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Canadian Pacific Railway Limited (NYSE:CP)
Q2 2019 Earnings Call
July 16, 2019, 9:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. My name is Adam and I will be your conference operator today. At this time, I would like to welcome everyone to the Canadian Pacific's Second Quarter 2019 Conference Call. All slides accompanying today's call are available at www.cpr.ca. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question, simply press *1 on your telephone keypad. If you would like to withdraw your question, press the # key.

I would now like to introduce Maeghan Albiston, AVP, Investor Relations and Pensions to begin the conference. Please, go ahead.

Maeghan Albiston -- Investor Relations

Thank you, Adam. Good morning everyone and thank you for joining us today. Before we begin, I want to remind you that this presentation contains forward-looking information and the actual results may differ materially.

The risks, uncertainties, and other factors that could influence actual results are described on slide 2 in our press release and in the MD&A filed with Canadian and U.S. regulators. This presentation also contains non-GAAP measures which were outlined on slide 3.

With me here today is Keith Creel, our President, and Chief Executive Officer; Nadeem Velani, Executive Vice President and Chief Financial Officer; and John Brooks, Executive Vice President and Chief Marketing Officer. The formal remarks today will be followed by a Q&A and in the interest of time, we'd appreciate if you could limit your questions to two.

It's now my pleasure to introduce Mr. Keith Creel.

Keith Creel -- President and Chief Executive Officer

Thank you, Maeghan. Good morning. Listen, the team and I are extremely proud to sit here this morning and represent our 13,000 strong CP family. We get to share and discuss the record-setting quarter for this company. When I say record-setting, it is a mix of records. Second-quarter records or all-time records. Records in overall revenue. EPS all-time record for workload and GTMs on the network. Train length records. Train leap records. Locomotive productivity records. Fuel efficiency records. Most importantly, quarterly safety record. We had a very challenging first quarter. To bounce back the way this company has bounced back, to regain the momentum that sets us apart from the industry, most specifically in our train accident ratio, the way we run the railway safely every day, speaks to the commitment and to the potential that this company represents.

And all-time record as well on personal injuries for the company. Certainly, the culture when it comes to safety is strong and getting stronger. It is something we are extremely, extremely focused on and proud of. This kind of performance demonstrates what a mature, precision-scale railroading company ran by the best team of railroaders that the industry could produce.

That said, we talk about the records, something even more encouraging is this pursuit of operational excellence is something that I call a journey. It's not a destination. Maintaining a constant pursuit, a constant constructive tension in the organization even in the face of record volumes when we are focused on making sure we keep our assets right-sized at the peak to accommodate and allow for any kind of softening or meet of demand that we might face as well as our normal seasonal demands that come down in July. This team is doing that.

Within that quarter, taking out locomotives and taking out headcount that is associated with those locomotives reducing us down almost 10% in our locomotive fleet alone. With that being said, the quarter was not without its challenges. We talk about the things that went well. I can tell you this quarter we faced unprecedented pressures from the Mississippi River, much like our class one partners. When I say pressures, the pressures did not let up. The duration of the floods that we experienced this year, if you go back 40 or 50 years through history, you're going to be hard-pressed to find anything that was that prolonged in the impact to this railway. Our team, I tell you, the men and women that run this railroad day in and day out are inspiring. They battled the floodwaters. They kept the railroad open as long as they possibly could. Yes, we had to reroute some trains. Yes, we had some additional operating expense tied to it, a little bit of capital expense tied to it and some forgone revenue. But for us to be able to sustain that kind of pressure and bounce back the way that we did, again, speaks to the testament of the strength of this team.

Switching over to the commercial side, I'll tell you that we continue to make progress. That's encouraging as well. We laid out a plan at our Investor Day in October. We told the market, we told our shareholders, we told our investors that we had a unique set of opportunities that we worked hard to set up. We had created capacity and developed a strategic plan to convert it in the marketplace. That is what is fueling this pace of growth this is unprecedented in the industry in a time to meet demand across the macroeconomy. We call it self-help. We call it unique opportunities that allow us to counter to what the balance of the industry is experiencing. That is what you are seeing in these results.

You know, you read about our press release during the quarter of Yang Ming. That's one commercial success that John will talk about the specifics of. Yes, we're super excited about the partnership and absolutely excited about the revenue and what it is going to do driving earnings and growth in 2020 and beyond. But from an operational perspective, I am equally excited because what it allows this company to continue to do is setting itself apart from our competition, setting a new standard for service in our partnership. That specific, what I call the third leg of the alliance, which is a Hapag-Lloyd, Ocean Network Express, and now will be in 2020 Yang Ming, allows us to continue to fine-tune and create an industry-best service that will get you from Shanghai, to Chicago with the lowest on-dock dwell time that can't be matched by our competition, whether it is US west coast or other Canadian alternatives, into the Midwest markets with our fastest transit times and our shortest routes in our reliable capacity. It's something that is compelling in the marketplace and it is something that will continue to make a strong difference in our operational ability to continue to drive margins and operational excellence within the organization.

To add benefit to that as well, you probably read HMM Hyundai, which is a customer that CP currently enjoys a partnership with. They made a strategic decision as well effective spring of 2020. They are joining the alliance. That volume now currently calls them CIN term on the south shore which CP serves. That volume will shift to Deltaport. It will be handled by our partners at GCT and will be moving on the shift with the alliance, which again gives us another step to incremental improvement. It takes out complexity in the terminal. It takes out the additional cost and improves efficiency and velocity. Just as a proof point, if you think about this, if I go back a year and a half ago, the share at GTC Deltaport had gone down about 20% for CP in the balance for our competitor. With this new contract that comes online in January, we're going to be at about 65% to 70% of the product that is being discharged on the dock at GCT, again, enabling that reliable service industry-best service into the Midwest.

When you think about all these things, you put them together, what does it mean? What does it mean for our customers? What does it mean for our shareholders and our investors? It is a solid proof point that when we say we're going to do something, we do it. It says that sustainable, profitable growth is not just a catchphrase. It is woven into the DNA of how we run this business. When you do, and you do it well, and you live and die and breathe by that principle, you do what you say you're going to do. You don't try to be everything to everyone, but those that you serve the best and you do it with this kind of culture and this kind of discipline, these results are possible. It allows you to grow this company now and into the future. As excited as we are about 2019, the opportunities that John and the team put together for 2020 and 2021 from an investor standpoint, we certainly expect not only in '19 to meet our guidance but to carry strength and momentum into 2020 and 2021 as well. It's going to bode well for anybody who invests in this company, as well as our employees, as well as our customers; the perfect trifecta.

With that, I'm going to turn it over to John to provide more color on the commercial side. After Nadeem covers the financial performance, then we'll open it up for questions.

