It's anticompetitive behavior that concerns me. And quite frankly, I may be one of the only people sticking our voice out or extending ourselves and speaking so strongly about it, but rest assured, there's no shortage of customers and/or other railroads or other constituents that had to deal with that size and scale and that behavior that don't share the same concerns.

And this process, as it unfolds, once they resubmit their application and concern parties filed their notice of intent to participate, so they have a voice on file and in the regulatory review process will unfold over the next, what, I guess, it's going to be April 30 is what they've said. So once that application is accepted, there's about a 30-day period by the statutes. I believe this next application obviously should be and would be accepted by the STB. And from that point forward, there's an additional 2 weeks. So that window up until, I guess, it would be the middle of May is a critical window for those that may be concerned about this application and their ambitions to file their notice of attempts so they can participate and voice those concerns.

Well, it sounds like maybe you said you're not concerned necessarily from a competitive standpoint. But you still have the view that this doesn't necessarily enhance competition in the industry. Is that right?

Yes. That's at least what they proposed at this point. The reality of the new rules, which have never been tested. They were written in 2001 and prospective matters, they were written full stop to pause and stop mergers. The industry has gone through decades of consolidation. There was an over abundance of capacity. The previous rules to 2001, in fact, encouraged consolidation. But at that point, the regulator, the STB, Linda Morgan specifically was the Chair, said enough is enough. The BN Canadian National initial application to merge is what triggered that.

And the rules where we've written to effectively raise the bar to essentially say, you've got to serve the public interest, part of sublet public interest is you've got to satisfy that you've enhanced competition relative to the shippers and the shippers with a primary concern to make sure that the goods outweigh the bads of the consolidation. So that's the formula. That's the math. And that's the reason, in many ways, we've said all along that their application was incomplete because it didn't address all of the market analysis, obviously, which is what the STB called out.

And in fact, their definition of enhanced competition, which is being defined by their gateway pricing mechanism they put in place, which has an expiry date, by the way, to me, falls grossly inadequate. It's way short of what the law requires. It's way short of what the STB is going to require. So no, I do not think as it's presented now that it remotely addresses the definition of enhancing competition.

Okay. I guess along these lines, what would you guys be looking for specifically in form of concessions?

The concessions we'd look at, and we've developed a pretty fulsome list, essentially boils down to opportunities and access for our customers and for our shippers to get into markets that perhaps we don't get into today. So if you look at any locations where we overlap, you can look in Chicago, you can look in St. Louis, you can look in Kansas City, you can look at that in Baton Rouge locations where UP-NS, CPKC exists today. When you combine the 2 regardless of UP's position, the 4 to 3s, the 3 to 2s, not just the 2 to 1s, all to me are part of defining are you satisfying enhancing competition or are you reducing competition? So anywhere that logic would apply, you can expect us to be looking at potential concession request with our submission that we give the STB.

Okay. I guess specific to your business, and not to pivot. But I guess you guys are benefiting from the consolidation you drove with Kansas City in 2023. Can you talk to markets that are still benefiting from those synergies of that network combination this year?

Yes. So let me -- that's a good point because some -- obviously, there's some people in this room that aren't aware of our story. Let me back up just for a minute. So our combination, we were the first merger that's existed or created in the industry 3 years ago, April the 14 will be our 3-year anniversary. It's 2 companies, both that they date back to the 1880s, 2 historic railroads with the 2 smallest railroads of all the class 1s, that came together. It was truly an end-to-end, hand in glove, Kansas City, was the southern tip of our network and Kansas City was the northern tip of the KCS network. So we uniquely and only connect all 3 nations through this infrastructure that we combined in our transaction back in 2023.

That said, by definition, 0, not 1 customer lost options. We were additive to interline options for the lanes that we operate in. So it's not an issue of meeting the old standard or the new standard by either definition, although we went under the old rules, we absolutely enhance competition. We created, for instance, an additional single-line move from Chicago to the border of Texas. And in fact, because of our continuity into Mexico on our network, we have a single line move that's created a tremendous benefit for customers that's directly truck competitive that runs out of Chicago every day that goes deep into Mexico, it goes to Monterrey and it goes south near Mexico City.

You're talking about truck-like reliability. You're talking about truck competitive service and the border becomes seamless. So in that case, and that's part of what we've grown with over the last several years, that is a perfect example of enhancing competition. That's a perfect example of building and optimizing a single line network that allows customers to benefit from truck-like reliable service. It does take trucks off the road. It has taken trucks off the road. It's a win-win.

That said, the scale that we've created, again, we enhanced we added, we didn't eliminate anything. And then the scale we created from a market power standpoint, it's still the 2 smallest coming together to become the smallest. We don't have market concentration power where customers feel that we're going to use our size and scale to impose our will impose our rates or impose our service on them. They have a choice.

I guess, again, specific to that, Keith, where you guys actually guided probably to the best outlook this year within North American railroads. I think double-digit EPS growth rate, low double digit. And within that, I think mid-single-digit RTM growth, but it looks like the first quarter might be off to a slightly more difficult spot. Is that right?

Well, I think it's all relative again. We said what we would expect to happen, if we go back to last year, remember last year, we had kind of a pull forward of freight in the industry given the looming threat of the April 2 tariff liberation day effectively. So from a compare standpoint, we're up against some pretty tough compares. However, that said, we go into January of this year, carrying tremendous operating momentum. We closed out December with great momentum and cost control. And while we had a bit of, let's say, a bit of a headwind in January, we expected flattish RTMs. We were down slightly. But now if you get into February, the grain harvest, which this year is a record grain harvest, 85 million metric tons, it's 23% more than last year. We've got a tremendous amount of demand for our grain and the grain is flowing and moving.

So this year, month-to-date or this month-to-date, we're up 11% this morning. For the quarter, now we're plus 2.3%. So again, we're in line with exactly what we thought. In fact, we're gaining momentum relative to the demand that's out there. And it's driven by grain, it's driven by continued demand and growth in our 180-181 product, that's the train I talked about a moment ago that run Chicago to Mexico on a daily basis. And then, of course, the reverse route going North. It's driven by international growth or alignment last year with Gemini, which is the strategic combination of Maersk and Hapag-Lloyd, which are our 2 flagship carriers. That continues to grow for us.

This year, we've got St. John with an expanded capacity. They'll be discharging more there as well that's continuing to grow. And then Americold, which is a company that was also enabled by our transaction. It's one of the United States' leading cold storage facilities. They built a facility inside our terminal in Kansas City. That was a multiyear process, $137 million capital commitment on their part. It opened in August and has started to ramp up. We're running about 200 loads a week now, proteins going south to Mexico, refrigerated goods coming back north, and that's going to continue to ramp up through this year.

So if you start to look at these levers that were all merger-enabled. They're all synergies that we've committed to and we're converting. I think we exited last year at $1.2 billion of new revenue synergies that the merger has enabled. We're going to add another $200 million this year. So if you put all that together with strong cost control, that's what gives us strong conviction in line of sight to again hit a double-digit earnings CAGR, operating margin improvement again this year based on mid-single-digit RTM growth for the year. And given that and despite of the challenge in January in winter, the railroads never ran better, cost controls continue to gain momentum and demand is ramping up.

And that's all in the backdrop of still flattish macro. Now there is green shoots. We see the same things when others are seeing relative to truck capacity tightening up. We haven't seen the economy turn yet, but we think it's on the verge. And once it does, if you layer on regular GDP growth, then that's going to get us back to the CAGR we talked about at our Investor Day, which is not mid-single digit RTM growth, it will enable high single-digit RTM growth.

And by the way, if there's audience questions, just raise your hand, we'll get you a mic. Keith, can you talk about the tariff environment though, especially between Canada, U.S. and Mexico. And I believe we're going to be -- or we are renegotiating USMCA this year, correct?

Yes. Well, listen, we knew last year, given historically what happened with USMCA. We knew that President Trump, who was the signature and the originator in support of the agreement that's being renewed this year in his last administration, we knew there'd be some choppy waters. I did not think that the tariffs would have the impact that they had or be so profound as they have been, not just in the United States and with Canada and Mexico, but worldwide. I don't think anyone would have assumed that. That said, President Trump wants to rebalance trade, and that's what we're seeing the curve. We saw an impact last year, the changes that were made on our steel franchise, aluminum franchise, automotive franchise all in, it was about a $200 million haircut for us.

That said, we believe kind of what it is, is likely a worst outcome. And from this point to these negotiations, we firmly believe that once this thing settles down, some of the investments, some of the decisions that were kind of put on pause, waiting on this uncertainty to clear up. We'll reengage later this year. We're hopeful that this gets renewed, renegotiated through the next several months. It's supposed to be renegotiated by the end of this year. And again, that's going to free up capital. That's going to free up decision makers to continue to invest in these 3 countries. And given that we uniquely connect all 3, even if it rebalances, we believe we're in a prime position to benefit from increased trade, especially between Mexico and the United States.

And in fact, if you think about this, probably a lot of people don't realize, the reality is when it comes to our network, there's about 18% of our revenue that's represented between trade between the United States and Mexico on CPKC, 2.5x more goes south than comes north. So 15 of the 18 literally is traffic that we're originating in the United States that's going to Mexico. It's an export move, it's not an import move. So I believe, as we go forward, the labor force in Mexico is plentiful, proximity to the marketplace. It's diversified risk from overseas suppliers. There's a strong partnership between those 2 nations, United States and Mexico and as well as Canada in the United States. So we will get back to a place where you're going to see trade grow between the 3 nations once the uncertainty gets resolved relative to the tariffs that President Trump had put into place.

But to be clear, even in places like automotive, you're seeing incremental growth of customers. Is that right?

Yes. The uniqueness to our network in spite of the tariff challenges, we've created something that's kind of a niche. And this is something that goes back to 25 years ago, experience that I had in this industry. The way the automotive market has always worked, kind of the Mississippi River is the dividing line for the lack of a better term. The eastern carriers would originate finished vehicles at the automotive manufacturing locations, which primarily were heavily concentrated in the Michigan area as well as in Ontario. And then we ship West, you go to Chicago was the typical gateway and you give it to the UP or give it to the BNSF. But if you're the originating carrier, you were only as good as their ability to turn the empty back to you once they offloaded it.

So it created a disconnect in the supply chain that has forever been very, I guess, noisy for the OEMs. Quite frankly, we originated quite a bit of traffic. That's when I worked for another railroad in Michigan, and I got kind of tired of being yelled at by General Motors were not having into car supply. So when we put this network together, thinking about those complexities. We have an ability now with its strongest automotive larger network in North America, facilities that originate manufactured vehicles in Canada, facilities, 16 locations we serve in Mexico, those are the bookends.

So the concept is if you keep the car fleet on your railroad, you don't interchange. It's called a virtual loop with those cars, those auto racks. You load it in Ontario or you loaded in Michigan you ship it to a dealership in our instance, say, in Dallas, Texas or at a Wale terminal, you offloaded make it empty, you reposition it to Mexico. You load it back up with vehicles, you ship it back to Dallas, you offload it, you send it back to Ontario, you send it to Minneapolis. So again, these cars is cycle like a supply chain, a constant belt, a constant loop. And when you do that, you saw tremendous supply chain challenges for the OEMs and the exchanges, the rates are higher. You guarantee car supply, which has never been done in this industry. So we have guaranteed commitments, take-or-pays with our OEMs that we have this model established with. We charge a higher rate, but they get a better quality of service.

And in the end, because you've eliminated this inconsistency, their supply chain, their assembly lines continue to move, you take noise and you take cost and you create liability for the OEM and they're willing to pay for that. So that's been something that's allowed us the last 3 years. converting modal share even in a shrinking automotive market because of the uniqueness of the product to bring value to the OEMs and they reward us with additional market share in business. And it's extended length of haul. We eliminate empty miles, it's efficient for us, it's efficient for them.

