CP Canadian Pacific Kansas City 10-Q 2026-09-30 section summaries

CPKC — Q3 and nine months ended September 30, 2026

Unless otherwise noted, amounts are Canadian dollars. CPKC reports one operating segment: rail transportation.

Consolidated results

Q3 revenue growth of 15.2% outpaced 9M growth of 8.3%, while operating expenses grew faster than revenue in both periods. Higher fuel costs were a major pressure: Q3 fuel expense was $667 million versus $415 million, and 9M expense was $1.743 billion versus $1.301 billion. Q3 compensation and benefits were $711 million versus $619 million; depreciation and amortization was $529 million versus $503 million; and purchased services and other was $594 million versus $565 million.

Q3 net income was nearly unchanged despite higher operating income, while 9M net income declined. The 9M comparison includes a $333 million pretax gain on the 2025 sale of the Panama Canal Railway investment. Reported effective tax rates were 32.79% versus 24.34% in Q3 and 27.52% versus 23.58% for 9M; excluding discrete items, the 2026 rate was 24.75% in both periods, compared with 24.50% in 2025. Q3 included a $94 million CRA reassessment expense, $96 million of KCS purchase-accounting fair-value amortization, a $17 million Mexican tax settlement expense, and $17 million of advisory costs related to the proposed UP–NS merger review. CRA and Mexican tax matters remain disputed.

Freight revenue by category

9M values shown where year-to-date growth differed materially from Q3 growth. Grain, intermodal, and metals/minerals/consumer products were strong in Q3; coal and forest products were weaker year to date.

Cash flow and capital allocation

Common shares outstanding declined from 882.0 million at July 1 to 870.8 million at September 30, and from 897.6 million at January 1 to 870.8 million at September 30. A new normal-course issuer bid authorizes repurchases of up to 44.9 million shares through February 1, 2027. The 2% Canadian repurchase tax generated accrued liabilities of $29 million in Q3 and $65 million for 9M, payable in Q1 2027.

Balance sheet and debt

Shareholders’ tangible equity, after deducting goodwill and other intangible assets, was approximately $23.751 billion. Commercial paper outstanding was US$1.535 billion (C$2.179 billion equivalent), versus US$850 million (C$1.165 billion), with its weighted-average rate down to 2.87% from 4.02%. The U.S.-dollar sublimit increased from US$1.5 billion to US$2.2 billion; the combined program limit and supporting undrawn revolving facility are US$2.2 billion. CPKC issued US$600 million of three-year notes at 4.00% and US$600 million of 30-year notes at 5.50% during 9M, and repaid two US$250 million notes at maturity. On October 6, 2026, it issued $1.80 billion aggregate principal of unsecured notes, receiving $1.785 billion net proceeds, with maturities from 2030 to 2056 and coupons from 4.20% to 5.40%.

Other notable matters

Stock-based compensation expense rose to $39 million from $4 million in Q3 and to $182 million from $96 million for 9M. 9M grants included 1.189 million options, 629,722 PSUs and 20,386 PDSUs; PSU/PDSU awards measure free cash flow and relative total shareholder return through 2028. Pension plans generated net periodic recoveries of $88 million in Q3 and $264 million for 9M, principally because expected pension-asset returns exceeded benefit-obligation interest costs.

Environmental remediation provisions were $247 million, expected to be paid through 2035. CPKCM’s disputed 2014 Mexican tax assessment, including interest, inflation and penalties, was Ps. 6,710 million ($528 million); enforcement is enjoined while the assessment is guaranteed, and CPKCM is pursuing court and CPTPP arbitration remedies.

Lac-Mégantic-related exposure has materially receded following dismissals and appellate decisions; management assesses potential responsibility as remote. In the Remington property dispute, the prior judgment was set aside and a new trial ordered; the earlier damages estimate was approximately C$232 million including interest and costs, and proceedings continue. Foreign-currency translation also materially affected comprehensive income: Q3 2026 included a $57 million loss versus a $654 million gain in Q3 2025, while 9M included a $1.133 billion gain versus a $1.104 billion loss.

CPKC — Q3 and first nine months of 2026

All amounts are Canadian dollars unless otherwise stated.

Consolidated results

Revenue grew faster than carloads, reflecting both volume and yield. However, expenses grew faster than revenue, and both reported and adjusted operating ratios worsened, indicating weaker operating efficiency. Adjusted EPS rose in both periods, while reported 9M EPS declined, reflecting significant items and purchase accounting.

Freight revenue by business line

For lines with materially different Q3 and 9M growth, 9M revenue was: grain $2.700B vs. $2.233B; coal $689M vs. $768M; potash $515M vs. $490M; forest products $590M vs. $605M; energy, chemicals and plastics $2.240B vs. $2.171B; metals, minerals and consumer products $1.494B vs. $1.350B; and intermodal $2.228B vs. $2.026B. The 9M declines in coal and forest products contrasted with stronger grain, metals and intermodal results.

Grain growth reflected strong Canadian and U.S. movements, including longer-haul Mexico traffic. Intermodal benefited from international traffic through Vancouver and Montréal and stronger domestic wholesale volumes, partly offset by lower Saint John traffic. Automotive revenue increased despite lower Q3 carloads, as higher yield more than offset weaker U.S. Midwest and Mexico volumes; longer Mexico-to-Canada hauls supported 9M RTMs. Coal was pressured by lower output and maintenance, while forest products weakened over 9M on lower wood pulp, paperboard and newsprint volumes.

Operating performance and yield

For 9M, GTMs were 315,271M vs. 300,695M, train miles 36,314K vs. 35,353K, fuel efficiency 1.007 vs. 1.040, and average employees 19,744 vs. 19,985. Improved locomotive productivity and operating-plan efficiency supported fuel efficiency as workload increased, led by grain, intermodal, and metals, minerals and consumer products.