John Brooks -- Executive Vice President and Chief Marketing Officer

All right. Thank you, Keith. Good morning, everyone. Total revenues were up 13% this quarter to $2 billion with six out of our nine lines of business being up double digits in revenue. RTMs were up 6%, FX with a tailwind of 2%, and Fuel was flat. On the pricing side, as expected, we continue to land in that 3% to 4% range.

Taking a closer look at our second-quarter revenue performance on the next slide, I'll speak to the results on a currency-adjusted basis. As Keith spoke to, it was an extremely strong quarter for the bulk portfolio. Grain was up 11%. Canadian grain and grain products delivered a record second quarter up double digits. Both April and May were record months for volume and from a tonnage perspective, this was the third biggest quarter of all time for CP in grain. Feeding in Canada is now complete and as of right now we expect new crop to be in line with the past couple of years. Additionally, we project carry out stocks to be normal but certainly more heavily weighted on the Canola side. All this to say, we expect there to be good volumes of grain to move this fall. As a reminder, the new regulated grain pricing for CP taking effect on August 1st will be 3.7%.

In contrast, US grain volumes were down double digits as the P&W export market continues to be challenged due to the lingering trade dispute with China. We are watching US grain markets closely, though, because with the flooding and tough growing conditions that have emerged across the central and eastern US, actually, this might present a pretty good opportunity for CP grains into these areas that are expected to be short production.

Moving on to the coal business. As a result of maintenance outages at both port and mines, Canadian coal volumes decreased this quarter. However, in spite of these supply chain challenges in Canada, we actually saw fairly strong movements of thermal coal in the US and our revenues were up 5%. The demand environment for met coal remains strong and we continue to expect a strong back half of the year.

On the potash front, Q2 was an all-time record quarter for volume and revenue as strength in our export potash outweighed weakness on the domestic side, that weakness being the result of flooding and poor weather conditions in the upper Midwest of the United States. In spite of the weakness on the domestic side and certainly some tough comps we have coming into the second half of the year on potash, the strong global demand, and still a very healthy pricing environment, we expect the opportunity for upside as we move into the second half of the year.

On the merchandise front, the energy, chemical, and plastic portfolio had another strong quarter with revenue growth of 22%. The growth included another strong quarter of LPGs, plastics, refined products all moving on our energy train into Vancouver. Excluding crude, ECP volumes were up 9% and revenues grew 13%. On the crude by rail, as expected, we came in at around 25,000 carloads, or approximately 160,000 barrels per day, as production curtailments began to ease, and the fundamentals begin to improve. Although crude by rail remains variable, we expect volumes will continue to increase as production and curtailment balance stabilizes and our new contracts and existing customers continue to ramp up the second half of the year. In MMC, volumes declined 9% largely driven by our frack sand, however, revenues were only down 2% consistent with what I have spoken about a number of times in the past. We're executing a surgical strategy to rehone our frack sand from the Permian Basin to the Bakken.

This market diversity yields higher revenue per carload, single-line haul efficiencies, and improved margins. We currently have two-unit train facilities in service and we're adding a third unit train facility in this region by the end of the year.

In automotive, certainly, despite a weak North American demand environment, PP revenues were up 12% in the quarter. We continue to see success driven by Globus and the opening and ramp-up of our Vancouver auto compound that we're spoken about. As a reminder, this is only a portion of the Globus business with the full contract coming online to us in 2020. This, combined with continual growth at Vancouver, give us confidence in this sector well into next year.

Finally, on the intermodal side of the business, overall revenues were up 11%. Both domestic and international volumes were up low double digits. In fact, despite some softening in the retail sector, domestic revenues were a record in Q2. On the international side of the business, we continue to excel in the market and execute our playbook. Most recently, I'm very pleased that CP was named best logistics provider in rail at the Asian Freight Logistics and Supply Chain Awards in Hong Kong. Further, as Keith mentioned, preparations are well under way with Yang Ming for our 2020 onboarding of their volumes which will move through GCT Deltaport, leveraging our capacity not only at the port of Vancouver but also at our capacity in our inland's terminals across our network. We're also excited as is Yang Ming around taking full advantage of our fastest routes into Chicago, Toronto, and Minneapolis.

Look, I am extremely pleased with the efforts of the team in collaboration with the operating team to deliver this quarter. While there is no doubt there is uncertainty in the macro-environment and some softness in some of our lines of business, between the combination of our strong bulk franchise, coupled with new business that is moving now and new business that will be starting up in 2020, I have a high degree of confidence that we will continue to deliver the growth and outpace the industry. The CP team is focused, and we are collaborating with our customers to create efficiencies and convert opportunities in the marketplace.

With that, I'll pass it over to Nadeem.

Nadeem Velani -- Executive Vice President and Chief Financial Officer

Thanks, John. Good morning. As Keith noted this is a strong quarter by virtue of any measure. When we reported in April, I was encouraged by how the volume and operating trends were recovering from a challenging winter. Those trends continued throughout the quarter and led to the strong revenue growth that John detailed as well as very strong cost control. The end result was a Q2 operating ratio decrease of 580 basis points to a second-quarter OR of 58.4%.

Ignoring the impact that last year's labor disruption had on the OR in Q2, we still saw an improvement of 440 basis points year over year. Adjusting for land sales, depreciation, and stock-based comp, we saw incremental margins of about 90%. Taking a closer look at a few items on the expense side, as usual, I will be speaking to the results on an exchange adjusted basis.

Comp and benefits was up 8% or $28 million versus last year. The primary drivers of the increase were increased stock-based compensation of $20 million resulting from the higher share price, as well as higher headcount. Fuel expense was flat year over year as increased volumes were offset by decreased price and record Q2 fuel efficiency of 0.93 gallons per thousand GPMs. Materials and equipment rent expense were both flat year over year. As expected, depreciation was $183 million, an increase of 5%.

Purchase services was $265 million, a decrease of $23 million or 8%. The primary driver behind the decrease was a land sale of $17 million which we guided to on our Q1 call. Decreased rolling stock costs and other operating efficiencies was a further tailwind. Additionally, the casualty line under purchase services reverted back to historical levels.

Rounding up the income statement, adjusted income increased by 33% and adjusted EPS grew 36%. Below the line, you'll note that there was an $88 million income tax recovery related to changes in the Alberta corporate tax rate. This benefit was excluded from normalized earnings and will have a negligible impact on our 2019 effective tax rate. As the benefits are phased in over the four years, we will start seeing a more meaningful benefit to our effective tax rate.

