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Canadian Pacific Railway Ltd (NYSE:CP)
Q3 2019 Earnings Call
Oct 23, 2019, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, my name is Emily, and I will be your conference operator today. At this time, I would like to welcome everyone to Canadian Pacific's Third Quarter 2019 Conference Call. The slides accompanying today's call are available at www.cpr.ca. [Operator Instructions]

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

Maeghan Albiston -- Assistant Vice President, Investor Relations & Pensions

Thank you, Emily. Good afternoon, everyone and thank you for joining us today. Before we begin, I want to remind you that this presentation contains forward-looking information and that 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 that's filed with Canadian and U.S. regulators. This presentation also contains non-GAAP measures outlined on slide 3. A reconciliation of all non-GAAP measures can be found in today's press release available on our website at investor.cpr.ca.

With me here today is Keith Creel, our President and CEO; Nadeem Velani, Executive Vice President and Chief Financial Officer; and John Brooks, Executive Vice President and Chief Marketing Officer. The formal remarks 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, Canadian Pacific

Thanks, Maeghan. Good afternoon, and thank you all for joining us today. Once again, I'm honored to be here with my colleagues in Calgary representing this impressive results over 13,000 strong family of railroaders executing our proven PSR operating model, which continues to enable our success delivered for both our customers and our shareholders in good economic times as well as more challenging times. Through our collective efforts this quarter we delivered record third quarter revenues of CAD2 billion, while producing an all-time CP record low operating ratio of 56.1% and 12% adjusted EPS growth.

As we're all aware. In spite of our environment experiencing pretty unique challenges in the back half of the quarter, in the industry as well as at CP, and in spite of those macro headwinds, today's strong results are undeniable proof points of this team's skill and ability to maintain constructive tension in our day-to-day operating, managing costs, adapting to resources real-time, which are all foundational in a true PSR culture It's an operating model that continues to allow us to manage the peaks in the loads of all business and economic cycles, more specifically, I'd be remiss not to command a tip my hat to the outstanding operating performance, the team produced the demonstrates essentially there were always is and will always be further efficiency opportunities to be mined at CP demonstrated other performance revenue year over improvements across the board at 5%.

Network train speed 16% improvement in terminal dwell across the network, which is a third quarter all-time bested CP, 15% improvement in car miles per day, 7% improvement in the locomotive productivity again all time best levels reach metric at CP. At the same time producing Trip plan compliance at 90% the quarter for our customers.

Most importantly, a strong safety performance on the safety front. Train Accidents stand 30% year-over-year in the quarter personal injuries, down 5% and I can tell you, reducing personal injuries is an area of intense focus care and concern within CP we're committed to every employed going home safe every day. We've got a lot of work left to do on this journey, but at the same time, I'm proud to data to publicly recognize pockets of excellence. We have at CP like the Toronto locomotive shop we celebrating three injury -- three years of injury free work performance today. This kind of performance takes bold leadership and partnership across the collective team with the company officers like Locomotive Superintendent Brian, [Indecipherable] Toronto, Health and Safety Rep, James Dawson, mechanic Christopher purchase all there in Toronto, working with all the great men and women in their work group.

Locations of safety excellence like this demonstrates that the Toronto diesel shop illustrates a true safety culture in my mind, which is a key word. To some culture, may be just a word or an aspiration at CP our culture of accountability execution and the importance of construct attention in all we do is our true success enabler. I'd also like to point out this quarter we announced the retirement of Robert Johnson and Tony Marquis their contributions over the last number of years have been instrumental in CP's transformational journey for Ministry laggard industry leader, which included while they were here cultivating and partnership with myself and others developing a strong bench of operating leaders for now and in the future.

This focus in the work allowed a seamless transition in the space on September 1 Mark Redd, who many of you have had a chance to meet was appointed our EVP of operations. Reporting to marker two seasoned and talented operating leaders which are sees with not just sustaining what they've inherited but further improving, the work that's been done before them. Tracy Miller our Senior Vice President runs the Eastern region and Greg Squires Vice President runs the Western Region. At the end of the day, our true ability to create and most importantly sustained success at CP or for that matter, in my mind at any great company comes down to people, which is why developing the people could cultivating a deep bench of railroader leaders across the Company to all departments continues to be my personal and our teams are going focus and priority.

