Summary

  • Canadian Pacific Railway  is considered to be one of Canada's greatest feats of engineering.
  • CP operates on a network of approximately 13,000 miles of track, of which 2,300 miles CP accesses under trackage rights.
  • Of the total mileage operated, approximately 5,400 miles are located in western Canada, 2,500 miles in eastern Canada (including CMQ Canada), 4,500 miles in the U.S. Midwest and 700 miles in the U.S. Northeast.

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Company Overview

Incorporated in 1881, Canadian Pacific Railway (NYSE:CP, TSX:CP) was formed to physically unite Canada and Canadians from coast to coast and the building of the railway is considered to be one of Canada's greatest feats of engineering.1

The CPR played a major role in the promotion of tourism and immigration, as well as Canada's war efforts and through the years, the railway grew and diversified to include steamships, hotels, airlines, mining, oil and gas exploration, delivery and telecommunications companies.

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Track and Infrastructure

CP operates on a network of approximately 13,000 miles of track, of which 2,300 miles CP accesses under trackage rights. The Company's owned track miles include leases with wholly owned subsidiaries where the term of the lease exceeds 99 years. CP's track network represents the size of the Company's operations that connects markets, customers and other railways. Of the total mileage operated, approximately 5,400 miles are located in western Canada, 2,500 miles in eastern Canada (including CMQ Canada), 4,500 miles in the U.S. Midwest and 700 miles in the U.S. Northeast. CP’s network accesses the U.S. markets directly through four wholly owned subsidiaries: Soo Line Railroad Company (“Soo Line”), a Class I railway operating in the U.S. Midwest; the Dakota, Minnesota & Eastern Railroad ("DM&E"), which operates in the U.S. Midwest; the D&H, which operates between eastern Canada and the U.S. Northeast; and the CMQ U.S., which operates in the U.S. Northeast.2

The Company's network is composed of three primary corridors: Western, Central and Eastern.

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The Western Corridor: Vancouver to Thunder Bay

Overview - The Western Corridor links Vancouver with Thunder Bay, which is the Western Canadian terminus of the Company’s Eastern Corridor. With service through Calgary, the Western Corridor is an important part of the Company’s routes between Vancouver and the U.S. Midwest, and between Vancouver and eastern Canada. The Western Corridor provides access to the Port of Thunder Bay, Canada’s primary Great Lakes bulk terminal.

Products - The Western Corridor is the Company’s primary route for bulk and resource products traffic from western Canada to the Port of Vancouver for export. CP also handles significant volumes of international intermodal containers and domestic general merchandise traffic.

Feeder Lines - CP supports its Western Corridor with four significant feeder lines: the 'Coal Route', which links southeastern B.C. coal deposits to the Western Corridor and to coal terminals at the Port of Vancouver; the 'Edmonton-Calgary Route’, which provides rail access to Alberta's Industrial Heartland (north of Edmonton, Alberta) in addition to the petrochemical facilities in central Alberta; the ‘Pacific CanAm Route’, which connects Calgary and Medicine Hat in Alberta with Pacific Northwest rail routes at Kingsgate, B.C. via the Crowsnest Pass in Alberta; and the ‘North Main Line Route’ that provides rail service to customers between Portage la Prairie, Manitoba, and Wetaskiwin, Alberta, including intermediate stations at Yorkton and Saskatoon in Saskatchewan. This line is an important collector of Canadian grain and fertilizer, serving the potash mines located east and west of Saskatoon and many high-throughput grain elevators and processing facilities. In addition, this line provides direct access to refining and upgrading facilities at Lloydminster, Alberta, and western Canada’s largest pipeline terminal at Hardisty, Alberta.

Connections - The Company’s Western Corridor connects with the Union Pacific Railroad (‘UP’) at Kingsgate and with Burlington Northern Santa Fe Railway ("BNSF") at Coutts, Alberta, and at New Westminster and Huntingdon in B.C. This corridor also connects with CN at many locations including Thunder Bay, Winnipeg, Manitoba, Regina and Saskatoon in Saskatchewan, Red Deer, Camrose, Calgary and Edmonton in Alberta, Kamloops and several locations in the Greater Vancouver area in B.C.

Yards and Repair Facilities - CP supports rail operations on the Western Corridor with main rail yards at Vancouver, Calgary, Edmonton, Moose Jaw in Saskatchewan, Winnipeg and Thunder Bay. The Company has locomotive and railcar repair facilities at Golden in B.C., Vancouver, Calgary, Moose Jaw and Winnipeg. CP also has major intermodal terminals at Vancouver, Calgary, Edmonton, Regina and Winnipeg.