Turning to the next slide, our leverage in the quarter came in at 2.4 times adjusted net debt to adjusted EBITDA, within our target range of 2 to 2.5 times. In May we repaid our debt maturity which we refinanced early in March. With a strong operating performance and growth over the last two years, we've worked our way back into our target leverage range. While capex increased sequentially given winter, flooding, and network investments, we will keep our capital spending within our guidance of $1.6 billion.

We continue to take a balanced approach to shareholder returns. In May, we meaningfully increased our dividend by 27.5%. This marks the fourth straight year we have raised our dividend as we gradually move toward our targeted payout ratio of 25% to 30%. On the share buyback front, as of the end of Q2, we have completed nearly 70% of our current share repurchase program at an average cost of roughly $272 per share. We will remain opportunistic and disciplined in our deployment of capital. Combining this discipline with our strong operating performance, we delivered an ROIC of 16.8% in the last 12 months. This will undoubtedly be the strongest ROIC in the entire industry which is a tremendous achievement by the CP team.

The railroad is operating as well as I've ever seen it and our team of railroaders is getting stronger and deeper each day. We continue to watch the demand environment closely, and should the macro-environment change, will continue to adapt our cost base quickly. As Keith mentioned, we are confident in our full-year guidance and expect to deliver another set of strong results when we speak again in October. With that, I'll turn it back to Keith to wrap things up.

Keith Creel -- President and Chief Executive Officer

Thanks, Nadeem, and John. Just to wrap up. I'm looking forward to watching what is made of our tough comps in the back half of the year. Tough comps are what happens when a company performs. We're realists. We're going to stay humble. We're going to stay focused. We understand the demand environment is not without its challenges, but you can rest assured that this team is going to be focused, disciplined, and committed, and competent delivering our guidance for the year. These results are a testament to the power of our operating model and CP's ability to execute operationally, financially, and commercially al at the same time.

With that being said, let's open it up for questions.

Questions and Answers:

Operator

Certainly. If you would like to ask a question, just press *1 on your telephone keypad. If you would like to withdraw your question, press the # key. As previously highlighted, please limit your questions to two. There will be a brief pause while we compile the Q&A roster.

Your first question comes from Chris Wetherbee of Citi. Chris, your line is open.

Chris Wetherbee -- Citi -- Analyst

Hey. Thanks. Good morning, guys.

Keith Creel -- President and Chief Executive Officer

Good morning.

Chris Wetherbee -- Citi -- Analyst

Maybe just wanted to pick up on the comment about the second half and the comps that you guys see. If you could talk a little bit about some of the key commodity groups that you feel most confident about in terms of maintaining the mid-single-digit RTM growth as you face some of those tougher comps. If there is some demand sluggishness, what are the areas where potentially you could see that kind of flow through? Just curious about what your outlook is there on the volume side.

John Brooks -- Executive Vice President and Chief Marketing Officer

Chris, I can start off. This is John. Look, we turned in a really strong Q2 on the bulk side of the business and I see that tailwind continuing. As I mentioned, we're kind of in the grain trough a little bit right now in July but I expect upside as we move through the quarter in the grain. The potash demand environment continues to be strong. There is certainly some weakness on the domestic's side, but we think that picks up through the quarter and the export side continues to be very strong. Teck is, for the most part, sold out through Q3, so we will continue to see some tailwind there. Our year over year comps says it results to the international intermodal. We still have some upside as I look through Q3 in that space sort of despite some of the challenges that others are facing. We haven't seen the blank sailings with our customers in that area. I'm positive in all of that space.

I think we have outmatched the industry on the auto sector here now for the second straight quarter and frankly, I think that trend continues as we move into Q3 also. The crude is tied and yes, it is a variable and there are certainly some moving parts that need to be worked out here. But the contracts are in place and we're actually more optimistic today than we have been that these issues are going to get resolved and there could be significant upside in crude by rail.

Chris Wetherbee -- Citi -- Analyst

Okay. That's a help. I'm down. Last quarter, Nadeem, I think you were pretty constructive about the potential for the OR in the second half of the year even facing the more challenging comps than you had in Q2. Could you speak a little bit to sort of how you are feeling after getting the second quarter done? Obviously, it was a really strong performance as you mentioned and very high incremental margins. It doesn't appear that there is anything sort of blocking that as we move into the back half of the year, but if you could put some color around that, that would be great.

Keith Creel -- President and Chief Executive Officer

Let me set this up for Nadeem. We're still convicted, Chris. But over to you, Nadeem.

Nadeem Velani -- Executive Vice President and Chief Financial Officer

Yes. I think, Chris, we're doing what we say we're going to do in terms of as Keith noted our conviction comes from that. It comes from a network that is running, as we mentioned, as good as we've ever seen it. It comes from what is in our DNA of strong cost control and not getting lulled into a false sense of confidence. In times like this when you see a bit of softness, you can start putting assets aside proactively and only adding resources where necessary. The same level of conviction in the back half. Yes, we have some tough comps, but we feel very good about what we can do from a cost control point of view and those incremental margins will add to the bottom line.

Keith Creel -- President and Chief Executive Officer

The fundamental demands, Chris, that drove the performance the second half of last year exist the second half of this year with even more pent up demand, so to speak, and an ability for us to execute given our investments. I think about the grain fleet alone. We talked about investing in our hopper fleet and the efficiencies we get from that. We will just start to begin to realize some of those operational efficiencies. Meaning fewer bad order, meaning more velocity with the fleet, meaning I don't need as many cars. I'm moving the same or more grain with fewer cars. We're looking at doing things with our potash fleet to respond to surging demand or record demand with our customer and partner in Canpotex. Running a 200 car potash trains to Vancouver and even to a point, we're testing with UP over Portland. We ran a 188-car train just recently.

We're going to continue to push the envelope, squeezing what we can out of our assets to do more the less all within the mantra of precision scheduled railroading as we continue to deliver service. As we do that, costs come down, capacity increases, velocity improves. It's just a different space to operate in with the same or better demand. In the second half, you should expect better performance which is exactly what this team is focused on producing.

Chris Wetherbee -- Citi -- Analyst

Helpful color. Thanks for the time. I appreciate it.

Keith Creel -- President and Chief Executive Officer

Thanks, Chris.

Operator

Our next question comes from Walter Spracklin of RBC Capital Markets. Please, go ahead.

Walter Spracklin -- RBC Capital Markets -- Analyst

Yeah. Thanks so much. Good morning, everyone. I guess coming back to Keith your comments about how much more improved the handling is. The complexity is improved. I look back just eyeballing the last few years going from second quarter to third quarter, you've done anywhere from -- Obviously, summer railroading in Canada is a lot easier. You've done anything from 200 to 600 basis points quarter sequential. Nadeem, you've talked about 100 basis points on the year as something that you generally target, but gosh. Everything looking at it here given the items, Keith, that you mentioned, it suggests that you could be well above the 100 to 200 improvement year over year on the OR. And then when we go into the next year, with Yang Ming coming in and the lower complexity of everything consolidating at Deltaport. Again, my question I guess is are we beyond the 100 to 200 that we have typically come to expect in operating ratio improvement on the annual basis?