So with that, I'll keep my comments short. I'll hand it over to John to provide some color on the markets and then turn it over to Nadeem to elaborate more on the numbers.

John Brooks -- Chief Marketing Officer and Executive Vice President

All right, thank you, Keith and good afternoon everyone. So, total revenues were up 4% this quarter to CAD2 billion. RTMs were down 1%, FX was flat while fuel was negative 1%. And as expected, our pricing we ended in the targeted 3% to 4% range, while mix was positive. Despite our book of business, and frankly, particularly our bulk franchise facing some unanticipated headwinds in the quarter. The CP team is closely aligned as we continue to deliver industry-leading growth built on the strength of our service product in the execution of our surgical growth strategies. We view these bulk headwinds largely as episodic looking ahead, the fundamentals for grain and potash and coal look good.

Grain volumes were down 1%, while revenues were up 6%. Wet weather delayed the Canadian grain harvest significantly in the quarter with weekly volumes averaging about a 1,000 cars per week less compared to our prior years. More recently, these big volumes have begun to pick up and we are confident any volumes that did not move this fall, will move in 2020. Currently, in Canada, the latest stats show were about 70% harvested versus our three-year average closer to 85%. The crop size will look similar to last year and we continue to watch closely the impacts of quality resulting from this late harvest. In the U.S., although recent weather events have also taken their toll in the upper Midwest and have slowed shipping in that territory. We've seen an increase, most recently in our export soybean program as more positive news the emerges around U.S. trade settlements and talks with China. On the potash front, volumes were down 15% and revenue decreased 10%. After all time record volumes over the past year, the ongoing delay with international contract resolutions have weight heavy on our export volumes. It is our understanding that ongoing discussions between the parties remain very constructive. So while we believe will continue to face some near-term uncertainty into Q4, the macro demand for potash remained stable for 2020 and as we look beyond

On the coal front, revenues were up 7%, while volumes were essentially flat. Canadian coal volumes were down slightly with some supply chain challenges however, this was offset by increased volumes of our U.S. coal into our Midwest power plants as they rebuild their inventories. On the merchandise front, revenues and forest products were up 3% and volumes were up 1%. We continue to drive success in this space through strong service, asset utilization and utilizing our network of transload to create optionality for our customers.

With our unique terminal capacity in land available for low cost expansion our transload strategy is extremely powerful tool and extending our reach. Similar to the recent developments we've made in this space in Vancouver and Toronto, I'm excited about new development opportunities to further create multi-commodity transload at CP terminals across Canada and the U.S. In the MMC space revenues declined 4% volumes declined 2% largely driven by lower shipments of steel scrap steel and frac sand.

Partially these were offset by growth with our short-line partners. In the steel market we have seen reduced volumes to inform our steel mills resulting from lower market prices, high finished product inventories in the need for less inbound scrap. Frac sand shipments into the Permian Basin continue to decline as a result of increased use of in basin sand. As an offset the team continues to work hard on the development of new destinations to help grow our share in the market such as the Bakken, Marcellus and into Canada.

I also note that we have our annual short line conference coming up here next week and I'm extremely pleased with the growth initiatives we've been delivering with these key partners. In the energy, chemical and plastics portfolio revenues were up 12%. Despite sequential growth in crude by rail volumes to over 28,000 carloads in the quarter. Crude by rail shipments fell short of our expectations and our contractual commitments. As a result of these shortfalls total freight revenue did benefit by approximately 1% from liquidated damages.

I should also note, we are increasingly optimistic that the Alberta Government will come to a resolution on the transfer of our crude contract and we are supportive of the new mechanisms that allowed crude production to move via rail to count as an offset against the curtailment. In anticipation of this, we've seen the spread begin to widen and we are seeing growing interest with our shippers and expect volumes to increase sequentially into Q4.

