The industry in RTM and volume growth, and that momentum's really carried into 2025. Q1, we had mid-single-digit volume growth. We had a very strong quarter, mid-teens EPS growth. Near term, we've seen that actually accelerate. April has been a very strong month for us. May, we've seen volumes continue to accelerate. While there's.
This meeting is being recorded.
Headline noise and macro uncertainty to an extent, the CPKC model has really kind of resonated with our customers. We are seeing kind of the base growth continue to perform well. When we look at our own self-help initiatives, some of the synergies that we had highlighted as CPKC really gained traction, allow us to kind of overcome some of the weakness. Looking at our key markets, bulk has been double-digit growth in Canadian grain, coal, Canadian coal with Elk Valley Resources has been double-digit strength. Even potash has been resilient. Our overall bulk franchise has continued to perform well. While there has been some tariff impact in steel and aluminum, it has been a small portion of our business. The merchandise side has been resilient. Our auto segment, while there was some pause in production for a short time, we have seen it really accelerate.
It's part of the reason why I'm very optimistic kind of near term as to what we can deliver as far as our mid-single-digit volume growth for the year.
Could you talk a bit? When you first acquired KCS, you had a target out there in terms of revenue synergies and cost synergies as well. As you mentioned, now two years into the combination, what surprised you? Perhaps frame the revenue synergy opportunity that you're looking at, how that may have evolved in the context of the CAD 5 billion total opportunity. What surprised you, both positive and negative, in terms of your revenue capture on that synergy?
Yeah. When you go on a deal like this, you take two franchises, there is only so much you know. Obviously, we are in a very volatile environment as far as trade and a lot of our key end markets. When we combine the two franchises and kind of had a chance to really peek under the cover and look at the opportunity, I would say that we are much more optimistic around the auto segment, what we could do as far as delivering for the auto supply chain. Legacy CP, we were restricted with some of our reach. We had a strong origination here in Southern Ontario that could get to some of the auto manufacturers. We did not have the connection in Mexico and into the U.S. as we do now.
I'd say on a positive side, the auto franchise has been a significant enabler of synergy growth. We had thought about CAD 1 billion of revenue synergies was achievable and about, call it CAD 200 million of expense synergies. I think our revenue synergies are going to surpass that. We had framed it over a three-year period. I think we exited Q1 with a run rate closer to CAD 800 million-CAD 900 million of revenue synergies already, less than two years into the combination. I'd say that the overall size of the prize is going to be larger. I think in some key end markets like autos, I'd say intermodal is going to be stronger. I'd say that from where maybe we were a bit more optimistic was on the crude franchise.
We had looked at opportunities to export crude out of Port Arthur and DRU product out of Edmonton to export and potentially potash out of Port Arthur. I'd say that we haven't seen that market materialize in the near term. It's not that it's just going to go away. We'll keep pushing it. It could be an opportunity in future years. That's where the maybe being a bit more negative, but overall much more positive as the size of the pie.
When we look at auto, I know auto was, you gained some great traction in auto. We were in Wiley to look at your facility there a year ago. From what I heard from Jonathan Wahba at the time, you were exceeding already by the end of last year your targets for around CAD 200 million. That's great. You're seeing high teen on the back of high teen, low 20 last year. It's great on auto that that's coming in. Intermodal is where I'd like to focus in on a little bit here now. That's a big part of your synergy target. When we were at your, when we hosted the Vancouver Port tour just a month or two ago, I kept hearing a lot about what Gemini was doing for you. Gemini is the alliance between Hapag-Lloyd and Maersk.
I know Hapag-Lloyd has been a great customer of yours for so long, dating back to CP Ships. Maersk was kind of a new customer for you. Can you talk a bit about, and we put out a report on this yesterday, so I'd love to hear your thoughts on how Hapag-Lloyd is facilitating your potential penetration into Maersk and what it means as Gemini and the opportunity set there both in Vancouver and New Mexico?
Yeah. That alliance, I thought your report captured it extremely well. The alliance with Maersk and Hapag-Lloyd, Hapag-Lloyd is one of our largest customers. They have been a very, as you mentioned, a very strong customer of ours ever since CP Ships became part of their franchise. The alliance, we have continued to grow with Hapag-Lloyd. A big part of our acquisition of the MMA was utilizing the Port of St. John as a key outlet. They have been extremely successful in leveraging that port. Hapag-Lloyd, as that service has really resonated for them. Importing into the East Coast, serving markets of Montreal and into the U.S. Continued growth with them in Vancouver. I think the bottom line is we have provided them exceptional service. It has allowed them to really improve their supply chain and capture business for their customers throughout COVID.
