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Operations at Canadian Pacific Kansas City Ltd. (CPKC) are likely to face significant disruption due to a potential strike anticipated in the latter half of August. CEO Keith Creel indicated that a work stoppage is "most probable" toward the end of the month, highlighting ongoing disagreements with the union representing 3,300 workers over a new collective agreement.
Creel's comments suggest that a strike could lead to severe operational challenges, with shippers bracing for substantial delays. This scenario contrasts with the outlook of Canadian National Railway Co. (TSX:CNR), which has downplayed the likelihood of a full-scale strike or lockout.
CPKC has factored the potential financial impact of a disruption into its earnings forecast. Despite this, the company has already seen operational impacts and shipment delays. The Canadian labour board is set to decide whether some shipments will be classified as essential services in the event of a strike, with a ruling anticipated by August 9.
Should a strike occur, the rail network could experience "mass chaos," according to Creel. The uncertainty has already affected rail transport, with a decline in container revenues as customers reroute cargo. CN has also revised its earnings growth forecast due to the strike threat, while CPKC remains optimistic about maintaining double-digit earnings-per-share growth if the stoppage is brief.
In the second quarter, CPKC reported a 14% increase in total revenues to $3.60 billion, despite a 32% drop in net income attributable to controlling shareholders. Freight volumes rose by over 1%, and revenues from bulk grain and potash increased significantly. However, revenues from container traffic fell by 4% as customers adjusted their shipping plans. The company noted that a strike would cause delays extending into the fourth quarter and potentially into the first quarter of the following year.
The company's core adjusted diluted earnings per share increased by 27% year-over-year, surpassing analyst expectations. The merger with Kansas City Southern has created a rail network spanning from Canada to Mexico, enhancing its reach across North America.