And then, automotive, despite a weak North American demand environment revenues were up 1% and volumes grew 2%. We continue to see success-driven by CPs unique inland terminal capacity across our network. This is highlighted not only by our growth at our Vancouver Auto compound which is a gift that keeps on giving. And also the new opportunities in Southern Ontario in the upper Midwest. And finally, on the intermodal side of the business. Overall revenues were flat, we saw strength in the international with volumes up 9% and then domestic the results were mixed with strength in the retail space and record volumes of our refrigerated products being moved being offset by softness in the wholesale market.

So let me close my remarks by saying a couple of things, in certainly the softer a more challenging demand environment that's pressures grow for growth and cost savings there can be a tenancy for some to try to really commoditize the service we provide. We're not going to fall in that trap. I want to say, rest assured that the volumes we're bringing on to this railroad or at a price that reflect the value of our service. As we've said in the past, we're not going to grow this railroad for growth sake.

As I look ahead, we have a strong pipeline of unique opportunities to bring incremental volumes to this railroad. The sales and marketing team is collaborating closely with our operating team to ensure we are right sized for any business environment and we are selling to the benefits of our available capacity and our service advantages. I'm proud of the results as team delivered, and we have a high confidence level in our strategy to deliver sustainable profitable growth.

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

Nadeem Velani -- Executive Vice President and Chief Financial Officer

Thanks, John, and good afternoon. I'm proud to announce the Q3 operating ratio, decrease of 220 basis points when all time record and industry leading OR of 56.1%. At record overall number is the outcome of running the business the right way. Highly [Phonetic] managing resources and adapting the changing volume environments proactively structuring contracts that protect CP in the costs we incur to have resources in place. The disciplined approach we take the pricing irrespective of the demand environment and having the best team in the industry.

We continue to drive margin improvement. The railroad is running extremely well, which is a reflection of the strength of our model, the talent of our operating team and just how embedded in our G&A precision scheduled railroading is at CP. Taking a closer look at the -- at a few items on the expense side. As usual, I'll be speaking to the results on it on an exchange adjusted basis. Comp and benefits expense was down 3% or CAD11 million versus last year. The primary driver of the decrease was lower stock-based comp of CAD13 [Phonetic] million resulting from a lower share price. Our workforce is down 2% sequentially as we continue to adapt to changing volume environment. At the end of 2019, expense I expect our end of your workforce to be down versus Q4, 2018. Fuel expense decreased CAD19 million or 8% primarily as a result of lower fuel prices.

Although slightly worse year-over-year. This was our second best all time quarter from a fuel efficiency perspective. Materials expense was up 6% or CAD3 million primarily as a result of increased locomotive maintenance, some of which was one-time as well as some in-sourcing work. Equipment rent expense was flat year-over-year with increased automotive and inter-volume -- and intermodal volumes, you would expect this line item to increase. However, as we actively managed our car fleet through the quarter the Associated operational efficiency savings fully offset the cost of increased volumes.

Depreciation expense was CAD185 million, an increase of 6% as a result of the higher asset base. Purchase services was CAD277 million, an increase of CAD13 million or 5%. This asset line item is less volume variable than others. Increase in the quarter is largely driven by higher support cost and higher property taxes. As we head into Q4, we expect this line item to be flat to modestly down on a sequential basis as we do not anticipate any material land sales through the remainder of the year.

As a reminder as you update your models last year's fourth quarter number was quite noisy is we had a number of moving pieces including a sizable land sale that was primarily offset by a one-time contingent claim. Moving below the line interest expense decreased CAD2 million as a result of lower effective interest rate also income tax expense increased CAD12 million or 6%. As announced earlier in the quarter, we now expect our effective tax rates come in closer to 25.5%. Other expense, after adjusting for the U.S. debt translation gains and losses was a headwind of CAD13 million, primarily driven by higher equity income in 2018.

Rounding out the income statement, adjusted income increased by 9% and adjusted EPS grew 12%. Taking a look at the free cash on the next slide. As a result of our disciplined we continue to generate strong free cash flow year-to-date cash from operations increased 10% and free cash flow increased 11% in spite of increased capital spend. More capex, capex is elevated slightly compared to the same point last year we remain on target to reach our guidance of CAD1.6 billion.