Keith Creel -- President and Chief Executive Officer

Walter, I love your optimism and belief in the model. Part of this is the art of the possible. We exceed our expectations and have in the past but you're talking about quantum leaps in areas we made quantum leaps. It's just hard to keep setting a world-record mile redoing it every year. So, we're going to continue to improve. We're going to sweat our assets, their puts and their takes, and we're going to drive in spite of the headwinds that we face in these areas. We're going to get incremental margin improvement for the next several years given the business that I see laying on the railroad. You could say there is some conservatism in our guidance. We feel we need to be responsible and guide to what we feel confident that we will be able to deliver. At the same time, I don't want to be overexuberant and mislead and create a bar so high that we disappoint. I don't want to demotivate my team either.

Rest assured that you have a team here and you have a leader and a leadership team that will push this envelope in a responsible, constructive way. We expect, and we hope, to exceed your expectations, but I can't tell you that I see 200 basis points of opportunity given all the moving parts that we see out there and all of the things that may or may not happen with winter. Could I make a case where everything goes our way, a euphoric case? I'd love to be able to control that. I can't, so I've got to be reasonable and I've got to be responsible for what my guidance is. I see confidently the ability to get that 100 basis points, but I'm not willing to extend us to the 200. Not yet. I want to wait and make it happen instead of assuming it's going to happen. I just don't think that's a responsible way to handle it.

Walter Spracklin -- RBC Capital Markets -- Analyst

Yeah. You're an admirable --

Nadeem Velani -- Executive Vice President and Chief Financial Officer

The stock base comps are probably the biggest headwind in terms of it's a first-class problem and certainly something that our shareholders won't complain about in terms of that headwind. That adds a bit of a challenge when looking at year over year.

Walter Spracklin -- RBC Capital Markets -- Analyst

I appreciate that. Going now down to the EPS level. I know your longer-term you're double-digit for this year, long-term double-digit. Double-digit is a very unspecific wide range. Potential is moving up now into that mid-teen and might after this go into the mid to high teen. Are you comfortable with that kind of progression? I mean you did 36% in the second quarter. Are you comfortable with that trend as you demonstrated very strong second-quarter results that expectations go up into that mid-teen, mid to high-teens range?

Nadeem Velani -- Executive Vice President and Chief Financial Officer

I'd echo what Keith has conveyed on the OR side. I think it is fair to. We want to be able to deliver on what we are committed to. We have kind of talked about what the double-digit, low double-digit type of range. Call it conservative or what have you, but just mindful of the things we can't control, which is things like curtailments and if stock continues to run, that could be a headwind. If you have some sort of weather disruption in December or what have you. We're mindful that there is still a long way to go. We're confident in our ability to grow double digits. I don't want to get into the weeds of what level of double digits, so I'll just leave it at that.

Walter Spracklin -- RBC Capital Markets -- Analyst

Sure. Okay. Appreciate it. Great quarter, guys.

Keith Creel -- President and Chief Executive Officer

Thank you.

Operator

Your next question comes from Fadi Chamoun of BMO. Please, go ahead.

Fadi Chamoun -- BMO -- Analyst

Good morning. Thank you. John, you mentioned pricing in the 3% to 4% range. Is this pricing kind of broad-based? Are you seeing the strength across all the segments? I'm particularly curious about the intermodal market. The domestic intermodal market we are seeing some easing in the freight demand environment. So, if you can speak to that, please?

John Brooks -- Executive Vice President and Chief Marketing Officer

You know, Fadi, we were talking earlier this morning and I am quite pleased with the discipline the team has been able to show and the results we're producing on the pricing front, really now going over the last year quarter by quarter. We landed in that upper end of that range again and as I look at the renewals pushing into Q3 I think I feel pretty confident that we're going to be able to sustain that. Certainly, as you called out, there are some areas where there is some weakness or a little more challenge than others. We have seen, as you said, some weakness in the domestic sector particular retail type business. That being said, the pricing has held in there also pretty decent. Maybe toward the lower end of that range specific for that area.

I would also just call out, particularly for Q2, we did see some pretty positive mix, a point or point and a half, in that space. It had to do with less of our longer-haul crudes. We had some shorter-haul crude that took place that impacted that. Frankly, just some of our new business pricing has been quite strong that we have brought on this year.

Fadi Chamoun -- BMO -- Analyst

Great color. Thanks. The second question I had is you feel very positive, obviously, about the opportunities to grow well into 2020. You have a few new business awards that you have already communicated. Is the capex outlook kind of continuing to be in that $1.6 billion range into 2020? Is that creeping up? As related to that, maybe to Nadeem, the fresh cash flow conversion, like net income to free cash flow conversion has been just about 55% on average for the last few years. Can you talk about the leavers that you have to kind of improve that as we move into the next two to three years? I understand there is some improvement in the margin, obviously, but is there anything else, maybe on the capex side, that is unique that you can highlight that could help improve cash flow performance? Thanks.

Keith Creel -- President and Chief Executive Officer

Okay, Fadi, if I can I'll take the capital question and I'll let Nadeem expand on the free cash flow. So, when it comes to our capital envelope the answer is, no creeping. The same discipline in running the railway is the same discipline approach to managing capital. So, as we talk about the formula, what's the art of the possible? How do you get sustainable, low-cost growth? You create capacity and you sell the strength of your network. You sell in the capacity that you have. When you sign up new customers to grow the book of revenue, you are locked up with the capacity or the capital that is required to create that capacity to be able to deliver the business. Because if you don't, you jeopardize the entire operating model and success across every line of business.

So, the business that we signed up for 2020 and 2021, the assets that we need be it a locomotive, be it remodel, remanufacture the surgical siding here, siding there. CTC here, CTC there. Inspection truck here, inspection truck there. All that is in the plan. It's all baked into the plan so you will not see a big swing in our capital envelope as we bring on this additional business in 2021.

In fact, after '21 you'll start to see our need for capital based on what we see today taking into account the growth. Actually, the diminish can come down, not go up.

Nadeem Velani -- Executive Vice President and Chief Financial Officer

Perfect segue to your second question there, Fadi. We continue to invest the opportunities right now on the covered hoppers, on locomotive modernization. What we did with Alyth yard and will do in Minneapolis as well to support our service, to support our growth agenda. Those things start trailing off and I think the next leg of the story is going to be a very positive one from a free cash conversion point of view. Once we get past the investment in the covered hoppers in that 2022 kind of timeframe, you'll start to see free cash conversion more in the 75% to 80% kind of levels. I think that is something that is somewhat overlooked. I think that's going to be a very impactful story to CP and what we can deliver. I think you're right on in terms of what we can achieve and where there is next opportunity.