Maybe it's a good time to queue up question #4 for the audience. If you guys don't mind grabbing the key pads. In the back, please question 4. Yes. In your opinion, what should CPKC do with excess cash, bolt-on M&A, larger M&A, share repurchases, dividends, debt pay down or internal investment?

Okay. And then question #5, please. In your opinion, what multiple of 2026 earnings CPKC trade. We can vote now, please. Multiples have come higher over the years. We use the same range for a decade. And then last question, please. What do you see as the most significant share price headwind for CPKC, core growth, margin performance, capital deployment or execution and strategy?

Chris, maybe while we wait for this. Can you talk to the capital budget this year and what the priorities are, especially across the network as well?

Yes, for sure. Thanks, Brandon. So when we put the 2 companies together in 2023, we laid out, capital guidance of $2.6 billion to $2.8 billion. A lot of that capital initially was focused on building capacity into the network. So key investments such as twinning of Laredo bridge, merger sidings, adding CTC across the network. So a lot of that core infrastructure and capacity has been put into place. Our capital priorities have shifted a little bit now. We're spending more on locomotives. We brought 100 new Tier 4 locomotives onto the network last year. We've announced that we're bringing on 100 more Tier 4 locomotives this year.

And you've also seen us take our capital down. So our capital year-on-year is going down to $2.6 billion to $2.7 billion, that's a 15% decline. So we're going to be producing a lot more free cash flow. And you saw us in January announced a 5% share buyback program. So that capital allocation policy is certainly aligning with the numbers we saw in this.

David, did you have a question?

Can you talk about how Laredo expansion has compared to what you expected? And then any second order effects on operations, how that's created commercial opportunities?

What was the first question, sorry?

How the Laredo expansion has compared to your expectations?

Laredo itself the bridge or which -- yes. So at the end of the day, that bridge, we've got -- if you look at our network, Laredo is the single largest, busiest transit location, commerce location when it comes from movement into and out of Mexico and the United States. We control the route. There was a single bridge that we share with the Union Pacific. Union Pacific actually comes together at our railroad literally at the bridge and a lot of people probably don't realize this south on that route in New Mexico where Union Pacific's agent. They pay to use our railroad.

That said, that bridge in the past has been a bit of a choke point. So when you look at a PSR railroad, you identified locations that create congestion or capacity constraints. And as the throat of an hour glass goes, that was 1 location. So back actually when President Trump was the President -- his last administration, Pat Ottensmeyer and team worked closely with the Canadian government and with the administration to get a permit to get authority to build a second bridge. So we started on that bridge when the company was completed it last year. We now have dual bridges going across the river that allow us unfettered access in and out of ability to pass trains. So it's effectively doubled the capacity, which we don't need completely today, but for the next 100 years, we're set up in a very good position from a capacity standpoint.

And the other key aspect, if you get into some of the challenges with the bridges and the passes into and out of Mexico from an immigration standpoint. Just last year, maybe it was the year before, kind of all the years run together now. The Eagle Pass alternative, which is the other border point that UP and BNSF used today currently was shut down a couple of times by the U.S. government because of issues and concerns about security and illegal immigrants coming across the border. That's not an issue at Laredo. We have an exhaustive security system, where we've integrated deep into Mexico. We are known for the most secure passage way into and out of Mexico when it comes to damage when it comes to theft, those type of things, they happen occasionally in our railroad, but it's more an exception, not a rule. So that's another value add for our customers when they ship across that Laredo Gateway. It's not only the fluidity, but it's also equally as important, the security of their shipments.

What was the second question?

Have [indiscernible] created additional commercial opportunity...

Yes. Actually, that security piece, you'd be surprised, is critically important to customers. Just last week, we -- because of our reliability that we've created through this gateway, we won a big contract with a manufacturing company, a well-known name here in the United States, a product that's produced in Mexico that shipped to the Midwest for distribution, that has been running pure truck. Well, we went to them 2 years ago, sold a concept to them that, listen, we've got a truck-like reliable service. We can give you a hybrid model of not just truck but also boxcar, because some of the shipments, they're going to big box retailers here in the United States, they need it on the shelves.

People want these products immediately, washers and dryers, when it's broke, you want one now, you don't want when 2 weeks from now. So they had to keep stock in the Lowe's of the world and the Home Depots of the world that's readily available to be purchased. But there's also backup stock. So if you combine the 2, we've allowed them to make a modal shift and save money from trucking by putting it into rail, both boxcar and as well as our intermodal product. But one of the key aspects, it's their reputational reliability and their contracts of delivering those truck shipments, which are now on rail to the Lowe's of the world to the Home Depots, they take significant fines and reputational damage from a reliability standpoint if the shipments don't get there, and they have been dealing with.

And I don't think this is a secret some of the cartel challenges and issues product being commedered on the highways of Mexico, which our solution eliminates. So again, there are customers that are starting to see and experience the value of that security aspect. It's not just something we talk about, it's something that's material to their bottom line.

Keith, we only have about a minute left and so much more to talk about. But I guess maybe not a topic that's been pretty relevant here, inflation. And I think inflation has been running higher for most railroads, including CP. But you're guiding to margin expansion this year. Just how are you managing through higher cost inflation, but also driving better outcomes on the bottom line?

Well, the reality is that PSR operating model, we're a railroad that's never apologized for it. It's part of the way you run a business. It's all about managing processes, optimizing processes, controlling costs, eliminating waste. So the exercise of doing that, you create efficiencies and doing more with the less labor, productivity across the board that allows you to offset the headwinds that you have with inflation.

The other key issue that we benefited from is in Canada, we have not experienced the same wage inflation that the U.S. roads experienced. In fact, we just through an arbitration award, renewed our contract last year, which is for the next 4 years. We've had 1 year, so we've got 3 years left on it, and that was a 3% wage increase, which is dramatically different than what the U.S. roads experienced in the United States. So again, when you combine the cost control, you combine some of the things that we've done relative to labor as well as through the consolidation in our purchase services, our ability to scale and size that we've obtained to work with our suppliers to get better rates for and to drive cost savings to the bottom line to offset some of those efficiencies and some of those issues with inflation have allowed us to continue to improve our margins and offset what the market would give us otherwise.

All right. Well, Keith, Chris, thank you very much for attending. Appreciate it.

Thank you.

Okay. Great. So thank you to everyone for joining us for our next session to kick off the afternoon. We have Keith Creel with us, CEO -- I'm sorry, Canadian Pacific CEO, Keith Creel; and Chris de Bruyn, who runs IR for CP. Thank you both for joining us. A lot of topical things to discuss. We did see -- we've seen a number of your friends over the last couple of days, and so we'll have an interesting back and forth. I will tell you, Jim Vena wants to bet you $100 on the hockey game.

I've already given him an opportunity. I've got $100 on the U.S. ladies team. He hasn't taken yet.

All right. Well, we'll see how it shakes out, and we'll be watching closely.

So before we get into the M&A discussion, which I know a lot of people are going to want to discuss, let's just talk about operations and how the quarter is progressing, where you're seeing opportunities. Quarter-to-date RTM is roughly flat. Carloads are down a bit. You have a target out there for mid-single-digit RTM growth for 2026. With the understanding it's still early in the year, maybe you could talk about how you expect volumes to trend over the course of the year.

Okay. Yes. Well, number one, thanks for having us again. It's always a pleasure to come and talk about our story. We're almost 3 years old. We're kind of getting beyond the infancy stage. We're toddlers, but we're still learning to walk and run, and the railroad is doing extremely well overall. We finished the fourth quarter with a lot of operating momentum. Certainly had some choppiness in revenue. But as we said at the end of the fourth quarter when we talked about our results that the momentum continued operationally. The railroad is running very fluidly. Operating metrics are at best-ever levels for the first quarter of the year, which is typically our most challenging because of weather.

That said, from a business standpoint, January from a compare standpoint, we always said and knew and expected last year was strong. We had a mild winter last year. We had a lot of pull-forward demand from tariffs -- from the tariff date that was coming in April, everyone knew. So from a compare standpoint, we knew that was going to be a pretty hard match. In spite of all that, with a record grain harvest, which is carrying over to this year, we were flattish, maybe slightly down, I think, 1% to 2% on the RTM basis. But what we didn't have in January in volumes, we made up for in operational performance. So expense control, which we closed last year out, is maintaining its discipline. I'm extremely proud of the operating team and the way they're efficiently and safely running the railway.

That said, from a demand standpoint, the grain has really started to move. So the numbers you'll see once they get updated, we've actually got to positive RTMs. I think this morning, I looked at it, we're just under 2% for the quarter. We expect to finish low single-digit positive for the quarter, which is in line with our expectations, and we'll continue to gain momentum as we get into the second quarter. Compares from the pull forward will dissipate. You've got the automotive pause that was taken last year that will dissipate. So you get back to the fundamentals of the demand that we're seeing on grain. It's a record harvest, 85 million metric tonnes. That's 20% more than last year, and we've never ran it more efficiently. We had a record January. We're going to have a record February. So we're well positioned there.

The U.S. corn crop as well is extremely strong. You've got the soybean issue with China got resolved in the fourth quarter. We didn't really benefit from the renewed orders in the fourth quarter, but that's not true now. We're starting to obviously move it from a compare standpoint. We'll lap that. So we're set up well with grain. We're set up well with potash. International intermodal as well that's unique for us in our Gemini alignment. That is going extremely well for us. In fact, I just saw our friends and partners in Hapag-Lloyd made an announcement this week where they're acquiring another asset. So if that gets approved, and we expect that it will, that's going to be supportive to our Gemini model and our future demand in Canada as well as in Mexico. So again, extremely pleased there.

Automotive is another space we've continued to outpace the industry in spite of a down market. We've had a record 2 years, and we expect the same thing again in 2026. So a good spot there. Americold, that's something we talked about before, has come online now that's starting to grow, and that's controlled reefers, and that's shipping product to and from Mexico, which we have a lot of experience in Canada doing that. We've created a supply chain that's unique to the industry that's making the border transparent that will continue to grow for us.

Land bridge, that's another space. Every crisis creates an opportunity. So the tariff tribulations really with the USMCA and the uncertainty with trade rebalancing between the United States, Canada, and Mexico has created a very motivated Canada and Mexico to diversify. So you probably read Minister Le Blanc is in Mexico now. He's been there all week. He took one of the largest trade contingents to Mexico that they've seen in decades. There's over 300 companies that are represented there. We have our team on the ground with those people selling our network, again, creating a unique outcome for us.

If you put all that together, you put some price control, which we've demonstrated. We're taking price above and beyond what we had expected and disciplined operations. It puts a pretty unique outcome together where we're all out. We're able to drive based on that single-digit RTM growth, double-digit earnings, and operating margin improvement and going straight to the bottom line. It's a pretty compelling unique value-creating opportunity in our industry in spite of the macro. That's with the macro against us, that's not with the macro supporting us.

So that's a great rundown, Keith, just so I can delineate because -- and you kind of hit on it there at the end. But how should we think about how much growth is coming from the macro versus how much of it is these idiosyncratic opportunities that you guys are driving and creating for yourselves?

I would kind of say it this way. If we're single-digit RTM with the macro against us, when you normalize the macro, that gets us to that kind of CAGR that we talked about at our Investor Day, it's a high single-digit RTM growth, which is a stronger double-digit earnings growth.

Got it. That's exciting. I'm sure that's going to be uplifting to a lot of folks in the room.

We wanted to come, so hurry up. We're prepared for it. We got the capacity and the people and the locomotives and the talented team to be able to convert it.