That growth has led to an opportunity with Maersk. As they combined and had an alliance with Maersk, which was not a customer for CP of any sort of magnitude, now that alliance is bottom line. It is going to be a pretty significant market share gain for CPKC as that alliance starts really ramping up. You are seeing it in the numbers today. I think our quarter data or international volumes are up more than 20%. You would never know that with the headline of all the tariff risk and all the what we are seeing on a headline point of view. We are seeing it in our numbers. We are seeing it in our volumes. That is just starting to ramp up. St. John, Vancouver, imports into Canada, into the U.S., that is going to see growth for us.
We're continuing to see growth in Lazaro to our earlier conversation about the synergies. Maersk has a big asset in and around Port of Lazaro. That's been an underutilized asset for some time that we've been really driving towards growing that port as well. We're excited about what that opportunity entails.
The international intermodal component, about CAD 200 million, you feel good that you're maybe perhaps you're there already, or you feel good about achieving those targets for sure?
No, I think there's absolutely upside on the international side and intermodal as a whole.
Let's push to domestic. Obviously, trucking has been difficult. Pricing there challenging. Talk a bit about how that part of your synergy, I think that one's also a CAD 200 million forecast. How is that one coming along? If it's coming a little slower, what's the opportunity going forward to get that?
Yeah, I think the trucking market, I mean, we've been in the middle of this freight recession for two plus years. You're seeing it through the trucking capacity as being much greater capacity than the market requires. You've seen it on the pricing side. We were not immune to that. We've seen some of our domestic intermodal volumes in 2024 and 2023 not be as strong. That has turned here in 2025. Part of it is our Canadian retailers that we're partners with, we've been able to grow with them. A big part of it as well is, to your point, about the synergies. We built this product, the service, the 180, 181 train, the MMX that can go single- line service from San Luis Potosí in Mexico to Chicago. It's single- driver competitive.
It takes time to build that up, especially in a loose trucking market. We have seen that service and that capacity uptake increase. I think it is up 40% year- over- year. It is up 10% sequentially. We recently.
It's got to be pretty full.
It's getting not quite full, but it's starting to really ramp up. We've just taken on some new business with an auto parts that's going to be put in containers and put in on that service from the Midwest into Mexico. We're starting to see that really ramp up. That's why we have seen it in our numbers in our domestic intermodal. What was a negative, call it in that 2023, 2024 time period has really turned positive. We're starting to see domestic volumes up double- digits to start the year. We're pretty bullish on our domestic intermodal.
That's all pretty impressive, right? You're seeing domestic up double digit during what still is being described as a freight recession. You've got international intermodal coming on. Bulk's doing amazing, right? Bulk's doing great. Every time we see good numbers out of you, I get the question, is this pull forward? Is this pull forward numbers that are coming in ahead of a potential cliff that's coming up perhaps in May and June? We've seen the numbers coming out of L.A. Long Beach saying that, yes, there's going to be a big decline or a big increase in blank sailings and so on. Are you seeing any of that? Are you seeing any pull forward? Are you seeing any evidence that this is behavioral and not demand driven in terms of?
No, not at all. In fact, when you look at our international volumes, I had a report this morning or last night from our team overseas. They are quite bullish near term in terms of what has transpired over the weekend and what was reported as far as some of the negotiation between China and the U.S. I think the fear was there was going to be some blank sailings or air pockets of volume. We are not seeing any of that on our franchise whatsoever. You see it in the numbers. Our visibility into the next six weeks is extremely strong. In fact, the reports that we are getting is that we are going to start seeing it continue to ramp up as peak season is not too far away. Christmas shelves need to get filled.
I think from an international volume point of view, we're going to continue to see things ramp up. We're not going to see the blank sailings. We're going to see the benefits of the market share wins I just mentioned as far as the Gemini Alliance. I'm pretty bullish on international intermodal.
That's pretty much all my volume-related questions. I'll go into pricing and expense. Any questions from the floor, perhaps from a volume perspective that Nadeem hasn't covered off? Okay. Let's move down the income, stick in revenue here and talk a bit about pricing. I mean, pricing can obviously vary by sector. Trucking is a bit of a drag on pricing. Overall, inflation exists and your ability to pass it on also exists. Can you talk a little bit about any pushback you might have gotten in pricing? Have you been able to achieve the pricing gains? Is there any nice kind of still pricing to renegotiate that can lead to continued upside in your pricing?
Yeah. Number one, the pricing, you got to have the service. Our service has been exceptionally strong. If you look at our key metrics, they've never been as good as we're seeing it today. I think the value of the CPKC single- line service is really resonating with customers, not only with synergies of new customers and new business, but also existing customers that are seeing that ability for us to turn those assets and not have to interchange traffic to other rail partners. You're getting a more reliable and faster supply chain for customers. With that, we're seeing the ability to see win-win opportunities with customers that are seeing the benefits of this. When they own the rail cars, you look at, for example, some of our petroleum chemical customers, in many cases, it's their rail cars.