Fadi Chamoun -- BMO -- Analyst

Thank you. I appreciate the color. Great quarter. Thanks.

Keith Creel -- President and Chief Executive Officer

Thank you.

Operator

Your next question comes from Allision Landry of Credit Suisse. Please, go ahead.

Allison Landry -- Credit Suisse -- Analyst

Good morning. Thanks. I just want to go back to the question on the RTM guide and ask it in a little bit of a different way. If I'm just doing the math to get to call it 4% or 5% for the full year, basically on a sequential basis, second half RTMs need to increase somewhere in the low double-digit range versus the first half. That's a much bigger sequential increase than we've really seen historically. So, maybe putting the tough year over year comps aside, how can we think about the sequential ramp in RTMs in Q3 and Q4 may be based on the commodities that you've talked about earlier in your response to I think Chris asked the question? Potash, grain, crude, etcetera.

Nadeem Velani -- Executive Vice President and Chief Financial Officer

I mean, Allison, we're up 2.7% year to date already. I don't think we need double digits to get to mid-single digits.

Allison Landry -- Credit Suisse -- Analyst

Sequentially, I meant. Not year over year.

Nadeem Velani -- Executive Vice President and Chief Financial Officer

Sequentially, right. The tough comps on the back half, I'd point to John's comments on the strength in bulk areas like potash. You're going to see a ramp-up in crude which is going to support a strong sequential RTM growth.

Keith Creel -- President and Chief Executive Officer

You're going to see a pickup in Teck coal. The coal itself month to date we're talking about some of the softest we've seen. The growth that we experienced in the second quarter, Allison, was in spite of actually shipping less coal due to some supply chain challenges. It's not a demand issue. It's just working out some noise that is in the supply chain which is working itself out. We're realizing in the third quarter we have shipped month to date more than we did last year. All of those things, with the 3.5% year to date number, the second half sequentially you can be a little bit north of the single-digit and you're going to come to the math that we're coming to. It's not hard to get there.

Allison Landry -- Credit Suisse -- Analyst

All right. It sounds like you guys are pretty confident there. Keith, in your prepared remarks you talked about basically hitting a record for workload in terms of GTMs on the network. Where do you think you are from a capacity or resource standpoint? Obviously, they have a really strong incremental in Q2. It seems like the network is in great shape but if volumes and workload growth persist, at what point might you need to layer back in some resources specifically on the headcount side? Thank you.

Keith Creel -- President and Chief Executive Officer

We're not capacity constrained. We're capacity contained. We're trying to be in like stealth as locomotives. We said that all along. We've got more than adequate train capacity, terminal capacity. We made some strategic investments in Calgary that we'll realize this year and through the fourth quarter. We just converted what was an old hump yard into a very productive switching yard and we didn't finish that until the first week of January. We haven't even realized the benefit of that in the fourth quarter. But again, locomotives. That's it. We're training, we're hiring in lockstep with our demand to make sure that we've got the running trained employees ready to pull and operate the locomotives. We're bringing the locomotives online as we remanufacture them in lockstep with the demand as well.

So, the game is not to be long on assets. We've got the right parts moving in the pipeline to be just on spot with assets. When it comes to track and terminals, we're not there at all. In fact, our capacity, our flexibility, our ability to handle surges is drastically improved. We've got more capacity than we've ever had in partnership with GCT at Deltaport. Our South Shore is working extremely well. We're hitting records with our grain partners there creating capacity. We're talking about record volumes. We put more stress on this network than has ever been put on this network in its 138-year history. Year over year, we increased train speed by 5%. That just tells you there is resiliency in this network and if you're an investor, you don't need to get worried about this company getting into a trap or playing a catch-up capital game or overcommitting. It's a surgical execution of a strategic plan we developed two years ago in lockstep and partnership with our customers and protecting our customer service. Protecting our investor's trust and our employee's trust. That's what we are doing day in and day out and that's why we have so much conviction and confidence in our guidance.

Allison Landry -- Credit Suisse -- Analyst

Great. Thank you, guys.

Keith Creel -- President and Chief Executive Officer

Thank you.

Operator

And your next question comes from Ken Hoexter of Bank of America Merrill Lynch. Please, go ahead.

Ken Hoexter -- Bank of America Merrill Lynch -- Managing Director

Hey. Great. Good morning and congrats on a solid quarter, Keith, and team. Just the employees, how do you think about the trends as you grow, and you readd cost? Should it stay low mid-single digits with volumes and your thoughts on the impact to the OR with the employee base?

 Keith Creel -- President and Chief Executive Officer

Employee-base like this year mid-single-digit RTM is 1% to 2% headcount. We're up a little bit right now with capital working its feet. That will come down sequentially and we'll be that 1% to 2% on a mid-single-digit RTM. That's the best way to gauge it.

Nadeem Velani -- Executive Vice President and Chief Financial Officer

We were kind of pre-hiring and getting our people up in anticipation of the crude contract we have with the government that started here in July. So, we kind of pre-hired for that. That was already in the cost base as we speak.

Ken Hoexter -- Bank of America Merrill Lynch -- Managing Director

So, you're ahead on employees because of that?

Nadeem Velani -- Executive Vice President and Chief Financial Officer

Yes.

Ken Hoexter -- Bank of America Merrill Lynch -- Managing Director

My second one is on the crude by rail, just given what you were just highlighting, Nadeem, on that Alberta's commitment and the shift of that potential. I know that wasn't in your commitment for volumes but maybe talk about what you expect to be the outcome or what you are seeing so far with negotiations and where do you see crude by rail volumes trending going forward?

John Brooks -- Executive Vice President and Chief Marketing Officer

Yeah. You know what? I'm pleased with the progression of those discussions with the Alberta government. We are seeing a good expression of interest from a number of shippers in terms of commercializing if that's the right term, that capacity. There are efforts under way with major producers and the government to try to find a workable solution. You've probably read about it, I'm sure, around the production levels matching curtailment. If they can prove that that's going into a rail car, they would get that sort of equal relief. Those discussions are ongoing. My guess is it is probably at least another couple of months more of a Q4 story in terms of resolution and getting ramped up. All that being said, we did about 25,000 carloads in Q2. I can see that jumping up to 30,000 carloads with the potential for upside as we look at Q3. We've got a fairly steady ramp up of sets coming online as we move forward here.