One of the things that I want to understand, so we've seen a pattern of RTM growth leading carload growth. What kind of mix effect is that having? And just maybe explain what's driving that? Is it longer trains? Is it longer...

Yes. No, that's a great analogy. So the reality of it, it's the vision being realized of this network, extended length of haul. Cars that are not being interchanged to railroads perhaps that in the past, we didn't have a choice. We stopped at Kansas City. We either interchanged at Minneapolis, St. Paul to some, Kansas City to some. Now we're getting extended length of haul, origin to destination. So the average length of haul is going up dramatically versus what it was pre-merger for both KCS as well as the legacy CP. So that's what you're seeing.

And with the extended length of haul, that's going to have kind of a detrimental impact overall if you look at just the raw cents per RTM number because you're spreading over a longer distance. But the arc per car, obviously, is going up. So in the end, it's the value of this network. You're seeing it in automotive, you're seeing it in plastics, you're seeing it in land bridge, you're seeing it in intermodal, you're seeing it in agricultural. So again, that will continue. But at the end of the day, when you have the capacity to handle it and you do it in an efficient way and bring it to the bottom line, that's all positive for the investor and it's positive for our outcome.

So we're doing exactly what we said we'd do. So as long as you see the difference, understand that's a good thing. And when you layer the macro back on top and you start to see more of those carloads, not only do you have more carloads benefiting, you have more carloads benefiting from extended length of haul, which again is very accretive to the bottom line.

Yes, absolutely. And you mentioned the network has been running very well recently. I think that's true actually for most of the North American rail network. And yet if I think -- if I look at yields, cents per RTM has been kind of flattish. I understand there's obviously been the headwind from the Canadian fuel tax change. But talk about what the pricing opportunity looks like. Has anything been holding it back? Do you feel like you've been getting the pricing that you'd like to get? Or is there still more room to come, especially if we get a little more of a supportive macro?

Yes. So historically, we've said 3% to 4% is kind of where the number is in good times, which we model our price on. But when we put our network together, we said we're going to price to the value of the network. So extend the length of haul, if you've got customers' assets and they own over 50% of the cars and you're turning those assets faster, they had to own fewer of them, you should be able to take additional price as long as you're reliable and consistent and they can size their supply chains to that. And that's the value that we're extracting. So in our price, we've been north of 4% in spite of the macro because of the value proposition. No other railroad has that value proposition. We do and we have and we continue to price to that.

So again, when you get back to a normal macro, you get some of this truck capacity that's shrinking. You start to see the truck rates shore up, some of the parts of the business that in spite of the macro have grown, which will grow more, the value proposition on intermodal, domestic intermodal gets even more compelling. Our ability to take additional price becomes even more compelling. So some of those areas that I think have been diluted or become more accretive as you get back to a normalized economy, which is going to benefit uniquely our network, especially with the product that we've got relative to domestic moves coming out of Chicago going to Mexico, we've got another product that we're introducing called SMX. It's the Southeast Mexico Express. Kind of go back to our Investor Day I guess, 2.5 years ago, I think we announced the deal that day, a niche acquisition of a little piece of short line from Meridian Mississippi to Myrtlewood, Alabama. We're going to partner with the CSX. CSX takes it from Myrtlewood to Montgomery, and then that's kind of the highway to Atlanta to the Southeast. That is coming to fruition.

That railroad now will finish the end of this quarter. It's a Class 1 standard railroad. We're going to have most of it at 49 miles an hour. You've got transit times from Atlanta to Mexico. If you go to Monterrey, that's literally just over 3 days. If you go deeper into Mexico down by Mexico City, [ SLP or Interporto ], where we're taking the 180/181 train, you're 4 days. Again, that is truck competitive and it's reliable. You set your clock to it. We replicate the same success, you get back to an environment where it's more supportive and truck rates go up, that border stays seamless, you're going to see additional growth in that space.

Is there a good way to think about the level of available capacity on CPKC's network right now? Like how much -- if we do see that more supportive macro, if we see tightening in the trucking market, how much room is there for additional volume?

You should think about it in a world where we -- again, if you go back to what we said in our merger application. We said that we're going to do a high single-digit RTM CAGR. Obviously, the macro has not given us that. But what the macro hasn't given us at the same time, we've been investing capital. We've continued to build out the network. So for 3 years, we built out a network to create the capacity to be able to run the railway in a PSR way the way we do. So that's latent capacity that's built that's in the ground.

So from capacity, we got a bridge, a second bridge going into and out of Mexico. We've got locomotives. We're literally this year in our second year of purchasing a second tranche of 100 locomotives that are coming online in 2026. So from a capacity standpoint, we are primed for the rebound. But again, we're going to be disciplined. We're going to hire ahead of the curve, just in time the way we need to hire, make sure we're trained properly. But when it comes to rolling stock, when it comes to locomotives, when it comes to terminal capacity, this railroad is in very, very good shape, and we're able to grow at low incremental margins with no issues and no challenges on a go-forward basis for several years to come.

How should we think about what the incremental margins look like on new volume that comes up?

I think that 67% number, it's still in that same place.

Okay. One of the things that's interesting to me, there have been a lot of challenges that you guys have faced, a lot of uncertainties. The Canadian economy has had its share of challenges. You've seen a lot of labor issues in Canada. Certainly, I know as part of the integration, you had the IT issue with the crossover. And yet CP continues to lead the industry in growth. If we remove some of the overhangs and think about a more supportive macro, one of the things that's interesting to me is we've seen kind of multiple compression among the rails. And yet CP has that potential or that growth potential that I think most people would recognize as superior to most peers. I asked you about this on the earnings call, but let me kind of circle back to it because I'm curious to hear a little bit more -- hear you elaborate on.

This. What's your level of confidence in CP leading the industry in growth over the next, say, 5 to 10 years? What are the sources of that growth? And contextualize some of the challenges that you've had or some of the headwinds that maybe haven't been quite in your control, but how big those have been or how much of a headwind those have represented?

Yes. So when it comes to growth, we built this network to grow. And again, we're in the early stages of building this thing out. So a lot of these solutions that we put in the marketplace that have allowed us to drive our growth unique to the industry, really driven by synergies. We said when we started this thing that we initially said we saw $1 billion worth of synergies of revenue synergies, not EBITDA synergies. Now we're at $1.5 billion. And literally, if you get to the end of this year, we exited $1.2 billion in spite of the macro at the end of 2025. We're going to layer another $200 million in spite of the macro on in 2026. We're in a pretty good spot. But again, it's in infancy stages. So as we build this network out, we'll continue to see that uniquely enable. And then you layer on top of what we didn't know.

And you learn things as you do this thing, like this whole opportunity between Mexico and Canada. Last year, in 2024, it was 2% of our revenue. The crisis created a lot of attention and motivation around it, and it grew to 3%. So right now, order of magnitude, it's under -- just under CAD 0.5 billion of Canadian revenue that's new to the network. And again, as we go forward through USMCA, it impacted us, obviously. The uncertainty has impacted us. The pause that happened with automotive has impacted us. The tariffs on steel have impacted us. But as you normalize those things and we get through these negotiations, yes, you're going to see rebalancing, but you're also going to see an ability to be more predictive in the rate and size of your supply chains and for investment to reoccur because, quite frankly, that's chilled some of the investment as much as President Trump's changes in motivations of bringing manufacturing back to the U.S., the need for Mexico and Canada and the U.S. to do business has never been greater.

The labor pool in Mexico, the scarcity of labor in the United States, bringing the supply chains closer together, derisking your supply chain from overseas, all those things, those fundamentals that were true then. Once you get through all this uncertainty, this network is kind of the backbone that allows those things to occur. So it's been a headwind for us. I think it's created some uncertainty in the marketplace. And I can go back to whether it was President AMLO before the administration change and kind of the risk that was introduced, we want to build faster trains. Well, everybody got concerned. Are they going to affect CP's ability to grow, CPKC's ability to grow? Well, if you can engage and you work close with the administration, we can uniquely complement each other. We can help them achieve their goals and we can still protect our ability to grow. We're doing that. We navigated that. You get to the trade tribulations.

How can this railroad grow in spite of all these uncertainties? Well, we've demonstrated that we can. So again, you start to do those things and you start to give investors confidence that this model works. This network is unique. Mergers are no mergers. We're a North-South network uniquely creating three economies that depend upon each other today. And as you grow forward in trade, they're going depend upon each other even more. So even when rebalancing occurs, this industrial logic makes sense. And with this team, we're proving that when storms come, there's going to be choppy waters. We're going to navigate them. We're not a team that's going to make excuses. It's our job to make solutions. And that's what we do. We take crisis and we turn them into opportunities. We've become market makers. And with our backbone in our network, we have the ability to do that.

Last year at this conference, we spoke about some of the opportunity to drive efficiency that could come about from deregulation. I think so far, some of the policies that we've seen have been more headwinds. I'm curious how you think about how much of that opportunity, that efficiency opportunity has been realized from deregulation? How much is still on the come? What's your level of confidence that we could see some of that start to flow through in terms of the operating results?

Yes. I think we've made some progress. It's taken a little bit more time than maybe any of us had wanted or anticipated, but we're starting to make the right moves. The autonomous track inspection that finally, that got passed through, we're able to start to look at how we justify and invest in expanding that technology across our networks. There's some unique things that we've done in Canada that we pioneered relative to cold-wheel technology, train inspections, eliminating regulatory inspections, extend the length of haul that -- it's all about asset turns, improving safety and improving efficiency. We've got an administration now that's entertaining those changes.

We actually got a change through recently that we'll see really in this harvest benefit us where we were having to stop trains and make wheel change-outs at Laredo. Now we're able to do that at IFG or having to do it in Kansas City. So if you look at the legacy network and all the trains that we send to Mexico, we've got one customer that sends over 50 trains a month. If you look at the whole book of business, it's almost 70 trains a month of ag product that are moving off the legacy KCS network going to Mexico. That's a lot of trade. That's a lot of cars. That's a lot of touches. If you can speed those assets up and do work on those cars, change those wheels out in a way that's more efficient than what's realized in the past, that's a big benefit.

So again, we're kind of in the early stages of it. There's other things that we'd like to do relative to inspections that are occurring in Laredo. We have to prove the concept. We got to get the empirical data to show that it's safer as well as more efficient. We've got an FRA and we've got an administration that's willing to listen. The last one wouldn't listen at all. So to me, that's a monumental change in and of itself, and it gives us hope for the changes that will come in the future. Once we give them the empirical data that says, not only does this make sense from a regulatory standpoint, it's the safest outcome that allows our U.S. rail network to be safer and to be more efficient and makes it more robust and strong.

What's the process for getting those changes in place? Is that -- you collect the data, you go to the FRA, say, hey, this is something we'd like to test out or we've been exploring, can we get permission to do this or...

Yes, that's kind of it in a nutshell. You've got to put the case together. You've got to present the case to the FRA. They've got committees that look at and look at the safety aspect above all else. And they issue -- typically, you start with a pilot. And once you prove the concept out, you can allow the pilot to grow. So it's slow change, but it's change. And again, when there was no change, any change is encouraging, and this administration has allowed us to do that. It just doesn't happen overnight.

Wonderful. So you've reduced your CapEx target this year by 15%. We talked about the available capacity on the network. I think a lot of people like to hear that. Certainly a lot of opportunity from kind of incremental margin growth, the contribution that can make to operating income. How do you think about the sustainable level of free cash flow that could be generated by the business? And in terms of deploying that capital, I think it's noteworthy that you've pulled forward some of the buyback activity. So maybe you could discuss those two pieces, the free cash flow, the kind of CapEx -- thoughts around CapEx and then thoughts around the buyback.

Yes, Chris, I'll let you address.