Q3 freight revenue was $4.139B vs. $3.589B; non-freight revenue was $80M vs. $72M. Freight revenue per carload increased to $3,475 from $3,170, and per RTM to 7.20¢ from 6.62¢. For 9M, freight revenue was $11.855B vs. $10.945B and non-freight revenue $229M vs. $210M; revenue per carload was $3,463 vs. $3,235 and per RTM 6.98¢ vs. 6.70¢. Higher freight rates, fuel surcharges and favorable FX contributed to yield growth.

Fuel surcharge revenue rose to $629M from $358M in Q3 and to $1.589B from $1.110B in 9M. Higher fuel prices contributed $244M and $461M, respectively, to the favorable fuel-price impact on freight revenue per RTM. Recovery timing affected the benefit; 9M comparisons also reflect the elimination of the Canadian federal carbon-tax program effective April 1, 2025.

Costs, financing and significant items

Fuel was the largest cost pressure: higher prices added $216M to Q3 fuel costs and $395M over 9M, partly offset by improved locomotive efficiency and fuel surcharge recovery. Compensation costs included higher stock-based compensation, inflation, incentives, workload and FX; headcount reductions and resource efficiencies partly offset increases. Lower equipment-rent expense benefited from improved freight-car cycle times. Purchased services included $17M in Q3 and $44M in 9M of advisory costs for the U.S. Surface Transportation Board review of the proposed Union Pacific–Norfolk Southern merger. Net interest expense increased to $239M from $222M in Q3 and $704M from $646M in 9M, mainly due to interest on long-term notes issued in 2026 and 2025.

Q3 income-tax expense was $448M vs. $296M; 9M expense was $1.058B vs. $945M. 2026 included a $94M CRA reassessment expense related to prior-year taxes on the KCS acquisition and a $17M settlement expense with Mexico’s SAT. The Q3 effective tax rate was 32.79% (24.34% prior year); 9M was 27.52% (23.58%). Core adjusted rates were 24.75% in both 2026 periods, and management expects approximately 24.75% for 2026.

KCS purchase-accounting costs were $278M pre-tax ($203M after deferred tax recovery) in 9M 2026, principally depreciation and amortization, versus $282M ($206M after recovery) in 2025. 9M 2026 also included $48M of KCS-acquisition costs and $44M of merger-review advisory costs. Prior-year comparisons include a $333M pre-tax gain on the sale of the Panama Canal Railway investment. Core adjusted measures are non-GAAP and exclude specified items and KCS purchase accounting; excluded items may recur or involve cash.

Cash flow, liquidity and capital

Operating cash flow increased $276M in Q3 and $467M in 9M year over year, primarily from higher cash-generating operating income and favorable working-capital movements. Investing cash use fell $302M in Q3, including lower property additions; over 9M it increased $111M, with the comparison affected by 2025 equity-sale proceeds and lower property additions. Financing cash use increased $161M in Q3, mainly because of lower net commercial-paper issuance, and decreased $112M in 9M, largely reflecting higher net commercial-paper issuance and lower debt repayments, partly offset by lower net debt-issuance proceeds.

Cash and cash equivalents were $399M at September 30, 2026, compared with $184M at year-end 2025. In 9M, CPKC repaid two U.S. $250M notes at maturity and issued U.S. $600M of 4.00% three-year notes and U.S. $600M of 5.50% 30-year notes. On October 6, it issued four further notes totaling $1.8B, with maturities from 2030 to 2056 and coupon rates from 4.20% to 5.40%.

The undrawn U.S. $2.2B revolving facility was extended to 2028 and 2031 for its two tranches, and also supports the increased U.S. $2.2B commercial-paper limit. Commercial paper outstanding was U.S. $1.535B ($2.179B) at September 30, versus U.S. $850M ($1.165B) at year-end 2025. Management said liquidity, operating cash flow and debt capacity were adequate. Ratings remained investment grade; the company cautioned that a downgrade could raise borrowing costs and impair debt-market access.

CPKC Mexico’s concession runs to 2047, is conditionally renewable for periods of up to 50 years, and requires annual duties of 1.25% of gross revenue. As of October 27, 2026, 869,554,740 common shares were outstanding; 5,428,588 options were outstanding and 19,028,043 MSOIP options remained available for issuance.

Core adjusted measures are non-GAAP and may not be comparable with similarly titled measures at other companies.

Market risk: interest rates

As of September 30, 2026, a hypothetical 1-percentage-point change in interest rates on outstanding floating-rate debt would have an immaterial impact. However, rising rates could increase interest costs on existing variable-rate debt and on future fixed-rate borrowing. Canadian Pacific may use Treasury rate locks, bond locks, or fixed-for-floating interest-rate swaps to manage this exposure; depending on rate movements and contract terms, those instruments could increase costs.

A hypothetical 1-percentage-point decrease in rates would increase the estimated fair value of fixed-rate debt:

This is a market-based sensitivity estimate, not a reported change in debt carrying value or cash cost. It uses market prices and current borrowing rates and excludes other factors that could affect actual results. Foreign-exchange and share-price-related market risks are discussed elsewhere in the filing.

As of September 30, 2026, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective. During Q3 2026, the Company identified no changes in internal control over financial reporting that materially affected, or were reasonably likely to materially affect, those controls. This section reports no financial metrics or business developments.

The company reported no material changes to the risk factors disclosed in Item 1A of its 2025 Annual Report on Form 10-K. This section identifies no new financial metrics, business developments, or specific risk updates.