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The Central Corridor: Moose Jaw and Winnipeg to Chicago and Kansas City

Overview - The Central Corridor connects with the Western Corridor at Moose Jaw and Winnipeg. By running south to Chicago and Kansas City, through the Twin Cities of Minneapolis and St. Paul, Minnesota, and through Milwaukee, Wisconsin, CP provides a direct, single-carrier route between western Canada and the U.S. Midwest, providing access to Great Lakes and Mississippi River ports. From La Crosse, Wisconsin, the Central Corridor continues south towards Kansas City via the Quad Cities (Davenport and Bettendorf in Iowa, and Rock Island and Moline in Illinois), providing an efficient route for traffic destined for southern U.S. and Mexican markets. CP’s Kansas City line also has a direct connection into Chicago and by extension to points east on CP’s network such as Toronto, Ontario and the Port of Montreal in Quebec.

Products - Traffic transported on the Central Corridor includes intermodal containers from the Port of Vancouver, fertilizers, chemicals, crude, frac sand, Automotive, and Grain and other agricultural products.

Feeder Lines - The Company has operating rights over BNSF tracks between Minneapolis and St. Paul along with connectivity to the twin ports of Duluth, Minnesota and Superior, Wisconsin. CP maintains its own yard facilities that provide an outlet for grain from the U.S. Midwest to the grain terminals at these ports. This is a strategic entry point for large dimensional shipments that can be routed via CP's network to locations such as Alberta's Industrial Heartland to serve the needs of the oil sands and energy industry. CP's route from Winona, Minnesota, to Tracy, Minnesota, provides access to key agricultural and industrial commodities. CP’s feeder line between Drake and New Town in North Dakota is geographically situated in a highly strategic region for Bakken oil production. CP also owns two significant feeder lines in North Dakota and western Minnesota operated by the Dakota Missouri Valley and Western Railroad and the Northern Plains Railroad, respectively. Both of these short lines are also active in providing service to agricultural and Bakken-oil-related customers.

Connections - The Company’s Central Corridor connects with all major railways at Chicago. Outside of Chicago, CP has major connections with BNSF at Minneapolis, Minot, North Dakota, and the Duluth-Superior Terminal and with UP at St. Paul and Mankato, Minnesota. CP connects with CN at Milwaukee and Chicago. At Kansas City, CP connects with Kansas City Southern (“KCS”), BNSF, Norfolk Southern Railway ("NS") and UP. CP’s Central Corridor also links to several short-line railways that primarily serve grain and coal producing areas in the U.S., and extend CP’s market reach in the rich agricultural areas of the U.S. Midwest. A haulage arrangement with Genesee & Wyoming Inc., provides Intermodal service to Jeffersonville, Ohio.

Yards and Repair Facilities - The Company supports rail operations on the Central Corridor with main rail yards in Chicago, Milwaukee, St. Paul and Glenwood in Minnesota, and Mason City and Davenport in Iowa. In addition, CP has a major locomotive repair facility at St. Paul and car repair facilities at St. Paul and Chicago. CP shares a yard with KCS in Kansas City. CP owns 49% of the Indiana Harbor Belt Railroad, a switching railway serving Greater Chicago and northwest Indiana. CP is also part owner of the Belt Railway Company of Chicago, which is the largest intermediate switching terminal railroad in the U.S. CP has major intermodal terminals in Minneapolis and Chicago as well as a dried distillers' grains transload facility that complements the service offering in Chicago.

The Eastern Corridor: Thunder Bay to Eastern Quebec, Detroit and Albany

Overview - The Eastern Corridor extends from Thunder Bay through to the Port of Montreal, Searsport, Maine and the Port of Saint John, via haulage agreement, and from Toronto to Chicago via Detroit or Buffalo. The Company’s Eastern Corridor provides shippers direct rail service from Toronto, Montreal, and Saint John to Calgary and Vancouver via the Company’s Western Corridor and to the U.S. via the Central Corridor. This is a key element of the Company’s transcontinental intermodal service. The corridor also supports the Company’s market position at the Port of Montreal by providing one of the shortest rail routes for European cargo destined to the U.S. Midwest, using the CP-owned route between Montreal and Detroit, coupled with a trackage rights arrangement on NS tracks between Detroit and Chicago or the CP-owned route between Montreal and Buffalo coupled with a haulage arrangement on CSX Corporation (“CSX”) tracks between Buffalo and Chicago. CP’s 2019 acquisition of CMQ Canada and the 2020 acquisition of CMQ U.S. extends access through southern and eastern Quebec to Saint John, New Brunswick and the U.S. Northeast including Searsport, Maine. In 2020, CP acquired full ownership of the DRTP. The 1.6-mile tunnel linking Windsor and Detroit will continue to be operated by CP.

Products - Major traffic categories transported in the Eastern Corridor include Forest products, chemicals and plastics, crude, ethanol, Metals, minerals and consumer products, Intermodal, automotive products and general merchandise.