Yes. Thank you. So as Keith laid out, we've spent a lot on capital over the last number of years, bringing the networks together, spent a lot on twinning the bridge at Laredo, adding additional sidings, adding CTC through the network. So the network is in a great place from a capacity perspective. We're shifting our capital priorities a little bit more now towards the rolling stock. We purchased 100 new Tier 4 locomotives last year. We're purchasing another 100 this year. But we've really pre-invested in the network. We're in a position to bring capital down to more of that $2.6 billion, $2.7 billion level. And we think that's really sustainable for the next couple of years at least. So that's creating a pretty compelling free cash flow conversion story.

We don't believe in hoarding cash on the balance sheet. We do believe in returning it to shareholders. So we've actually upsized our buyback this year. We've announced a plan to buy back 5% of the stock. You can typically expect us to address the dividend annually as well. So the shareholder return strategy is something that I think is exciting for investors.

So you have the target out there for double-digit core adjusted EPS growth through 2028. Maybe speak to your level of confidence in that. What could cause you to -- I mean, I guess, outperform whatever -- obviously, there's a lot of room between double digits, anything between 10 and 99. But what kind of -- to come in on the stronger end of that, what would that look like to the extent we come in a little bit softer? Is that just a function of the macro not being quite as supportive? How do you think about the ability to hit that target?

Yes. I think the simplest way to look at it is the macro. That's the difference. If we just get a normalized macro, you get -- GDP is sustainable that's given you 3% -- 2% to 3% a year with this network and this team and what we can sell to connecting these three nations. You get some certainty on the trade, the trade gets resolved later this year, then I think you get to a place where you're going to get strong double-digit growth.

Got it. Excellent.

Yes, not 99, obviously but...

Just shy of 99.

Yes. Definitely in line with what we guided to when we came together 2.5 years ago.

Wonderful. So why don't we shift focus and talk about rail M&A? I know that's...

I can't believe you took so long.

Got to talk about the core operations at some point. Talk about the upcoming STB fight, if you want to call it that or the merger debate. How is CP positioned? How are you thinking about preparing yourself and kind of the argument that you're going to be laying out as this kind of is obviously going to play out in a very public way over the course of the year.

Well, probably no surprise to you. We've got a lot of experience dealing with the regulator, dealing with the specific leaders that are in the regulatory body, got a lot of muscle memory, spent a lot of time reading, deciphering and understanding what the regulations require. So that has consumed a meaningful amount of my time, I think rightfully so. And I believe that I don't say fight, a debate, a very spirited debate about what the facts are, the good facts and the bad facts, the positives, the negatives. And that's what these rules require. But as far as CPKC as stand-alone concerned, at the end of the day, we're the least impacted.

And don't take me in my word, take me at UP's initial filing. $100 million, if you look at it of at-risk revenue. I say that if -- and that's still an if, it's not a fait accompli. I'm not drinking the merger Kool-Aid that this thing is going to get approved. It may or it may not. I'm not going to be naive to say that it won't, but I'm not going to sit here and say, I'm just going to assume that it will because the facts, I believe, especially in light of the last ruling when their application was ruled incomplete, it says that, you know what, this isn't a layup. We're here. We're going to understand. We're going to assess the decision based on all the facts. All the facts need to be developed, heard and understood.

So all that being said, if it gets approved, it says it will come with concessions to meet the standard of public interest to meet the standard of enhanced competition. And if it comes with concessions, if you believe anything about us to be true, know that we've done our homework, and there's a whole lot more good that comes out of that than what's at risk from a revenue standpoint and from an opportunity standpoint. And that being said, I do not believe personally, and I'm speaking from 35 years of experience.

And again, Jim and I can -- we see this differently. He's been railroading a long time. He's a good railroader. But I think perspective matters. In those 35 years, my 35 years, I spent some time in Canada, obviously, the last 2 decades, but I spent a lot of time in the U.S. right in the middle of the industry consolidation that led to those rules. I lived through the UP-SP combination. I lived through BNSF as a young Operating Officer. And history, in all honesty, was very painful. Those integrations were painful. The SP-UP deal melted the industry down 2x. And that's at the size they are today. So keep that in perspective. You go east, you look at the Conrail carve-up. The CSX and the NS transaction again. And a lot of the decision-makers and people that were directly impacted that are in key positions today, just like me, they live through it. They're still working in this industry. Lion's share of those people know how painful those integrations were.

So if you get to a place where those rules were enacted to stop mergers, before they were written and created, you could argue to encourage. There was way too much capacity. You had railroads that weren't making cost of capital. We had a need to get to healthy financially sustainable rail networks, and that's what the previous merger rules allowed. And the barrier to achieving a yes vote was different, dramatically different. 2001, those rules were not only written to stop mergers, but to create an environment that the hurdle rate is huge relative to meeting that public interest test.

So keeping all that into play, thinking about what's still yet to be navigated to achieve, that's why I say this is not a fait accompli. The benefits of gut out-rule -- outweigh the unintended consequences. And I can make the case of market power. You're talking about unlike us and some people would say, Keith, you're a hypocrite, you're a product of consolidation. Say, I'm not a hypocrite, I understand the facts. What we did complemented and created competition without tilting the scales of market power to the disadvantage of any particular customer. There's not one single customer that lost an option with us. It truly was end-to-end. There wasn't any overlap that you got to explain. There wasn't any need to go out and introduce some kind of pricing mechanism that protects competition for a prescribed shelf life. So again, uniquely different transaction for us.

And what was true about us is not true about this combination. You're talking about something that creates, if it's approved, a Goliath that is going to have exponential market power. And I think once you reveal all the facts and look at some of those modelings that are going to have to come out with a renewed application and as we go out and stress test what they say to be true, you're going to see somewhat argue monopolies in some key segment lanes. That's going to concern the regulator.

You get to a place where historically -- and again, I'm not talking bad about Jim, just historically, UP, I don't think it's a surprise if you get in our industry, you talk to a customer, you talk to another railroader, they've never been a railroad that's been bashful about using their size. They have imposed their will in a lot of ways. It's almost woven into their DNA. Jim's aspirations aren't making that any less true. And their size would not make them any less likely to do that. And this regulatory body knows that.

There's been multiple cases that are very public about disputes where previous concessions from previous consolidations they participated in haven't been honored. They have to go to the STB to get them to rule. We have one ourselves. And/or if you go back 2 years ago, think about all the embargoes that where I would argue, and I think the regulator wouldn't disagree with me, they weren't used, they were abused to regulate traffic on the UP railroad. So you can't get rid of those bad facts. Jim wasn't there in those moments. But still, he takes and represents everything that UP represents. And in the risk factor, that's huge.

And then the other piece is the operational piece. Jim is a good railroader, good operating guy. I'd like to think I'm a pretty competent operating guy, too. But you create something that big that potentially, if you don't integrate it right, and even if you do, when Mother Nature rings the bell like she does, like she did in 2014, I talked about this in Chicago. The railroads were melted down. The airline industry was melted down when it's 40 below 0 for an extended period of time and you're in the middle of Chicago and the snowfalls, you have a problem.

And when you've got a user of those shared assets, in the BRC in the harbor, that spaghetti bowl of interconnectivity where 25% of every shipment in America has to go through in Chicago and you have someone that controls almost half of that, they fail. They will uniquely be if it's approved, the single largest user of the belt railroad. They're going to take some cars out, but they're still the giant. If they stub their toe, I don't care how good Jim is or how good I might be, if I were running that network. I'm not bigger than God and bigger than Mother Nature. It's going to bring this nation to its knees. So to create something like that, I'm not saying it won't get approved, but I'm saying it's ill-advised and it will only happen when all those issues are carefully laid out. And those regulations, if you really read them, it's not just public interest, it's not just enhanced competition. It's also protect the operational viability of our U.S. rail network overall because it's an interconnected system. And they were written with that service assurance portion of that to recognize and respect those risks that are inherent when you put networks together, especially a network that would be that big.

So to me, to diminish or minimize the operational complexity, it's not as simple as just you know what if we start to have problems, we'll take a pause. Once that baby is born, it's going to have to be managed and dealt with. And if they get it wrong, it's not just isolated to their network. It's so big it affects the entire nation. And I guarantee that's not going to fall on deaf ears when it comes to the regulatory body.

You're the only rail executive in the last 25 years to oversee a large rail merger. Maybe you could talk about the operational complexity, the points of failure or the risks of failure that you see? Just like help us understand that because right now, exactly, it's one thing to have the idea to talk about the opportunity that it creates. When you actually have to go out and integrate it, it's going to be very difficult to undo if there are challenges. Help us understand what those challenges look like and how it might be different or more complex than what CPKC did.

Yes. I think the scale is the X factor that's uniquely different than what we did. Again, Chicago is a great example. The bigger it gets, the more complicated it gets. And the more of the pain if you get it wrong. Our network, we have the 2 smallest rail networks coming together that, again, they butted hand in glove. We share the same terminal. We have for 8 decades. Our switchman switched on the same lead. So literally, we had new systems that created complexity, which history will show we didn't completely navigate that as well as we should have navigated that. But outside of that, the complexity pales in comparison to what we're talking about with what UP is proposing and NS is proposing. But pivot to the complexity of the systems themselves.

When Jim has talked about net control and their cutover at UP and again, I applaud them, they've done a great job in cutting over their own system. But cutting over your own system, replacing your own system with your system you design versus marrying another company and trying to integrate and cut over a system, you uniquely do not know. There's complexities that are involved that with the best of planning, it's impossible to get it all right. And that's what caught us in all honesty. A lot of our systems, we don't talk about the ones. We cut over SAP, we cut over mechanical systems, we cut over locomotive systems. 85% of what we cut over when we cut over day in this past year went perfectly.

The operating system though, that one piece because of the things we didn't really know about the MCS system, which KCS had, the things that were going on in the background that a lot of the historical [ nods ] that created the workarounds in that system no longer work for the company. Those complexities [indiscernible] and he's a smart guy, but I would warn him. Don't underestimate the complexity of the operational system cutover. Net control may be doing great on UP, but you're not just cutting net control over. You're replacing a system that's been completely unique and different that you'll learn a lot about as you prepare, but can you fully prepare for that cutover? I would suggest no. So again, don't overprepare, Jim, work hard, but it's a monumental task. It's not to be taken lightly. And that is, to me, where the most exposure is represented from systems cutover. It's that operational system cutover from NS to the UP system.

I would imagine there might be questions in the audience. If anyone does have one, feel free to raise their hand. But let me ask, you had mentioned concessions. I'm curious what type of concessions would CP be looking for to the extent you could give us some color on that.

Well, when they finally get their applications submitted, we've got our list that's pretty robust. You'll get a lot more color on this. But at a high level, think about the markets where we overlap. Think about St. Louis, think about even Kansas City, and we're talking about access, whether it's through reciprocal switches or in some cases, perhaps direct access where we have the infrastructure via the support direct access. You think about Houston. Houston is the area today that we don't have an ability to connect northbound into or out of with the Belt Railroad in Houston. If we can solve for that, if we can solve for more access in that whole Houston market and some of that chemical alley, I think that's an area of opportunity for us, and we'll make a case, I think, a very compelling case that if the STB is going to approve this transaction, part of what we ask for will help them solve for enhancing competition in those areas. So those would be key areas that I'd look at.

The other area to look at is protecting our competitive niche and access across that Meridian Speedway. That's an area that we're going to have elbows up to protect our ability to compete and realize this new partnership with the CSX. And I can imagine that other parties will probably look at that agreement stand-alone as it is in that world in a pro forma world if it gets approved and look at some of those exclusivity arrangements that back in 2006 were agreed to and the STB had no qualms with now might be viewed as anticompetitive when you only have one option is eliminated relative to one of those railroads that may want to compete in the Southeast markets.