Keith Creel -- President and Chief Executive Officer

Yeah, I think the only thing I would add, Ken, is this is a space we're realists. It's been volatile. It's been unpredictable. I would agree with John. I'm cautiously optimistic and I see the parts moving in a favorable direction for a favorable resolution. I mean, the fundamentals are that we've got a more oil being produced than pipeline capacity to take it away and there is a demand for it in the market. We've just got to work through this, and we'll continue to work in lockstep with the government to get this issue resolved. I think you'll see in the fourth quarter the robust demand that is going to be in the marketplace which will represent some upside. If all other things work for us and all the things line up right and mother nature is good to us, then there is a bit of optimism in the fourth quarter. But all those things have to happen. But again, there are more for lining up than against as far as trying to get this resolved in the crude space.

Ken Hoexter -- Bank of America Merrill Lynch -- Managing Director

Great. Thanks for the time, guys.

Operator

Your next question comes from Tom Wadewitz of UBS. Tom, please go ahead.

Tom Wadewitz -- UBS -- Analyst

Yeah. Good morning and congratulations on the strong execution in the quarter. I wanted to ask you if you could give me kind of high-level frame perhaps, John or Keith, on share gains this year? I don't know if share gain is the right term. New business, let's say, and what the revenue contribution is if you kind of put it together for this year. Maybe the high-level and how you think about that in 2020 whether that revenue contribution from new business would be larger or similar or just kind of some high-level frame on new business impact?

John Brooks -- Executive Vice President and Chief Marketing Officer

It's a good indication of, Tom, what you see what we've been able to do in Q2 and our confidence as we look into Q3 and Q4. We've added Dollarama. We've built an auto compound. We've seen significant upside with K+S as they continue to ramp up. Potash, the bulks remain strong. Albeit not new, but I think we are performing well in terms of our share in those spaces as. We've talked and I've talked quite a bit about wanting to further develop and grow our transload business. I can tell you that we have had quite a bit of success as you look at in the eastern markets with refined fuels business growing strong through transload.

Our Hamilton Steel facility has grown double digits in terms of that throughput. You start adding all of those things up. I just looked the other day. We've added about $35 million of annualized new business with our short-line partners so far this year. That's the sort of low-hanging fruit that has been out there for some time. You put a little focus to it and those sort of singles and doubles start adding up.

So, I think those are some of the things that are helping propel us today. As I look into next year, in 2020, of course, you've got the Yang Ming and the further auto opportunities that we've spoken about. Globus hasn't even fully ramped up yet. You've got the G3 terminal opening up next year. We've got a project for refined fuels with Suncorp that we've spoken about publicly that will start up next year. Again, we forget about this business, but K+S has really ramped up well. They expect another big step function of growth as we look into 2020.

If you start putting all of that into a blender and it becomes a pretty compelling story.

Tom Wadewitz -- UBS -- Analyst

Let me ask it a little bit differently. Do you think it's a bigger impact this year in terms of the revenue contribution from new business or bigger impact this year than next year? Is it kind of similar next year? How would you just frame the magnitude?

Keith Creel -- President and Chief Executive Officer

I think it frames the magnitude in mid-single-digit RTM growth and double-digit earnings confidence, Tom. That's probably the best way to summarize.

Tom Wadewitz -- UBS -- Analyst

Okay. Fair enough.

Keith Creel -- President and Chief Executive Officer

Thanks, Tom.

Tom Wadewitz -- UBS -- Analyst

The second one, Keith, could you add a little bit more to your comment on Hyundai in terms of what that means that they are changing, and they are kind of new business for you on the volume side with Hyundai? Or is that primarily efficiency? Maybe just build a little bit more on your comment that you started at the beginning of the call.

Keith Creel -- President and Chief Executive Officer

I think it's both. I think it is growth and volume for Hyundai. I think that it is also efficiencies. I'll say this and explain it. They are served its interim through all of its consolidation of the shipping industry over the last several years where they landed with their partners they weren't benefited. They haven't realized the same cost synergies that some of their competitors have. Although we've hauled all of their business out of Vancouver, the size of the pie has been reduced because they have been at a cost disadvantage. So, move forward to 2020, they sign up with the alliance. They are enjoying industry-best service. They are going to enjoy the industry-best cost. They won't be a disadvantage anymore. We firmly believe that as a result of the cost advantage and the service improvements, they are going to grow in the marketplace.

When their ships get fuller, our trains get fuller. So, it's a quality revenue problem or opportunity for us. At the same time, any time that we can take the complexity out of a precision scheduled railroad, you minimize the moving parts. The remaining parts move faster. The dwell on the dock is going to be lower. The trains are going to discharge larger and on-time more frequently. It allows me to move my assets faster. My crew costs are going to be optimized. My equipment cost is going to be optimized. My velocity is going to be optimized. It creates capacity and it just hits you across every business unit. Incrementally because it is moving in some of our highest density portals. So, it's a positive, positive, positive. I get just as excited operationally.

Not only does it allow us to enjoy the benefit now, but it also allows us to sustain constant improvement as we go forward and as we become better railroaders and as we get better through our investments and through executing operating model day in and day out. It's a win/win not just for intermodal but for CP and all of our business lines that go through Vancouver given it is such a key corridor for this railway.

Tom Wadewitz -- UBS -- Analyst

Great. Thank you.

Keith Creel -- President and Chief Executive Officer

Thank you, Tom.

Operator

Your next question comes from Scott Group of Wolfe Research. Please, go ahead.

Scott Group -- Wolfe Research -- Managing Director

Hey, thank. Good morning, guys.

Keith Creel -- President and Chief Executive Officer

Good morning.

Scott Group -- Wolfe Research -- Managing Director

Nadeem, I wanted to ask a follow up on the guidance. Do you think that we maintain double-digit earnings growth in the third and fourth quarter?

Nadeem Velani -- Executive Vice President and Chief Financial Officer

I didn't hear the last part. In what?

Scott Group -- Wolfe Research -- Managing Director

Do you think that we maintain double-digit earnings growth in the third and fourth quarter? I understand full-year and we don't want to get into the double-digit or strong double digits. I'm just trying to isolate the second half of the year.

Nadeem Velani -- Executive Vice President and Chief Financial Officer

I certainly expect that that's fair representation in Q3. Q4 is maybe a little bit difficult. I'm not going to give you quarterly guidance on EPS. But looking at what Q4 was, it was an all-time record EPS number for the company.

Scott Group -- Wolfe Research -- Managing Director

Okay. That makes sense. Keith, I don't know if I am little early to ask this, but I think the 10-year Tech contract comes up next year. It is the first time this management team has had an opportunity to take a look at that contract. Do you think there are big opportunities either from an operating or pricing or just philosophical opportunities with that contract since it has been 10 years?