Feeder Lines - A major feeder line serves the steel industry at Hamilton, Ontario and provides connections with both CSX and NS at Buffalo. The Delaware & Hudson Railway Company, Inc. ("D&H") feeder line extends from Montreal to Albany.

Connections - The Eastern Corridor connects with a number of short-line railways including routes from Montreal to Quebec City, Quebec and Brownsville Junction, Maine to Saint John, New Brunswick. Connections are also made with PanAm Southern at Mechanicville, New York, for service to the Boston and New England areas, the Vermont Railway at Whitehall, New York, and at Northern Main Junction. Through haulage arrangements, CP has service to Fresh Pond, New York, to connect with New York & Atlantic Railway as well as direct access to the Bronx and Queens, New York. CP can also access Philadelphia as well as a number of short-lines in Pennsylvania. Connections are also made with CN at a number of locations, including Sudbury, North Bay, Windsor, London, Hamilton and Toronto in Ontario, and Montreal in Quebec. CP also connects in New York with the two eastern Class I railways; NS and CSX at Buffalo, NS at Schenectady and CSX at Albany.

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Business Overview

Canadian Pacific Railway Limited, together  owns and operates a transcontinental freight railway in Canada and the United States. CP provides rail and intermodal transportation services over a network of approximately 13,000 miles, directly serving the principal business centres of Canada from Montreal, Quebec, to Vancouver, British Columbia ("B.C."), and the U.S. Northeast and Midwest regions. CP's railway network feeds directly into the U.S. heartland from the East and West coasts. Agreements with other carriers extend the Company's market reach in Canada, through the U.S. and into Mexico. CP transports bulk commodities, merchandise freight and intermodal traffic.

The Company transports bulk commodities, merchandise freight, and intermodal traffic. Bulk commodities, which typically move in large volumes across long distances, include Grain, Coal, Potash, and Fertilizers and sulphur. Merchandise freight consists of industrial and consumer products, such as Energy, chemicals and plastics, Metals, minerals and consumer products, Forest products, and Automotive. Intermodal traffic consists largely of retail goods in overseas containers that can be transported by train, ship and truck, and in domestic containers and trailers that can be moved by train and truck.

CP's Grain network is unique among railways in North America as it is strategically positioned in the heart of grain-producing regions of western Canada and the Northern Plains of the U.S. Canadian grain transported by CP consists of both whole grains, such as wheat, canola, durum, pulses, and barley, and processed products such as oils, meals, and malt. This business is centred in the Canadian Prairies (Saskatchewan, Alberta, and Manitoba), with grain shipped primarily west to the Port of Vancouver, and east to the Port of Thunder Bay for export. Grain is also shipped to the U.S., to eastern Canada, and to Mexico for domestic consumption.

In Canada, CP handles mostly metallurgical coal destined for export for use in the  steelmaking process. CP?s Canadian coal traffic originates mainly from Teck Resources Limited's mines in southeastern B.C. CP moves coal west from these mines to port terminals for export to world markets (Pacific Rim, Europe and South America), and east for the U.S. Midwest markets.

In Canada, CP handles mostly metallurgical coal destined for export for use in the steelmaking process. CP?s Canadian coal traffic originates mainly from Teck Resources Limited's mines in southeastern B.C. CP moves coal west from these mines to port terminals for export to world markets (Pacific Rim, Europe and South America), and east for the U.S. Midwest markets. export company owned in equal shares by Nutrien Ltd. and The Mosaic Company. Independently, these producers move domestic potash with CP primarily to the U.S. Midwest for local application.

Dry fertilizers include: phosphate, urea, ammonium sulphate, and nitrate. Wet fertilizers are primarily anhydrous ammonia. More than half of CP's fertilizer shipments originate from production facilities in Alberta, where abundant sources of natural gas and other chemicals provide feedstock for fertilizer production. Most sulphur is produced in Alberta as a byproduct of processing sour natural gas, refining crude oil, and upgrading bitumen produced in the Alberta oil sands. Sulphur is a raw material used primarily in the manufacturing of sulphuric acid, which is used most extensively in the production of phosphate fertilizers.

Merchandise products move in both mixed freight and unit trains, in a variety of car types. Service involves delivering products to many different customers and destinations. In addition to traditional rail service, CP moves merchandise traffic through a network of truck-rail transload facilities, expanding the reach of CP's network to non-rail served facilities.

Forest products traffic includes pulp and paper, and lumber and panel shipped from key producing areas in B.C., Ontario, Quebec, Alberta, and New Brunswick, to destinations throughout North America, including Vancouver and Montreal to export markets.