Two parts, if I may. Just wanted to see where you think you stand in terms of inning for your MMX-180, 181 and your Americold in terms of volume to reach kind of a steady state normalized growth, which inning are we in?

Yes. I would say on MMX-180, 181, I'd say we might be in the fifth inning. It's still -- we haven't had a very supportive truck market. So as the rates go up, you're going to see more demand come to the network. Americold is still new. We ramped up pretty quickly, started in August, 200 loads a week. By the middle of this year, I think we're going to be at 600. And what -- again, you don't know what you don't know. So this whole product was built on cold storage. The cross-dock facility that Americold has built in our terminal at IFG is state-of-the-art. There's a ton of capacity. So you've got cold storage growth that's going to occur uniquely enabled. Now you start to learn about what else is out in the marketplace.

Well, you think about dog food. You know how much dog food that's being produced in America that's being trucked to Mexico? It's a lot. There's thousands of loads of dog food. Didn't think anything about it. You've got to work with the regulator. You've got to get the right infrastructure set up with the Mexican government to be able to make that border transparent. Well, we've proven what can be done working with the regulatory body on the U.S. side as well as on the Mexico side to enable these proteins to go south.

Same story, whether it's dog food, whether it's cotton, whether it's textiles, there's a lot of empty air that goes south in intermodal containers or that's going in trucks. South into New Mexico that's right for us to be able to convert. And that facility in Kansas City will be a key piece of being able to do that. So again, there's a lot of innings of growth and opportunity still to be realized, working with Americold and working on 180-181.

Same story with Schneider. Schneider is a great partner. We've just tapped the reliability spectrum when it comes to moving auto parts. We're talking about auto parts that are moving truck that will shut assembly lines down. We've created truck-like reliability. We've gone through storms. We're proving the concept of the product. So as the parts contracts come up for renewal to be able to go in and say, this is not what we do, this is what we've done. And you're partnering with a partner like Schneider that has the reliability to match up what you're saying with the bookends. Again, it's a compelling value creation opportunity for 180-181. The train now, I'd say, 6,000, 7,000 feet. I've got a 10,000-foot train, I want to fill up. It's going to be compelling economics when we do it. It's a compelling service offering, and we'll continue to grow into it.

Wonderful. And the second part is, can you comment on UP's committed gateway pricing and also their watershed opportunities along the Mississippi.

Yes. The watershed piece, that's been an aspirational project for a lot of railroads and some of the industrial logic, I would say, makes sense. I just think that their growth targets are very aspirational. To me, to achieve them, you're assuming that a trucking industry is just going to roll over. They're not. I think we've learned that, that's a different beast to compete against. So they're going to be competing against the truck, a very robust interstate system. Capital is going to have to be spent not just by UP, but also by the IMCs. That's still to be proven. So will they or won't they realize those aspirational numbers? I'd say that they're aspirational. I'd say it's going to be a long, long, long, put, not as an easy put as maybe has been suggested. What was the other question?

Gateway pricing.

I don't think that's -- I think it's much to do about nothing in all honesty. It's -- again, it's a concept that I think is trying to prove the test of public interest and benefit, enhanced competition. But if it's true, then why is it temporary? If it's necessary in the first place, then to make enhanced competition, then why does it have a shelf life? Why does it exclude the Canadian railroads? Just because we're headquartered in Canada doesn't mean that we don't have a significant piece of our business in the United States. We originate loads that are west of the Mississippi in our U.S. network, and they terminate east of the Mississippi. Mr. Vena knows that, UP knows that and the regulator knows that. So to suggest that we should be included if it's really necessary, I think, again, just speaks to how unnecessary and how unimpactful that it truly is. So in the end, I don't think it's going to come close to meeting the standard the STB will require.

So Keith, we're almost at time, but I want to ask one more question. You've talked about the STB shouldn't be looking at the UP-NS proposal in a vacuum. You've talked about the follow-on consequences that might ensue, how it might put pressure on other railroads, that it could trigger a further wave of consolidation. Do you expect that? I guess, say more on that. What are the pressures that would put on other railroads? What do you think they might be forced to do? Do you expect further consolidation if UP-NS goes through? And specifically, I'm curious like does it serve the public interest? I know creating this Goliath of UP-NS is one thing if all the other railroads stay the same. But if we see further consolidation, does that change the dynamics of that? Does it serve the public interest if we just have two big North American railroads?

Yes, I would say this. If the UP-NS deal gets approved, I think additional consolidation is inevitable to protect the public interest in all honesty. Scale and size matters when it comes to competition. Market power matters when it comes to competition. Any one railroad drawing all the capital and all the investment when you've got an entire U.S. rail network to maintain from a health and a capacity standpoint matters. So again, I think it will definitely create an environment where it will be necessary for additional consolidation.

Now I'm not speaking out of both sides of my mouth. I do not believe we need consolidation. I do not want consolidation. But if it happens, then I think you're going to have additional consolidation that is necessary and that is inevitable. And how it all shakes out, I'm not certain. You can make a case, a lot of industrial cases for a lot of different scenarios. And I'll just say this, whatever happens, if it's approved, this railroad is in a good position. We've got, I believe, and I'm -- yes, I'm biased, I think the strongest team in the business.

And I think we have the strongest network, most relevant network in the business that uniquely and only and forever will be the only one that connects all three nations. And we're north-south. I said this years ago when I put this thing together, we put this together. We can uniquely compete and partner with any railroad. And what's true when there are 6 of us, it's true if there's only 3 of us or 2 of us. We've got a pretty compelling network that can complement and enhance competition and that does not represent the scale and quantum of complexity that a UP-NS combination does. So we're going to be in a good position regardless.

Well, it's certainly going to be an interesting year ahead of us, and we'll see how it all plays out. But it sounds like you guys are doing all the right things.

No dull moment.

Yes, indeed. Absolutely.

Thank you.

Chris, thank you.

Thank you.

Good afternoon. My name is Angela, and I will be your conference operator today. At this time, I would like to welcome everyone to CPKC's Fourth Quarter and Full Year 2025 Conference Call. The slides accompanying today's call are available at investor.cpkcr.com. [Operator Instructions]

I would now like to introduce Chris de Bruyn, Vice President, Capital Markets, to begin the conference call.

Thank you, Angela. Good afternoon, everyone, and thank you for joining us today. Before we begin, I want to remind you this presentation contains forward-looking information. Actual results may differ. The risks, uncertainties and other factors that could influence actual results are described on Slide 2 in the earnings release filed with Canadian and U.S. regulators. This presentation also contains non-GAAP measures outlined on Slide 3.

With me here today is Keith Creel, our President and Chief Executive Officer; Nadeem Velani, our Executive Vice President and Chief Financial Officer; John Brooks, our Executive Vice President and Chief Marketing Officer; and Mark Redd, our Executive Vice President and Chief Operating Officer. The formal remarks will be followed by Q&A. [Operator Instructions]

It is now my pleasure to introduce our President and CEO, Mr. Keith Creel.

Thanks, Chris, and good afternoon. We thank everyone for joining us to review our fourth quarter results as well as full-year results and to allow our team to share how we see an exciting 2026 playing out.

Now let me start by expressing gratitude and thanks to the 20,000 strong CPKC family, who, through their dedication, hard work and sacrifice allow us to create the results that we're honored to share today. I can tell you this past week, railroading is a demanding way of life, in fact, a consuming way of life. Times like we have navigated through this past week and in fact, navigate on the daily in Canada. Operating in the winter operation reminds me of just how much sacrifice that takes, which I have the deepest amount of respect and appreciation for.

So on to the results, for the fourth quarter, revenue of $3.9 billion, which is up 1% versus last year, an industry best operating ratio of 55.9%, 120 basis points of improvement and earnings per share of $1.33, up 3% versus last year. I'm particularly proud of the job the team did in the quarter, in the face of a demanding -- demand softening in a number of areas and how they honored our mantra of controlling what we can control in our cost structure. The team demonstrated exceptional execution that allowed us to produce the results we produced on the operating ratio side, and we are set up and carrying momentum well into 2026.

As Mark is going to speak to, I also want to applaud the operating team for producing record results across several of our key operating metrics in the quarter. Most importantly, we produced another year of record safety performance. Our network is running well. It's in a great position to execute on the growth opportunities that we have lying ahead of us.

Now let's turn our attention to full-year results. Revenue of $15.1 billion, which is up 4%; volume growth of 4% as well. Operating ratio at industry best at 59.9%, a clear industry best improvement of 140 basis points for the year. Core EPS of $4.61, which is up 8%.

On '26 outlook, as we look forward in 2026, the way we see it unfolding, we fully expect to deliver another year of mid-single-digit volume growth enabled by the strength in our bulk business and particularly, the unique growth drivers the franchise has, which John will speak to. We expect to continue improving margins and ultimately deliver low double-digit earnings growth.

For clarity, this outlook does not assume that we get much out of the macro. Our growth drivers are unique to CPKC and record grain harvest in Canada and the U.S. provides strong and a differentiating base of business. Our story is about continuing to do what we do best, controlling what we can control and executing our PSR model, which remains key to setting CPKC apart and allows us to shine in times of uncertainty. You saw that in the results in the last quarter, and you'll continue to see that in 2026.

On the growth outlook, there are a lot of things to get excited about, uniquely enabled by this network. John will talk about them in more detail, but I'll highlight a few. Grain harvest, an all-time record in Canada, 85 million metric tons versus the previous record of 78 million metric tons, a significant amount of grain to move that's carried into the full year of 2026. That's a record harvest, both in Canada and the U.S. The grain is starting to move now, ingest. And again, we're going to be busy through the balance of this year, moving grain.

Continued growth in intermodal, our MMX-180, 181, the fastest and most reliable service in the industry between the Midwest and deep into Mexico, continues to grow and do extremely well. And we're bringing that same model to Mexico and the U.S. Southeast in partnership with CSX and our Southeast Mexico Express service. That business is just getting started to moving with our partners, we see a ton of opportunity for growth over that corridor is we've created an industry best transit time in partnership with CSX from Atlanta to Dallas over the Meridian Speedway and from Atlanta to Monterrey, truck-competitive to Dallas and superior to truck into Mexico. It can't be replicated about truck into Mexico.

We're also excited about the Americold business, that's ramping up this year along with the continued growth on the international intermodal side with Gemini and also continued growth in our automotive franchise. On the capital side, we're going to continue to invest to support the growth. Last week, we announced continued investment with our locomotives, 100 new locomotives joining the fleet in 2026 in addition to the 100 that we added in 2025.

So with the combination of our strong top line growth, disciplined investment and our continued cost and efficiency improvements, it's put us in an advantageous position to return cash to shareholders, which you just witnessed as we announced a 5% share buyback program for 2026.

So in closing, I'm extremely proud of what we produced amidst a ton of volatility in 2025 and we're super excited about the opportunities ahead. I'll remind you that over the past 2 years, this franchise has outperformed the industry in revenue growth, outperformed the industry in earnings growth. We've got an exciting setup to continue to generate industry-leading performance in 2026 as well.

So with that, I'm going to turn it over to Mark for some color on the operations. John will give you a little insight on the markets, Nadeem on the financial details, and then we'll open it up for Q&A. Mark, over to you.

Thank you, Keith, and good afternoon. I want to begin by recognizing the operating employees whose commitment to safe, reliable, efficient service continues to drive the strong performance of this network. The operating team did a tremendous job this quarter in delivering these results.

Turning to the quarter, our network performed exceptionally well. We achieved record results across a number of key metrics, including train weight, train speed, locomotive productivity and car velocity. These improvements can translate to faster cycle times, greater network capacity and faster, more reliable customer service.