When you're turning those assets much faster, they're getting value in that. They're getting either they can reduce some of their inventory carrying costs or even the rail car capital requirements are lessened. There is a benefit to them. You can sell that service to the customer and get not only market share gains, but pricing benefits. We also saw the benefit or the opportunity, just to go back to one of your earlier questions, where's upside, I'd say, as far as when we looked at the CPKC combination and synergies. Pricing is certainly an upside area. When we opened the book and looked at opportunities and what was being charged by Legacy KCS, they were charging what was appropriate for the network that they had. Now you see this expanded network and the ability to have a better service, a better product in the marketplace.
That creates pricing opportunities and pricing synergies. We saw the fact that our inflation had gone up rather significantly over the course of 2022, 2023. You saw the labor side really accelerate in terms of inflation. That has now moderated. That is now stabilized. A lot of the book had not turned over yet in terms of being able to price for the new reality, the new cost structure of some of these higher inflation areas. We have been able to continue to increase in pricing and see value from that piece. The spread between price versus our own cost structure is starting to increase. We will start seeing the benefit of that in our operating ratio. When we look at pricing today, we are in that 4%-4.5% type of range, still closer to 4.5%. Inflation has moderated significantly. That spread is an opportunity for us.
Again, you have to have the service and you have to have the value for your customers, which we're seeing.
Let's move now to capacity. Obviously, you talked a bit about how bullish you are of some of the growth you're seeing onto the network. Oftentimes, you don't notice capacity constraints until you get that volume and you see where the pinch points are. How do you feel about your capacity to bring on new business? Are there any pinch points along any parts of your network that you think need some investing in? Just your overall view on your capacity would be helpful.
Yeah. A couple of things. First of all, when we entered our day one of our CPKC transaction, we wanted to make sure we service the heck out of the business and make sure that we were not short on capacity. It was a tough time to get people. It takes a while to hire and train conductors and engineers. I would say that we were long on the people side, partly by design. Partly we were in this freight recession that was unexpected. I think we had overestimated the opportunity as far as the volume side. We had more people than required. We also had more people by design, given the spotlight we would have and given the fact that you did not want to enter a day one in the first class one consolidation in 20 years and not have the people.
We're growing into that, the people resource. We have hourly agreements on much of our U.S. portion of our network. That gives us flexibility as far as being able to be more productive with our train and engineering workforce in the U.S. That gives us the ability to flex up and down. There's an opportunity to continue to build upon that hourly agreement in the U.S. that we're working on today. From a people point of view, I don't see any sort of challenge from a capacity point of view. We've been aggressive acquiring rail cars to support some of our synergy growth and volume growth as well. We took on 1,000 reefers that will support our intermodal synergies. Recently, we're about to take on additional locomotives, 100 new locomotives. The first one CP has bought or CPKC now in over 12 years.
I think we look very, from a resourcing point of view, I think our network is set up extremely well to take on this volume. That is going to come on at low incremental cost. Finally, I'd say that from an infrastructure point of view, part of our commitment for the transaction was to invest into the infrastructure. KCS was early days of PSR, did not have the benefits of the long sidings and the ability to run longer trains and a more dense network. We have been investing mainly on the U.S. side of the network as far as infrastructure and capacity, as well as our Mexico franchise in order to really see the benefits of PSR and the ability to ultimately benefit the customer from the single- line service and running longer trains and more dense traffic. We are good on capacity.
Now dovetailing that into capital, I know you talked a lot about growth over a multi-year time frame. You kind of kept that CapEx band steady. Are you comfortable that you can maintain CapEx within that band? If we could talk a little bit about what you do with the excess cash in terms of you started up your repurchase program recently.
Yeah. So bottom line is, yeah, we're comfortable in that CAD 2.8 billion-CAD 2.9 billion CapEx range. It's one area that we've seen that weaker Canadian dollar impact us to an extent. A lot of our capital is in U.S. dollar currency. We see a benefit on our operating income, but it does hurt us on the capital side. That's why it's been inflated closer to CAD 2.9 billion for this year as opposed to our long-term guidance in that CAD 2.6 billion-CAD 2.8 billion. Apart from that, though, I don't see any sort of reason why that wouldn't be within that range. There's always tariff noise, and that could have an impact and retaliatory tariffs on the Canadian side. We're working through that process to ensure that we're not impacted from a CapEx point of view.
The share purchases, I think I detected a little bit more of a strategic aspect to your share repurchase plan, like that you're going to have kind of this base. I think the rating agencies have given you a little bit of flex in terms of being more tactical with your share purchase. Am I reading that right?