Petroleum products consist of commodities such as liquefied petroleum gas ("LPG"), fuel oil, asphalt, gasoline, condensate (diluent), and lubricant oils. The majority of the Company's western Canadian energy traffic originates in the Alberta Industrial Heartland, Canada's largest hydrocarbon processing region, and Saskatchewan. The Bakken formation region in Saskatchewan and North Dakota is another source of condensate, LPG, and other refined petroleum. Interchanges with several rail interline partners give the Company access to destination and export markets in the U.S. West Coast, the U.S. Midwest, and Mexico, as well as the Texas and Louisiana petrochemical corridor and port connections.

Aggregate products include coarse particulate and composite materials such as cement, limestone, clay, and gypsum. Cement is the leading commodity within aggregates, and is shipped directly from production facilities in Alberta, Quebec, and Ontario to energy and construction projects in the U.S. Midwest, Canadian Prairies, and the U.S. Pacific Northwest.

CP's Automotive portfolio consists of four finished vehicle traffic components: Canadian-produced vehicles that ship to the U.S. from Ontario production facilities; U.S.-produced vehicles that ship within the U.S. as well as cross border shipments to Canadian markets; vehicles from overseas that move through the Port of Vancouver to eastern Canadian markets; and Mexican-produced vehicles that ship to the U.S. and Canada. In addition to finished vehicles, CP ships machinery, pre-owned vehicles, and automotive parts. A comprehensive network of automotive compounds is utilized to facilitate final delivery of vehicles to dealers throughout Canada and in the U.S.

CP's Domestic intermodal freight consists primarily of manufactured consumer products that are predominantly moved in 53-foot containers within North America. International intermodal freight moves in marine containers to and from ports and North American inland markets.

CP's Domestic intermodal freight consists primarily of manufactured consumer products that are predominantly moved in 53-foot containers within North America. International intermodal freight moves in marine containers to and from ports and North American inland markets.

Freight revenues included fuel surcharge revenues of $297 million in 2020, a decrease of $167 million, or 36%, from $464 million in the same period of 2019. This decrease was primarily due to lower fuel prices. This decrease was partially offset by the timing of recoveries from CP's fuel cost adjustment program and increased carbon tax recoveries.

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Financial Highlights

Third Quarter Results

October 20, 2021; Canadian Pacific Railway Limited announced third-quarter revenues of $1.94 billion, diluted earnings per share ("EPS") of $0.70, adjusted diluted EPS1 of $0.88, an operating ratio ("OR") of 60.2 percent and an adjusted OR1 of 59.4 percent.3

“The third quarter presented challenges across the supply chain, but the CP team’s commitment to the foundations of precision scheduled railroading enabled it to respond quickly and effectively to changing environments,” said Keith Creel, CP President and Chief Executive Officer. “Canadian Pacific Railway is committed to controlling what the company can control, as CP continues to focus on providing service excellence to its customers and driving value for its shareholders.”

Third-quarter highlights

Revenues increased by 4 percent to $1.94 billion, from $1.86 billion last year

Reported diluted EPS of $0.70, a 20 percent decrease from $0.88 last year, and adjusted diluted EPS of $0.88, a 7 percent increase from $0.82 last year

Reported OR, which includes Kansas City Southern ("KCS") acquisition-related costs, increased by 200 basis points to 60.2 percent from 58.2 percent

Adjusted OR, which excludes the KCS acquisition-related costs, increased 120 basis points to 59.4 percent over last year's third-quarter OR of 58.2 percent

Updated outlook

CP now expects low single-digit volume growth in 2021, as measured in revenue ton-miles, compared to 2020. CP remains confident that it will deliver full-year double-digit adjusted diluted EPS growth in 2021.

CP’s revised guidance continues to assume other components of net periodic benefit recovery to increase by approximately $40 million versus 2020, an effective tax rate of approximately 24.6 percent and capital expenditure of $1.55 billion.

“Despite global supply chain issues and a challenging Canadian grain crop, the company remain confident in its ability to deliver full-year double-digit adjusted diluted EPS growth,” said Creel. “The underlying demand environment remains strong, and its commitment to generate sustainable, profitable growth will not be distracted by elements outside its control.”

Additionally, CP will continue its work preparing to create the first single-line rail network linking the U.S., Mexico and Canada by combining with Kansas City Southern.

“The transitory issues over the past year have only reinforced the need for enhanced competition and optionality for North American shippers,” Creel said. “The company's excitement about the opportunities ahead with the combined companies continues to grow.”

References

  1. ^ https://www.cpr.ca/en/about-cp/our-history
  2. ^ https://fintel.io/doc/sec-canadian-pacific-railway-ltd-cn-10k-2021-february-18-18676-781
  3. ^ https://s21.q4cdn.com/736796105/files/doc_financials/2021/q3/Q3-2021-Third-Quarter-Report-with-Covers.pdf
Tags: US:CP CA:CP
Created by Asif Farooqui on 2021/11/18 15:09
     

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