One thing I'm most proud of is -- proud to announce that 10 years in a row, CPKC has earned Amtrak's Best Carrier designation with an A+ performance. We're the only railroad with this distinction, and we appreciate the recognition from our valued partner.

Taking a step back on progress, we have made substantial operating gains since the merger. When comparing our 2025 operational performance versus the time of merger of 2023, our combined network is 13% faster, locomotive is 13% more product -- productive, our car velocity is nearly 14% stronger. The improvement south of Kansas City is even more pronounced. Looking at 2025 speeds as being over 25% better, locomotive productivity improved roughly 20%.

Looking forward, our operating systems, processes aligned across Canada and the U.S., we expect to deliver additional improvement in 2026. The foundation that we have built positions us for consistent execution and reliable service as volumes continue to grow.

Now turning to safety for the quarter. FRA train accident frequency was 0.91, which is 12% better. FRA personal injuries of 1.05, a 22% increase. When I look at full year 2025, our FRA train accident was 0.85, 16% better; personal injuries was 0.92, was 3% better. I continue to be encouraged by the industry-leading performance. For the third year in a row, CPKC has led lowest FRA reportable train accident frequency across the Class 1 railroads, building upon CP's legacy of 17 consecutive years, so all in all, it's 2 decades of best-in-class.

These results reflect the strength that we have in our Home Safe culture, our investments in technology, which helps prevent failures before they occur.

Now turning to labor, we continue to make progress in this space. Earlier this month, we announced 16 5-year collective bargaining agreements in the U.S. were ratified, covering 700 CPKC employees across the 11 states. These agreements reflect constructive collaboration with our unions and provide service with confidence, provide customers with service and reliability for our network.

Now turning to resources and capital, we remain well aligned with our growth outlook. In 2025, we supported 4% growth with 1% lower average head count, expect continued strong operating leverage in 2026. From a capital perspective, we did receive the 100 Tier IV locomotives in 2025. We have additional 100 scheduled for delivery this year. These locomotives are improving the efficiency and reliability of our fleet and positioning us for continued profitable growth.

In 2026, we will continue our merger-related expansion commitments to the STB. This work includes CTC, additional sidings, Kansas City to Chicago corridor, but this also includes towards Shreveport. These upgrades are improving velocity on the North-South route, which is strengthening our customer service.

In closing, the network is performing at record levels. We are properly resourced to handle grain harvest in Canada and U.S. Our investments in capacity, safety and power are driving sustained meaningful performance gains. We're well positioned to execute our operating plan, support our customers and deliver on our commitments throughout 2026.

And with that, I'll turn it to John.

All right. Thank you, Mark, and good afternoon, everyone. So this quarter showed the resilience of our book of business with growth across key segments and traction from new wins offsetting areas of deepening softness. Despite macro and tariff pressures, we delivered to our customers, we captured synergies, we maintained disciplined pricing and advanced initiatives that will support our growth in 2026.

Now looking at our Q4 results. This quarter, we delivered record revenue up 1% on flat RTMs. Cents per RTM was up 1%. Our pricing remained strong with renewals exceeding our long-term 3% to 4% outlook. Mix partially offset the pricing as longer length of haul and higher bulk traffic lowered our cents per RTM.

Now taking a closer look at our fourth quarter revenue performance, I'll speak to an FX-adjusted results. Starting with bulk. Record grain revenues were up 4% on 2% volume growth. Our Canadian grain volumes were up 2% on a record harvest. Export volumes, however, lagged expectations as rain impacted the loading of vessels in Vancouver and farmers chose to store grain volumes, tempering the pace of shipments through the quarter.

U.S. grain volumes were also up 2%, with growth led by higher shipments to the P&W and down to Mexico. Our network continues to uncover new markets and this is especially visible with record-setting Q4 and full-year grain shipments into Mexico.

Turning to the first half of 2026. The North American crop is shaping up to be a record both in Canada and the U.S. As Keith said, estimates points to an 85 million metric ton Canadian harvest, up 20% from last year. We also have a record U.S. corn crop and solid bean production that has recently started to move the market. Finally, we are encouraged by the recent canola trade settlements and new crush capacity coming online in the first half of the year that are going to further support our positive outlook for grain.

Potash revenues were down 2% on 2% volume growth driven by higher export volumes through Vancouver. With solid demand fundamentals and Canpotex fully committed through the first quarter, we expect potash to remain a solid contributor to our overall base this year.

To round out both, coal revenue increased 2% on a 1% decline in volumes. Canadian coal volumes were lower, largely due to mix impact of lapping last year's work stoppage and maintenance at Westshore which ran from August into November. These declines were partially offset by higher volumes of U.S. thermal coal.

Moving to our merchandise franchise. Energy, chemicals and plastics revenue was down 3% on a 5% volume decline. Decline was driven by lower crude and refined fuel volumes to Mexico along with a softer base demand that primarily impacted our plastic shipments. This was partially offset by growth in LPG shipments from Canada to Mexico as we continue to capitalize and grow our land bridge opportunities. Looking ahead, we expect ECP volumes to stabilize as we move through 2026, although the base business in this industrial segment continues to be impacted by the softer macro environment.

Forest Products revenue declined 13% on a 12% decrease in volumes. Volumes were pressured by tariffs on Canadian lumber exports to the U.S., along with ongoing macro softness impacting our pulp and paper business. The team remains laser-focused on project development to continue to try to offset base demand softness and also through extending our length of haul.

Metals, minerals and consumer products revenues and volumes were up 1%. Growth in this space was driven by industrial development and synergies with new business coming on in cement and other aggregates supporting construction projects across our network. This strength was partially offset by continued impact of tariffs on our cross-border steel business. Looking ahead, we remain focused on a number of industrial development opportunities as we continue to navigate the tariff and macro headwinds.

Moving to automotive, revenue was down 3% on 1% volume growth. Our auto franchise delivered volume growth again this quarter despite the impact of production slowdowns along with aluminum supply challenges and a chip shortage, all which contributed a $30 million revenue headwind in the quarter. Looking ahead, despite ongoing certainty with production and auto sales projections, we expect to continue to outperform supported by business secured in 2025 that will benefit us in 2026.

Now closing with intermodal. Revenue was up 3% on 4% volume growth. International intermodal volumes were up 5% on growth with our key ocean carrier partners and lapping the impact of last year's work stoppage at the Port of Vancouver. We remain encouraged by the strong performance of the Gemini alliance and the growth opportunities it is creating across our entire network. Comparisons will be more challenging in the first half of the year. However, the team is focused on the development of new product offerings at the Port Saint John and also down in Lazaro to enable share gains and volume growth to our network.

Domestic intermodal volumes was up 3% in the quarter. We continue to deliver strong growth on our MMX train, which is up approximately 40% year-over-year. As Keith said, our new Americold business is also gaining traction with good visibility for a strong ramp-up as we continue to move through 2026. I'm also extremely excited about the new SMX product with CSX, connecting Dallas and Mexico to the U.S. Southeast. Like our Midwest Mexico product, the SMX train pairs will formally launch in the coming months and will offer the fastest, most reliable service product in these lanes.

In closing, with record grain crops, our self-help initiatives, industrial development projects all coming online, we are well positioned to again offset tariffs and macro headwinds and deliver another year of mid-single-digit RTM growth. We remain focused on execution, disciplined pricing and continuing to capture the full value of our capacity network.

With that, I'll pass it on to Nadeem.

All right. Thanks, John, and good afternoon. I'm extremely pleased with the team's strong execution in the quarter. While we did deal with temporary demand softness in some areas, the team responded decisively with strong cost control and operational performance, demonstrating the strength and resiliency of our PSR-driven operating model. The ability to optimize assets, control costs and deliver operationally is embedded in our DNA as precision scheduled railroading at CPKC.

Now turning to our fourth quarter on Slide 12, CPKC's reported operating ratio was 58.9%. Our core agenda operating ratio improved 120 basis points year-over-year to a CPKC record, 55.9%. Diluted earnings per share was $1.20, and core adjusted diluted EPS was $1.33, up 3% versus last year.

Turning to our full year results on Slide 13, CPKC's reported operating ratio was 62.8%, and the core adjusted operating ratio improved 140 basis points to 59.9%. Diluted earnings per share was $4.51 and core adjusted diluted earnings per share was $4.61, up 8% year-over-year.

Taking a closer look at our expenses on Slide 14, I will speak to the year-over-year variances on an FX-adjusted basis. Comp and benefits expense, excluding adjustments, was $626 million, flat versus prior year. During the quarter, productivity gains from improved train weights, efficient resource planning and workforce optimization were offset by wage inflation. We expect continued strong labor productivity in 2026 with head count up slightly on mid-single-digit volume growth.

Fuel expense was $430 million, down 8% year-over-year. The decline was driven primarily by the elimination of the Canadian federal carbon tax on April 1 along with improved efficiency from increased train rates.

Materials expense was $112 million. The year-over-year decline was primarily driven by an increased focus on capital works in the quarter. Equipment rents were $97 million, up 4% year-over-year. The increase was driven by higher intermodal car hire payments, reflecting the ramp-up of Gemini volumes and lapping the prior year's labor disruption at the Port of Vancouver. This increase was partially offset by efficiency gains driven by improved network velocity and car cycle times across the network.

Depreciation and amortization was up 7%, resulting from a larger asset base. Purchased services and other expenses, including -- excluding adjustments, was $514 million. The year-over-year decline was driven by productivity and in-sourcing initiatives, partially offset by cost inflation and higher casualty.

Moving below the line on Slide 15. Other components of net periodic benefit recovery were $94 million or $103 million, excluding acquisition-related costs. Net interest expense was $230 million or $225 million, excluding purchase accounting. The increase was driven by interest on new debt issued earlier in the year. Income tax expense was $400 million or $407 million adjusted for significant items of purchase accounting. The core adjusted effective tax rate in the quarter came in at approximately 25%, which is a $40 million headwind versus our Q4 2024 rate. In 2026, we expect a core adjusted effective tax rate of approximately 24.75%.

Turning to Slide 16 and cash flow. 2025 net cash provided by operating activities increased 1% to $5.3 billion, while net cash used in financing activities was up 40%, driven by the share repurchase program. CapEx was $3.1 billion, above our $2.9 billion outlook, largely due to a pull-forward of maintenance capital projects during the fourth quarter to take advantage of work of weather and network conditions. In 2026, we are reducing our capital outlook by 15% to $2.65 billion.

Now turning to share repurchases. Throughout last year, we took advantage of market volatility to reward shareholders, completing our $37 million share repurchase program in late October. Given the strong value that we continue to see in our share price, I'm pleased to announce that our Board has approved a new 5% share repurchase program, allowing us to continue returning cash to shareholders through disciplined and opportunistic capital allocation.

Looking ahead, while macroeconomic conditions and trade policy remain uncertain, we are focused on what we can control, operating a safe, efficient and disciplined PSR railroad while capitalizing on our unique growth opportunities. We expect to deliver low double-digit earnings growth supported by another year of mid-single-digit RTM growth. With industry-leading execution, a compelling growth pipeline and strong free cash growth, the future is extremely bright.

With that, let me turn it over back over to Keith.

Thanks, gentlemen. Operator, we'll open it up for questions.

[Operator Instructions] Our first question comes from Walter Spracklin with RBC Capital Markets.

I'd like to double-click on your volume growth assumption -- or guidance here of mid-single digit. Obviously, last year ended a little weaker, and it hasn't started off well this year. We've got some weather that is going to create perhaps a little bit of leakage. Given that headwind, perhaps, obviously, mid-single digit is industry leading. Can you double-click a little bit on what sectors give you the confidence that you can achieve mid-single digit? And how much of that is the carryover of integration -- or a carryover of some of the wins that you got from last year? And how much is new wins that you're expecting this year?