Yeah. One of our commitments, we want to make sure that we followed through on our ability to get our leverage back to the 2.5x debt to EBITDA that we were at when we entered our transaction. We spent a lot of time with our rating agencies. We want to make sure that we're not doing something that is putting our balance sheet at risk. I think when you look at where we were as CP versus where we are now at CPKC, we've grown in scale significantly. We showed our resilience through COVID, our ability to get through that time period and still see volume growth and show that our balance sheet can still withstand kind of a shock like COVID was. We continued to deliver.
We did not do anything from a capital return point of view for five years post the announcement of the deal and brought our leverage down closer to that 2.5x level. The feedback from the rating agencies was also they would support a higher leverage target given where we stood within the industry and given some of our peers. We raised our leverage target closer to 2.75x . That is impacted by the Canadian dollar, obviously. Our balance sheet, a lot of our debt is U.S. dollar denominated. When that Canadian dollar weakened significantly, we were still closer to that 2.9x leverage. Given our confidence in the business, given our confidence in the ability to execute our visibility into our volume outlook, we were very confident in order to pull forward our share buyback.
We announced it maybe a month early, six weeks earlier in March, and took advantage of the pullback in our valuation and pullback in the markets. Yes, we're going to be a bit strategic and be aggressive on the buyback. We announced a 4% program. We've probably bought back a quarter of that to date at prices which we think are very much undervalued relative to our intrinsic value. When you see these pullbacks, I think there's an obligation to be a bit more tactical and being able to not just have an ongoing buyback, but also be strategic where there's pullbacks. I think our shareholders will be rewarded long term. I think the feedback has been very positive.
A few minutes left here. I'm going to move into expenses and OR. But any questions from the floor for Nadeem? All right. Okay. Let's move into the OR discussion. Obviously, February was a tough month. We had some real cold weather. My hockey rink has never been better this year. It was great for that, but bad for railroading. You had to tighten in your train lengths. That leads to inefficiencies that affect your results in Q1. You signaled that in Q2 that was going to improve. We're looking at the metrics that come out from the ARRTS. Certainly seems like it has been. Can you give us an update as to how the fluidity and how the network is running?
Yeah. Bottom line, Q1, we reported at 62.5 OR, which is a 150 basis point improvement year- over- year. We're pleased with the result. I think Q4, we were closer to sub-58 to end 2024. To my point about we've seen volumes continue to accelerate. April was a very strong month. We feel really good about our volume near term in May as well. I think to my earlier comments about our visibility into not having any sort of cliff coming and double-digit volume outlook on grain, strong grain pricing. Bottom line is our operations are running extremely well. That leads to operating efficiencies. I think we're continuing to see sequential improvement in the OR from Q1. I mentioned I think we could do 200-250 basis point type of improvements Q1 into Q2.
I'm certainly not backing off of that given the fact that volumes have been a bit better than expected both in April and May. I think for the year, a sub-60 operating ratio for full year 2025 is certainly within the cards and within our outlook. I feel good about how we're running, our ability to run efficiently. We have very easy comps in the back half of the year. We had labor disruptions. We had port disruptions. We had a significant derailment in Q3 that had significant expense costs associated with it. I feel really good. As we stand here today, we had lowered our guidance in Q1 modestly. That was really driven around the fact that the Canadian dollar had appreciated rather rapidly.
That has now turned a little bit more favorable given the stability in the markets and the stability in the U.S. dollar. That is probably upside given where we were a month ago. I think the tariff news is upside. I think the headline risk of a recession has probably lessened as we sit here today than where we were a few weeks back. Do I think that we are going to hit the high end of our guidance for the year? Absolutely. Is there upside beyond that potentially? I feel really good about where we stand here almost five months into the year.
That perhaps is my last question then. I picked up on it in all your answers here is better than expected. Blank sales that are not going to come in. Are you hearing a change in your customers that perhaps were going to tighten back, pull back a little bit, are now giving you indication that this is not going to happen? You already answered the question of what is that in terms of the new guidance range that you provided. It sounds like there is upside to that. Is it happening that fast where a customer will come in two weeks ago and say, "Look, we are going to start slowing down a bit," and then the news comes out and the tweet happens and we are back on again? Is it that dynamic?
In some markets, absolutely. Bulk is pretty solid. If we're going to grow it, we're going to move it. The grain market is very strong. I'd say that in some areas like international and autos, there's a bit more of that dynamic. Like I mentioned, on the international side, things are extremely strong. We're starting to see we're going to start seeing that ramp up for peak season. On the auto side, I think our order book for current week and the last few weeks has been exceptionally strong. I think the worst is behind us in that segment. Yeah, that's a big reason for my optimism now that's continued to improve over the last month.
Fantastic. We are out of time. Thank you very much, Nadeem, for your time as always. Thank you.