Keith Creel -- President and Chief Executive Officer

It comes up in 2021, so you are a little bit early, Scott. Rest assured that it's not something that we're not thinking about. Here's the strategy with this company. It is our objective to become integral to the companies that we partner with, their success. When they do well, we do well. We want to be part of their supply chains. We are part of the reason that Tech is able to enjoy reliability in supply chain and low cost producing and win market share in world markets. We are part of the formula. As long as we continue to play that role, we continue to be good supply chain partners, we originate the coal. We have access to Neptune, access to West Shore. We're going to continue to be a key player, strategic player and create compelling value that is going to be hard to walk away. So, when you talk about huge opportunities, to me the opportunity is to strengthen the partnership and help them grow in the market space.

Quantum leaps in productivity? Listen, we're always going to push to move things better and if we can knock out some of that noise making the supply more a liability and partnership with the terminals at the coast as well as in partnership with the terminals that load the coal and we do our part in the middle, then yes. There are opportunities. But as far as quantum leaps, no. As far as improving and protecting that revenue stream and helping them succeed in the world marketplace, I think we are very confident in our ability to be able to do that. And that's what gives us confidence at the negotiating table. We're just going to make sense. You make sense and you're part of what helps the company succeed in the marketplace, it's hard to walk away from that.

Scott Group -- Wolfe Research -- Managing Director

Okay. Great. Thanks for the time, guys.

Keith Creel -- President and Chief Executive Officer

Thanks.

Operator

Your next question comes from Brian Ossenbeck with JP Morgan. Please, go ahead.

Brian Ossenbeck -- JP Morgan -- Analyst

Hey. Good morning. Thank for taking my question. John, I just wanted to come back to your comment on the mix. Clearly, it has been strong this quarter, a couple of points as you mentioned. Can you just elaborate a little bit on what was driving that? It sounded like crude was a significant source but also maybe a mix of new business. If you can elaborate on what to expect to maintain that sort of clip in the back half of the year and how much of that is relying on a continued ramp-up in crude?

John Brooks -- Executive Vice President and Chief Marketing Officer

We definitely saw less long-haul crude Kansas City, more shorter haul over some of our western gateways and noise that had a material impact. Some of the new business in the crude by rail space that we brought on has also come on, as I mentioned, at very strong pricing levels. Though, I look at it like this, Brian. As I look at Q3 and Q4, I think that moderates. I'm not sure we see that mix tailwind as we had in Q2 and some of this other longer-haul crude ramps back up.

Brian Ossenbeck -- JP Morgan -- Analyst

Okay. So, crude is the biggest source?

John Brooks -- Executive Vice President and Chief Marketing Officer

It is. Yeah.

Brian Ossenbeck -- JP Morgan -- Analyst

Okay. Just another question for you, John, on the Canadian ELD mandates now effective June 2021, a little bit later than expected. I think you have typically referred to that as sort an upside outside of the guidance. Now it's been delayed a bit even past the 2020 outlook. Do you think actually having that in place will create any sort of shift as people start to get ready for that assessment and what that actually means for the business now that we actually have something approved and solidified? Or is it still too early to think about any impact from that? Thank you.

John Brooks -- Executive Vice President and Chief Marketing Officer

I think having certainty in the marketplace now is good. We expect it to be somewhat of a capacity sort of crunch driver when it is applied. Now that we know sort of a locked-in date, we can have those frank discussions when we get into the renewals and what our pricing looks like between now and then with the expectation that when ELDs do come about how that is going to change and impact the marketplace. So, all in all, I think putting a line in the sand now and having clarity, actually, that's sort of helping us out.

Brian Ossenbeck -- JP Morgan -- Analyst

Okay. Thanks very much.

John Brooks -- Executive Vice President and Chief Marketing Officer

All right.

Operator

Your next question comes from Seldon Clarke of Deutsche Bank. Please, go ahead.

Seldon Clarke -- Deutsche Bank -- Analyst

Hey, guys. Thanks for the question. Just getting back to the outlook for margins in the back half of this year. You call out an incremental margin of 90% in the quarter which is well above your longer-term.

Unidentified Speaker

Woah!

Seldon Clarke -- Deutsche Bank -- Analyst

What?

Keith Creel -- President and Chief Executive Officer

That wasn't us.

Seldon Clarke -- Deutsche Bank -- Analyst

Oh, I'm sorry.

Keith Creel -- President and Chief Executive Officer

Restate that if you can. You got walked on a little bit somehow.

Seldon Clarke -- Deutsche Bank -- Analyst

I apologize. I just wanted to ask about the outlook for margins in the back half of the year in a little bit different way. You called out incremental of 90% in the quarter which is obviously well above your longer-term range of 65%. You talked about pre-hiring employees, and you had some tailwind and mix in the quarter. So, just kind of given all of those moving pieces, how should we think about your core incremental margins in the back half of the year?

Nadeem Velani -- Executive Vice President and Chief Financial Officer

When we guided the incremental margins, we talked about that 70% to 75% level. We're comfortable with that. Quarter to quarter, could it change? Could it be a little bit lower or a little bit higher? Yes. It is somewhat dependent on the mix of business as well and just how things are operating. So, I think on the whole we are still confident with that 70% to 75% level.

Seldon Clarke -- Deutsche Bank -- Analyst

Okay. Even with some of the headwinds from the pre-hiring in the second quarter you still expect that to kind of step down. There were enough positives to get that up to 90%?

Nadeem Velani -- Executive Vice President and Chief Financial Officer

Yeah. If you take out the pre-hiring, it would be closer to 100%. So, that pre-hiring was done in Q2. That was in the numbers that we just reported, right?

Seldon Clarke -- Deutsche Bank -- Analyst

Right. That's kind of why I was asking why it would step back down again.

Nadeem Velani-Executive Vice President and Chief Financial Officer

Again, it depends on the quarter to quarter there are other costs and other things that vary between quarter to quarter. Right? So, if you hit 100 one quarter, it doesn't mean it's going to be sustainable forever. So, that's why we guide on a full-year basis, not quarterly.

Seldon Clarke -- Deutsche Bank -- Analyst

Got it. Kind of a longer-term question on OR. Given everything that is going on in the industry as with the PSR, it feels like the theoretical floor that manager teams are willing to put out there is kind of the high 50s for OR. But given what guys have done the last several quarters and incremental margins at 90% range and your core incremental margin at 70% to 75%. What do you think the ultimate floor is for rail ORs over the next several years?

Keith Creel -- President and Chief Executive Officer

I'll say this. I'm going to speak to what I've got a good line of sight to and what I know. Obviously, I can't control it all and some things get a little bit short or actually overachieve. I see the ability annually to improve with our business makes and the growth that we're going to bring online with the chair and with partnerships, organic and inorganic growth. A point a year for the next two to three years. I see this going annually from sub-60s or the possible mid-50s.