Thanks, Walter. A couple of comments. So really up until last Friday, January was kind of playing out how we expected it to play out. Certainly, we realize we've got tougher comps. We had pull-ahead volumes in international and automotive and such. And frankly, we knew Q1 was going to be a little bit more of a challenge on that front, Walter. Certainly, this weather event was a little bit of a setback. But I'm also pretty optimistic on sort of what we had in our base plan for grain in February and March. And my gut sense and what our customers are telling us is there's a pretty good opportunity for us to exceed and claw back maybe some of that, that we gave away here the last week during that time period. There's no doubt, though, I do believe Q2, Q3, the balance of the year is where we'll see the momentum build.

Specifically, I think grain is, as we've talked about, both sides of the border continues to be an opportunity. We've got a strong export potash plan. So our bulks, kind of a similar story to 2025, I think presents a really good opportunity for us. And then we kind of shift to the synergies and self-help initiatives, and that's where we've got to lean in and create our own luck. But I think that's something we've proved we've been able to do.

I look at intermodal. We still got a fair amount of growth on our MMX train that we'll be targeting. We're going to be launching the new SMX with CSX here in the coming months. And I can tell you, we're looking at transit times out of Central Mexico into markets of Atlanta, Charlotte, Jacksonville in roughly 4 days or less. This is going to be really fast. As Keith said, better than truck-like service. And the early bidding prognosis, we're looking at current bids of about 80,000 loads a year with one particular client that we're working on. So I'm pretty optimistic around those opportunities.

We haven't scratched the surface on really our launch of the Americold building in Kansas City. And in that business, that reefer business, that is just starting to ramp up. And I'll remind you, up in Canada at Port Saint John, Americold will open their second building on us that will open up around the July time frame.

So just in the intermodal sector, Walter, there's no doubt there's going to be headwinds and ongoing challenges, but I think we've created enough unique products in the marketplace that I think allow us to go out and sell and do things maybe a little differently than what our competitors do out there. And that gives me some confidence, particularly on those areas.

I think one other point -- Walter, one other point of reference, I think it's important to remember we're going to lap that period of time in the second quarter, first part of third quarter, we implemented the cutover and I think someone classified as our CP [indiscernible] time. When we integrated our IT system. So there obviously were some increased costs responding to that and some lost revenue, we'll lap that period given that the railroads humming and our systems are humming, and we've grown stronger as a result of that. So that's going to be a benefit for us in our '26 results.

Your next question comes from Brian Ossenbeck with JPMorgan.

So Keith, I wanted to see if you could weigh in on reciprocal switching as it's been proposed right now. Obviously, yourselves and others have kind of grown up with that in Canada. Do you think that's really applicable to the U.S.? Would you be concerned if that were to be extended to the U.S. in terms of how it's proposed right now? And I guess, ultimately, do you expect the industry to have to deal with this, whether or not there is M&A?

Yes, number one, if you do your job and you provide good service, you don't have to worry about it. You don't have to worry about somebody coming in your backyard and being able to do better than you are.

That said, what's being proposed now versus what's in Canada, there's still a unique difference. With the inter switch in Canada, you've got the other carrier handling the switch to the interchange location and then you take the line haul to the next destination. What they're proposing is literally what I started with that somebody else coming in and providing service.

So again, that said, if it were to happen, we'd respond to it. I don't see it as a threat to us at all. But ultimately, if a customer can't get their service, I agree they should have an alternative. They shouldn't be captive to terrible deteriorating service. I just think that, again, it needs to be fair. It needs to be balanced, and we need to think about the unintended consequences. It's not so complex that kind of what we go through ends up doing more damage to the customer than good.

Your next question comes from Chris Wetherbee with Wells Fargo.

I guess as you're thinking about 2026, I mean obviously, you finished '25 on a very strong note from an operating perspective, sub-56% OR. I guess how do you think about sort of the algorithm? When you're at a mid-single-digit RTM growth, I think pre sort of merger, we thought about the potential for that type of RTM to maybe drive decent OR improvement, potentially very high incremental margins and obviously, earnings power, and you're guiding to that. Kind of curious, how do you think about the OR potential as you move forward here? Obviously, for 2026, but maybe also bigger picture, are you kind of hitting stride? It seems like the network is running well. Just kind of get your thoughts on how you think about it as we move forward.

Yes, Chris. I mean, a year ago, we sat here, we talked about sub-60%, first we wanted to get to that level, which we've accomplished now. And beyond that, obviously, the goal isn't to just lower operating ratio but generate earnings and generate long-term return on invested capital. And so our earnings algorithm is kind of in that mid-single-digit RTM growth, layer on strong price and price to the value of our service. And then generate additional kind of value through free cash that's going to help bring it to the bottom line and get kind of that double-digit EPS growth over time.

So the operating leverage that I think we're going to get given the strong bulk opportunity we have in front of us, we're coming in, as you said, with a very solid footing as far as Q4 with our cost structure. We've done some things on the workforce side to help us get to a better spot. From a resourcing point of view, we've got new locomotives coming in. I think there's opportunities on the fuel efficiency side and overall efficiency.

So I do think kind of getting back into that 100 basis point type of operating ratio improvements per year if you're doing things right, if you are generating strong volumes and strong pricing, that should be how it plays out. So I think over time and kind of our long-term guidance of 100 basis point improvement in the OR is what you should expect from us if we're delivering and executing the way we should.

Your next question comes from Fadi Chamoun with BMO Capital Markets.

Just a couple of things. So on the revenue side, can you help us kind of bridge the volume to revenue? I think last year, you had a lot of mix issues and RTM revenues were kind of aligned. But as we think about this year, what does kind of -- mid-single-digit RTM mean to revenue, what's kind of the mix like as you look at the book of business that you're talking about?

And maybe a quick one for Mark. Is the network set up to handle this book of business that John is talking about with current head count level? What are you envisioning on that front from a head count perspective?

Yes, Fadi. So I think probably the Q1, Q2, we're probably going to see some of those challenges that you described, yes, given the strong bulk business in those quarters that we're projecting that maybe is a little less natural than what we would normally see, probably does create some of that mix headwind during that time period. Plus I would tell you, we had tariff impacts of north of $200 million, 1%, 1.5% of our revenue in RTMs. And a lot of those tariff impacts were on really profitable, positive cents per RTM business that just is not available to us under this tariff environment.

So I expect to see kind of some headwinds earlier in the year and then see that stabilize. I think there's probably a couple of points, if RTMs and revenue matched up even in '25, there's probably a couple of points of upside on the revenue as we're looking towards 2026, if that helps you out.

Yes, I would just add, in Q1, we'll lap the initial -- first, the carbon tax. So we got one more quarter of that or a couple more months here from where we are today. So that will be a bit of a headwind to mix. And then the Canadian dollar just continues to appreciate. So I think we're at about $1.35 today at Bank of Canada held. And a year ago, we were closer to $1.43. So that's going to be a headwind.

Now it's going to help us on our leverage. It's going to help us overall as far as you think about our balance sheet from that perspective and interest payments and things like that. So there is a net benefit elsewhere, but it will hurt our cents per RTM.

Yes. On the head count, I would say some of my comments on -- the prepared comments was head count will be flat, slightly up. We'll have strong operating leverage as a result. And again, we're going to be focused on train size again. We've got some agreements that we're working through with some of our labor unions that will vest with that as far as head count. So we'll be working through that piece.

Yes. And Fadi, like nonemployee head count, contractors and so forth are kind of, for the most part, off the property as well in Q4 as part of our cost focus. So I think overall, I'm going to push Mark as well on keeping that low single digit or keep it closer to flat. So I think we can accommodate it.

Your next question comes from Jonathan Chappell with Evercore ISI.

Nadeem, I hate to be so short-term focused, but you know how it is in this seat. So John pointed out a lot of headwinds in 1Q. We had the weather and now you're talking -- carbon tax is still there, exchange a little bit. So as we think about the path to both the mid-single-digit RTMs, but most -- especially the double-digit EPS, are you thinking about a slower start to 1Q and then kind of a ramp as we go through the year? So not quite a hockey stick, but it does appear that we need to kind of make it up in the second half of the year, back half loaded?

Yes. No, Q1 is going to be the toughest quarter of the year, and that's full-on expectation when you think about Liberation Day a year ago, everyone was moving traffic. Some tough compares. But to Keith's point earlier, we going to have some very easy compares in Q2, Q3 and so forth. So yes, it's going to be a tougher start to the year as far as the earnings algorithm. But no, I'm not concerned about that.

And the carbon tax, that's net neutral to earnings. So I'm not -- that doesn't create a headwind at all, just it creates a bit of a headwind on cents per RTM, but it actually helps us in our margins overall.

But it won't be a...

It will be a natural increase, yes.

Your next question comes from Ravi Shanker with Morgan Stanley.

So there's talk of the harbor maintenance tax exemption kind of potentially going away and kind of potential implications there. So I would love to know if you guys have any views on what impact there might be on cross-border volumes if it happens or not.

Frankly, Ravi, the cross-border volume business is so small in our book today specific to that. I really don't give it much credence or that much of a concern right now in our book, maybe 4, 5, 6 years ago, where certainly, we saw that volume much stronger. But at this point, I really don't see that being much of an impact if they change some of those fees or regulations.

Your next question comes from Brandon Oglenski with Barclays.

Keith, I'm kind of shot that hasn't come up yet, but I think everyone respects your view on M&A. And obviously, the application was rejected on some maybe technical grounds, maybe not. But nonetheless, maybe get your updated thoughts there and especially in regards to the development that you have with CSX going from Dallas and Texas and Mexico into the Southeast. Really appreciate it.

Okay. Well, I think we say everyone respects that might be true, but I don't think everyone agrees with my views. That said, they remain to be the same. I think that rejection by the STB said loudly what I believe to be true in the first place, the facts are going to matter. This is not a fate to complete. This is a complex merger that has tremendous impact on the U.S. rail network as well as Canadian and Mexico. It's all ultimately one network, but obviously, the STB is seized with making sure they do what's right to protect the strength of the U.S. rail network, which supports the strength and obvious vitality of commerce and the economy in the United States of America.

So again, it's not going to matter. I think this is what they're saying about how the applicants may feel, just tell them what the facts are. That's what that said. And that application was short on facts. It had a lot of positives, a lot of aspirational growth projections in there. And I'm not saying they can't be achieved. I'm saying that's a big bar to meet. And given that we're headquartered in Missouri now, I'd say it's the show-me stake. That's what we want.

We want to see the facts. We want all the facts to be revealed so we all can opine on those facts and how they impact each of us, and that's railroads, that's customers, that's communities. There's a public interest test that has to be solved to, which includes strongly defined by enhanced competition. Those rules were written after the brakes were put on consolidation. Linda Morgan, who was chairing the STB back in 2001 when that moratorium was issued, she didn't just pump the brakes.

She slammed the brakes on. And she went back and looked at what the nation needed going forward from a rail network standpoint. And a lot of people would benefit if they would actually go back and read and study not just what's written in the regulations, but the perspective on that. And if you go back and turn the page to the hearings, the Senate Commerce Committee hearings, it's great waiting on a plane, print them out, it's pretty thick. But you know what, you can get her perspective and how those rules were shaped.

And I'm telling you, when you read the regulations, they're not always clearly prescriptive. Sometimes they are, sometimes they're black and white like one of the issues that UP's application got rejected on. But a lot of times, it's the words that are used, it's the comments, it's the context. And if you go back and do your homework, which I think is critically important to do, the perspective, she said it in her own words and testimony. And I'll just give it to you.

