MONTREAL — Economic dependence between Canada, the United States and Mexico is too strong for tariffs to kneecap trade, says the head of Canadian Pacific Kanas City Ltd.
"How many engines and transmissions are built in the U.S. that go to Mexico so they can produce the vehicle that comes back to the U.S.," CEO Keith Creel said Wednesday, pointing to the auto sector.
"The fact is we've got 75 per cent of production capacity in the U.S. and 25 per cent that's got to come from somewhere else," he told analysts on a conference call.
"That type of interdependence, that type of need, is woven into this economy."
Creel's remarks came amid anxiety over the threat of 25 per cent across-the-board tariffs made by President Donald Trump and poised to take effect as soon as Saturday.
As the only freight railway to span all three countries in North America, CPKC has an especially keen interest in whether the White House launches a trade war.
Creel maintained an optimistic view in spite of aggressive rhetoric from the Oval Office.
"I think a pragmatic approach will carry the day," he said.
To back that up, the company forecast adjusted earnings-per-share growth of between 12 and 18 per cent this year.
"Trump's desire to build a stronger America, to bring jobs to America, to balance trade I think is going to be accomplished, and we're going to see, I think, exceptional growth between the three nations."
On Wednesday, CPKC reported a jump in profits in its latest quarter amid higher revenue from grain and auto shipments, even as container cargo slumped.
The country's second biggest railway saw net income rise 18 per cent to $1.20 billion in the three months ended Dec. 31 from $1.02 billion in the same period a year earlier.
Grain revenues rose 12 per cent year-over-year and revenue from energy, chemicals and plastics increased three per cent, the Calgary-based company said. The two segments comprise 44 per cent of CPKC's freight revenues.
Revenue from container shipments fell six per cent due to weaker consumer demand amid the hangover from inflation and higher interest rates.
Creel acknowledged "uncertainty" and possible "volatility" ahead, but stressed a longer-term view that goes beyond the current presidency: "This is a railroad built forever, not a railroad built for 48 months."
The chief executive said Trump's renegotiation of the North American Free Trade Agreement in his first term, the subsequent COVID-19 pandemic and the supply chain defects it revealed only served to strengthen economic links that were already tightly braided.
"That has accelerated not only the near-shoring and ally-shoring, but the integration of our supply chains," he said.
The company's efficiencies last quarter — profits rose far more than revenues — stemmed partly from Canadian Pacific's takeover of Kansas City Southern in December 2021. The acquisition marked North America's first major rail merger in decades, but operations synced up only in April of 2023 following regulatory approval of the deal.
Due largely to CPKC's continent-wide network, sales from automotive shipments soared by 38 per cent year-over-year, topping company records, executives said.
"With the merger of Kansas City Southern, improved efficiencies in the network and expanded ocean port access can help grow sales by converting truck traffic to rail, participating in industrial development across geographies, and adding new customers to the network," analyst Jeff Windau of Edward Jones said in a note to investors.
CPKC said fourth-quarter revenues rose three per cent to $3.87 billion from $3.78 billion the year before.
On an adjusted basis, earnings increased to $1.29 per share from $1.10 per share, beating analysts' expectations of $1.24 per share, according to financial markets data firm Refinitiv.
Earlier Wednesday, the board declared a quarterly dividend of 19 cents per share payable on April 28.
This report by The Canadian Press was first published Jan. 29, 2025.
Companies in this story: (TSX:CP)
Christopher Reynolds, The Canadian Press
