Canadian Pacific Kansas City (CP) Q4 2023 earnings summary

Executive summary

• Strong Q4 capped a year of integration progress; new customer solutions supported synergies, while operating metrics improved and safety leadership continued.

• Q4 combined revenue rose 4% YoY and core adjusted combined diluted EPS rose 4%; FY combined revenue grew 5% and core adjusted combined diluted EPS grew 2%.

Financial highlights

• Q4 reported revenue was $3.776B, up 53% vs. CP Q4 2022; combined revenue was $3.776B, up 4% vs. combined Q4 2022.

• Q4 reported operating income was $1.442B, up 46%; core adjusted combined operating income was $1.560B, up 10%.

• Q4 reported net income was $1.023B, down 20%, and diluted EPS was $1.10, down 19%; core adjusted combined income was $1.103B and EPS was $1.18, up 3% and 4%.

• FY reported revenue was $12.555B, up 42%; combined revenue was $13.909B, up 5%. Reported operating income was $4.388B, up 32%.

• FY reported net income was $3.927B and diluted EPS was $4.21, each up 12%; core adjusted combined income was $3.582B and EPS was $3.84, each up 2%.

Outlook and guidance

• 2024 guidance: double-digit core adjusted combined diluted EPS growth vs. 2023 baseline of $3.84; capital expenditures of $2.75B.

• 2024 assumptions include core adjusted effective tax rate of 25.0%–25.5% and a $23M increase in other components of net periodic benefit recovery from $327M in 2023.

• 2024–2028 targets include high-single-digit revenue growth, double-digit core adjusted combined EPS growth, and annual capital expenditures of $2.6B–$2.8B.

• Long-term targets include adjusted combined free cash conversion of ~90% of core adjusted combined income, return to double-digit core adjusted combined ROIC, and strong margin improvement through cost control and operating leverage.