The new rules encourage enhancement of competition. The old rules actually encourage railroad mergers. The new rules substantially increased the burden of proof for the applicant to demonstrate that the proposed transaction will be in the public interest. It must demonstrate the transaction with enhance competition where necessary to offset the negative effects of the merger. So you can't understand if that's true unless you understand what all the adverse effects are as well. And another comment she made that I think is extremely telling when she was pressed to explain what enhanced competition means. She said Senator simply said this way, the benefits box must be fuller than the harm box. So how can you determine if that's true or not true unless you know the facts that are contained in both boxes. And I tell you, this is a forever decision. This regulatory body, Chairman Fuchs and the members that serve the Chairman Fuchs are going to take this responsibility seriously.

Again, it's not going to matter what the applicants think or feel as good as it may be to them, and I believe UP. I believe the Board, I believe Jim Bennett, they believe it's good for the nation. They believe it's good for their shareholders. They believe it's good for their employees. And that can be true. But does that also mean it's true for all the other concerned parties. Is that true for the industry? Does that represent the risk of additional consolidation and something that large being created and the integration risk that it creates for the nation? Because if it fails, we're in trouble.

The nation could be brought to its needs with something that large affecting our entire rail transportation system in North America and it affect every shipper, affect every railroad, affect commerce. So they have to get it right. It has to be a fulsome process. Jim, I heard Jim yesterday, he wants all the facts to be heard and known, then let's make them heard and known because that's the only way to get the decision. And in the end, I believe this regulatory body, the regulations require, and I believe they're committed to if their application could demonstrate that the benefits outweigh the harms, then they've got a good chance of approval.

That said, for that to be true, in my mind, based on the regulations and based on that definition of enhanced competition, it's going to have to come with concessions -- considerable concessions. To suggest that you're meeting a definition of enhanced competition because you introduce the [ CGP ] proposition, this mechanism that they introduced, if that's the definition, then why does it have an expiry date? And if that meets the definition of a forever decision beyond the expiry date, how can you exclude railroads, I think they deemed it Canadian railroads that originate traffic west of Mississippi and ship to destinations east and vice versa.

Those are American-generated shipments going to American locations. That's part of making America great again. And I guarantee President Trump means what he says, he wants what's best for the nation. The STB wants what's best for the nation. CPKC wants what's best for the nation. It's critically important to us and every other concerned stakeholder that's impacted by this decision that the facts prove that, all the facts, not just the ones that support the applicant's view of what's best for the nation. So that's a lot said, but that's the gravity of this. And again, I would encourage people. I know it's very seducing to get wrapped up and drinking this merger cool aid and they wanted to see all these wonderful gains and all these dollars printed that perhaps some are suggesting would be printed in all this amazing shareholder value created, but at what cost? It can't be at the cost of our U.S. rail network.

So again, you got to go back and educate yourselves. Listen, I've had lawyers tell me. I've had lawyers disagree with me. I've had other CEOs. I got a little bit of experience in this, one that I think the world of. Pat saw this differently. when they were going through their process trying to get their trust approved in their agreement with Canadian National. He and I had some very active debates. He was influenced by what his regulatory lawyers told him. And he was wrong. I think the [indiscernible] had we were stacked 90% against us, and they were wrong. Again, don't get tied up in emotion, don't get tied up in spin, focus on the facts, read the regulations, get the perspective, go back and read the hearings, and you're going to get right back to where I am today.

The facts must prove and show that this is ultimately in the public's interest. That benefit box is going to have to be loaded up heavier than that harm box because, again, this decision cannot be undone. And if it's approved with concessions, it will likely trigger additional consolidation in this industry to create railroads to be in a position to best defend itself and compete against a [indiscernible] that would be created in the UP-NS combination. And I'll say this one last thing. It's not competition that CPKC is concerned about. I'm an advocate for competition. I'm an advocate for single-line service.

But again, what I'm not an advocate for is anticompetitive behavior. What I'm not an advocate for is a railroad that has so much size and scale as they have historically, and I would suggest history says a lot about what the future might look like, how they've imposed their will on other railroads, I think that's a dangerous and slippery slope. I think it's critically important that whatever concessions that the STB agrees to and that UP-NS would agree to if they accept the decision, if it's favorable, that they have teeth to them as well.

It has to be enforceable to be able to protect the public interest and enhance competition. It can't be something that can just be conveniently ignored because they see it a different way. It's got to be clear and concise and there has to be a mechanism that we can quickly seek relief in that's not the standard go wait in line for 2 years until the STB has time to get through the litany of other complaints and concerns that something of this magnitude likely would create before they could opine and give you a decision like we had to navigate after our merger and that South in rights agreement.

Do your homework on that one. Read what was said on that one, read the case of that. That was pure anticompetitive behavior. We said it when UP took the position to try to shut off our Southend rights that were granted to us from previous consolidations to protect competition. We said it then and the STB agreed with us 2 years later. But in the meantime, I guarantee you the customers' interest were not served that were shut out from competing into those marketplaces during record grain harvest. That was in the harm box. That certainly was not in the benefit box. So thanks for the question, probably a bit more than we anticipated, but I hope I cleared some of that up. So we'll wait and see. Let's just let all these facts be developed and heard, and we'll see where this thing comes out.

Love the passion, Keith, and everyone focused on positive outcomes here.

Your next question comes from Tom Wadewitz with UBS.

Keith, I wanted to get your sense on just high level, how you're thinking about USMCA and kind of risk associated with, I guess, I don't know, renegotiation, whatever you want to call it. You guys have been pretty helpful in kind of defining what you think you've lost from tariffs and Liberation Day. So I don't know -- I mean, it's obviously tough to have a lot of conviction on where tariff-related things come out.

But high level, do you think there is significant risk? Where do you think the timing is? Is this something where you've already incurred a lot of the kind of the headwind already from Liberation Day? So yes.

Yes. Let me start with kind of the last question. We've already absorbed a pretty significant hit from all the uncertainty. I think about $200 million of revenue impact, maybe higher. So we felt it on the balance sheet already. I don't have the crystal ball to tell you exactly where the need is going to land. I believe, and I've said from the beginning, President Trump is going to adjust the balance of trade between our 3 nations. He is going to make decisions in that renegotiation, which to his satisfaction and to his view, benefits the United States of America.

That said, I think that can be true and a positive renewal on USMCA can be true at the same time because trade between these 3 nations, even if it gets rebalanced a bit is critically important to all 3 nations success. We depend upon each other. That's undeniable. When USMCA was created, trade grew after the fact. After the pandemic, even more critical important about cross-border trade between these 3 nations.

So sitting in the seat we're in, we've gone through some choppy waters. They may get more choppier. But at the end of the day, we'll get through the storm. These 3 nations will trade together, and we uniquely because of our network enables it, we connect with hard infrastructure, the rail network that allows that trade to flow Canada to the U.S., U.S. to Canada, Mexico to the U.S., U.S. to Mexico and now because of these trade tribulations, even more so than before, Canada to Mexico and Mexico to Canada. We are the only network that can do that.

We truly are a success enabler for North America. We are North America's railroad, heavily committed to the United States, heavily committed to Canada, heavily committed to Mexico. We're going to enable success across these 3 great nations in a trilateral way that allows everyone to succeed, including CPKC.

Do you have any sense on what the most likely timing might be? Or is it just tough to say as well?

Yes. I'm reading the same things you're hearing. My guess is it's going to really get active this summer. So that's my view. I think in the summer, it's going to get renewed maybe hopefully, I would think before the midterm. Again, that's just me speculating based on the way I'm reading the tea leaves. I don't control the agenda, but that to me would be a possible and a probable outcome.

Your next question comes from Konark Gupta with Scotia Capital.

Just on the free cash, just wondering a couple of things real quick here. The free cash conversion you guys talked about at the Investor Day, 90% in that context, where do you see things shake out this year? And then for the CapEx, even if we adjust the pull forward of maintenance projects, the CapEx is seemingly down in '26. Where are you cutting CapEx on? And is there some flex?

So free cash conversion in the 75% range. I think long term, we talked about 90% part of our guide in 2028 and beyond. And I think the current level of the [ $2.6 billion, $2.7 billion ] CapEx range is something that we can continue to do over the next foreseeable future. So in fact, with a weaker Canadian dollar, that could go -- with the stronger Canadian dollar, that can go even lower.

So the CapEx is a bit of a shift in terms of timing of investment. So we pulled forward some of the infrastructure investment. We did a lot of the synergy or the integration-related capital investment the last 3 years, as you can imagine, with the Laredo Bridge, with some of the siding extensions and siding investments that we did to support the integration as well as some of the growth investments, Americold, for example, and Transload investments. So there's just basically a bit of a shift in the spend of CapEx.

So we don't have the day in our systems integration anymore. So there'll be some reduced capital there. We don't have as many railcar investments that we have, but we have announced that locomotive investment with Wabtec in progress. So it's a shift in capital overall and that reduction of about 15%, somewhat due to timing, but mainly out of the, I'd say, siding extension, infrastructure investments and to an extent, IS investments overall.

Your next question comes from Benoit Poirier with Desjardins Capital Markets.

My question back in November, the Canadian government announced new measure to help the Canadian steel and lumber companies. One of this measure was the government would work with the rail to subsidize freight rates by 50% beginning in spring of 2026. I was wondering if you could give an update on this and whether it could be kind of a volume tailwind in the back half this year.

Yes. Thanks, Benoit. Certainly, we've got our GA folks working through still the mechanics of how all this will be accounted for sort of between all the parties, the customer, the government and ourselves. Our analysis says, yes, maybe there is some opportunity, particularly in maybe some long-haul transload type movements across the country.

But I'm not looking at sort of needle-moving type numbers there, Benoit. So we'll see. As I said, there's still a fair amount that has to be sorted out. And then we'll see how it sort of ripples through the marketplace. And we're keeping our hands on the pulse of that if there's an opportunity, we'll be right there to try to capture it, but I'm not looking at big numbers.

Your next question comes from Scott Group with Wolfe Research.

So one of the other rails was talking about pickup in inflation. How are you feeling about price and just overall price cost this year? And then maybe just along those lines, just given some of the Q1 commentary on, any thoughts about how to think about operating ratio in Q1?

We'll stop through a [indiscernible] . I think year-over-year, we'll see a potential for improvement in the operating ratio. I'll keep it at that. From an inflation point of view, we're not seeing that same sort of issue. And again, Canadian dollar does help us in terms of some of our costs and capital investments in U.S. dollar conversion.

But overall, our true inflation, like which is locked in with labor, we signed some very unique deals and favorable deals for labor and for management. And those are in that 2.5% to 3% range. So as far as our inflation, you should expect that level of inflation overall, and we're pricing above that. So that spread should be positive and will be part of our benefit to our margins overall.

Your next question comes from Ken Hoexter with Bank of America.

Nadeem, just to clarify that 1Q -- I'm sorry, the year-over-year improvement, was that a 1Q specific comment? Or is that a year-over-year comment on the OR? And then just your thoughts on synergy targets, how -- where you think you are and what you still think can add this year and next?

Yes. So we'll see year-over-year improvement in Q1 in the operating ratio, and I expect to see year-over-year improvement annually in the operating ratio as well. We talked about Q1 being a little bit more challenging just given volume won't be as strong in Q1, but I still see outside of a major winter event or disruption that we'll see some improvement in the operating ratio given the low cost structure we entered January with.

And remind your second part of your question.

Synergy question, yes. So Ken, we exited 2025 at about a $1.2 billion run rate, $1.2 billion. We see an opportunity for another $200 million plus about $1.4 billion as we close out 2026. So well on our way of meeting the commitments we made relative to this integration opportunity.