Seldon Clarke -- Deutsche Bank -- Analyst

Okay. That's really helpful. I appreciate the time.

Keith Creel -- President and Chief Executive Officer

Thank you.

Operator

Your next question comes from Benoit Poirier from Desjardins Capital. Please, go ahead.

Benoit Poirier -- Desjardins Capital -- Analyst

Yes. Thank you very much and congratulations on the good quarter. John, just in terms of forest product. Obviously, it is a very good performance when we look at the revenues up 8%. It seemed a very big discrepancy versus the industry. Could you maybe talk about what are the key drivers here in terms of forest product and what you see for the second half?

John Brooks -- Executive Vice President and Chief Marketing Officer

Yeah. You know what, we've actually seen quite a bit of success in two areas. One is our pulp business has been quite strong. So that's sort of a derivative of our growth in our international business that has allowed us to grow the pulp business for export back out of Canada. So, we've seen good success in that space, and then our team has been focused really on asset utilization of our center beam fleet. So, the lumber market has no doubt been challenged. But I think we've targeted into the marketplaces that we do see sustainable business. And then really focus on asset utilization with our partners into those marketplaces. There is no doubt, as I look into Q3 and Q4, there's going to be some headwinds in that space certainly as we got the sawmill curtailment that is somewhat ongoing in B.C. The good thing is that has less impact on us and frankly because a big part of our network in the West, is origin transload, we've actually got a bit of insulation from some of that impact. So, I do expect that Q3 and Q4 in the forest product space will certainly be more challenged in the lumber space. But we are certainly going to try to sustain it as we look at into our pulp business.

Benoit Poirier -- Desjardins Capital -- Analyst

Okay. That's great color. And maybe a high-level question for Keith. When we look at the strength of the Canadian dollar, obviously, right now it's 130. Still in line with the guidance and your assumption for the year. So, no material impact on the bottom line but does it influence the way some of your customers think about their business strategy? And is there a certain level where the Canadian companies could become, let's say, having more difficulty or more competitive issues, Keith?

Keith Creel -- President and Chief Executive Officer

It's the same fundamental that exists. A lower Canadian dollar generally is going to favor the Canadian producer because it gives them a little bit advantage in reaching the marketplace on exports. As long as that is there, I don't see a whole lot of change. If the Canadian dollar were to get remarkably stronger then could you see any impact? Maybe. But I just don't see that as a possibility or probability in the immediate future.

Benoit Poirier -- Desjardins Capital -- Analyst

Perfect. That's great color. Thanks for the time.

Keith Creel -- President and Chief Executive Officer

Thank you, Benoit. Take care.

Operator

Your next question comes from Ravi Shanker of Morgan Stanley. Please, go ahead.

Ravi Shanker -- Morgan Stanley -- Analyst

Thanks. Good morning, everyone. I know there is a lot of focus on crude by rail in the near-term, but if I were to ask a longer-term question terms of the conversation you have with your customers and the constant delays you're seeing in new pipeline projects. Is this still viewed as a three-year opportunity or are you having constructive conversations for longer-term contracts and seeing those volumes extend beyond that initial window?

Keith Creel -- President and Chief Executive Officer

Well, I'll let John add color if he'd like to, Ravi. But discussions when this all started that would have been two to three years is based on pipelines that those expectations have been far missed. There's so much uncertainty with the pipelines. A three to four to five-year discussion is possible. So, I think it extends the tail a bit. I still believe the pipelines will be built. There's too much of a critical need. There's just a lot of noise and a lot of hoops and obstacles to get through but they will come. So, there's a bit of a tail to our two to three when we started this thing, but it's not going to be a forever tail, which I continue to remind John and the commercial team. We're making 30, 40-year asset decisions at this company. Certainly not that kind of tail. And we're not going to overextend our capital, overextend our company based on a four or five-year opportunity on a 30 year or 40-year decision.

John Brooks -- Executive Vice President and Chief Marketing Officer

Ravi. Keith is bang on. Our discussion is just frankly with the producers. These contract lengths are lining up in a three to five-year range.

Ravi Shanker -- Morgan Stanley -- Analyst

Got it. When you kind of mention that long-term outlook, I think your peer may be looking at some growth opportunities beyond just the coal railroad business for acquisitions and such. Can you give us an update on what your M&A pipeline or non-rail growth pipeline looks like and if there's any potential activity there?

Keith Creel -- President and Chief Executive Officer

The shortest update is, given our opportunities, our own unique story at CP, we're not interested in pursuing a strategy to buy trucking companies. We're railroaders. We're going to continue to play to our core strength. Does that mean we won't look at partnerships? Does that mean that we won't take strategic steps to make sure that our customers have a level playing field and continue to win market share based on the strength of our service? We'll do that, but as far as buying trucking companies. We're not in the market.

Ravi Shanker -- Morgan Stanley -- Analyst

Understood. Thank you.

Keith Creel -- President and Chief Executive Officer

Thank you, Ravi.

Operator

And we have no further questions at this time. So, I will turn the call back over to Mr. Keith Creel for closing remarks.

Keith Creel -- President and Chief Executive Officer

Okay. Well, to wrap this up, I want to thank everyone for their time this morning, for your interest. And for our shareholders, thank you for your trust and your vote of confidence. We've had a phenomenal quarter. It's behind us now. It's in the past. We're looking forward. We are focused on our convictions to make sure that we continue to meet or exceed our customers' expectations in the second half of this year as well as our shareholders. So, with that being said, we look forward to sharing our third-quarter results later in the year. Thank you.

Operator

And this does conclude today's conference call. You may now disconnect.

Duration: 71 minutes

Call participants:

Maeghan Albiston --Investor Relations

Keith Creel -- President and Chief Executive Officer

Nadeem Velani --Executive Vice President and Chief Financial Officer

John Brooks --Executive Vice President and Chief Marketing Officer

Chris Wetherbee -- Citi -- Analyst

Walter Spracklin -- RBC Capital Markets -- Analyst

Fadi Chamoun -- BMO -- Analyst

Allison Landry -- Credit Suisse -- Analyst

Ken Hoexter -- Bank of America Merrill Lynch -- Managing Director

Tom Wadewitz -- UBS -- Analyst

Scott Group -- Wolfe Research -- Managing Director

Brian Ossenbeck -- JP Morgan -- Analyst

Seldon Clarke -- Deutsche Bank -- Analyst

Benoit Poirier -- Desjardins Capital -- Analyst

Ravi Shanker -- Morgan Stanley -- Analyst

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