Our disciplined approach to capital investment and the strong returns we are generating are evidenced by an adjusted ROIC of 16.6%, on a trailing 12 month basis. On the shareholder return front, adjusted income [Phonetic] completed the 4%, share buyback program that we launched last October, nearly 5.7 million shares, we repurchased returning more than CAD1.6 billion to shareholders. Our leverage came in at 2.4 times toward the upper end of our target range of 2 times to 2.5 times. We plan to take a brief pause on the buyback to allow for some natural delevering before revisiting the share repurchase program in December, you can expect continued strong shareholder returns. Precision scheduled railroading works throughout the cycle in this quarter's results are a testament to that. I remain confident in our full year EPS guidance double-digit growth. This will mark the third consecutive year of double-digit earnings growth. And looking forward as we move through the fourth quarter and into 2020, I remain confident in our pipeline of growth opportunities. The team's ability to execute and ultimately deliver for our customers and shareholders.

With that, I'll turn the call back over to Keith.

Keith Creel -- President and Chief Executive Officer, Canadian Pacific

Okay, thanks. Thanks for your color and your comments Nadeem and John. Certainly reflecting on the quarter and looking to the future, there's plenty to be proud of here to do in these results in the future remains bright for us at CP. We're confident in our ability to deliver double-digit earnings growth for the years Nadeem highlighted 2019 will mark our third year consecutive year we've achieved double-digit earnings growth.

We're on track to be the only railroad with positive volume growth in 2019, these outcomes, both of the result of our disciplined approach to sustainable profitable growth are not catch words. The words we live in railroad by day in and day out and we see plenty of runway ahead. We're not going to chase the short-term, we're building this railroad for the long-term. We're going to continue to work with our customers to leverage our network strengths, leverage our service and grow as we head into 2020. And beyond a more confident as we continue to see wins in the marketplace, which will enable us to continue to outpace the economy in our peers and is a shareholder is an investor.

CP, this is unique value story. CP, you've got a company we continued opportunities to outpace the industry and volumes, continued opportunities to improve our margins reward shareholders with a consistent return in enabled by our proven team with a track record of doing exactly that. It certainly compelling value proposition and one it's done easily replicated.

With that, I'll open it up to questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Tom Wadewitz from UBS. Your line is open.

Tom Wadewitz -- UBS -- Analyst

Yeah, good afternoon. Have some questions for you on the market side in pricing as well. You do have some headwinds, I think which are seem to be temporary, I mean, you know I guess if you look at potash and Canadian grain. At the same time, you probably have some idiosyncratic growth drivers come in early next year. How do you think about, how we offset some of the maybe cyclical weakness versus some of those things and how you might look at volumes going into 2020, I mean not looking for guidance, but just you know -- you think it's reasonable to see growth or would you be more cautious than that looking at 2020?

Nadeem Velani -- Executive Vice President and Chief Financial Officer

You know -- I'll let me make a couple of comments, Tom, and I'll let John provide a little bit color. Bottom line upfront your point, I'm not -- we're not prepared to give guidance at this point. But what we see is an optimistic future what we see is, a clear path to growth driven at a macro level borrowed self-help unique initiatives where we things we've talked about things we share, things were not yet prepared to share across all the -- see all the different business units automotive certainly is very compelling continue opportunity in intermodal and the strength of our franchise. To your point if I look at a year-over-year compare even at CP, we had an atrocious first quarter last year.

We had some things occur this Railway that, I hope our retire never my life have to experience again and I hope that for our CP family that had not only a huge emotional profound impact on us, but also an impact our business in actually the amount of freight that we were able to move in our Western Corridor. That aside, unless Mother Nature humble us and brings us to our knees from a compare standpoint is some of those other micro issues, clear up, which we believe they will on grain, as well as potash apples-to-apples, we see an opportunity to move more freight and obviously drive more earnings in and drive more revenue growth.

And on the second half of the year Tom that's became our drivers in the first half that led us to be counter cyclical to the industry has sort of became our headwinds in the second half again if those micro issues disappear and we believe they will that represents upside as well short of things I can't control like a drought or something like that. So long answer to your question, we're very optimistic we see positive RTM growth and obviously revenue growth in strength and ability to drive industry leading earnings again in 2020.

Tom Wadewitz -- UBS -- Analyst

Okay. Yes, that's great. That's really helpful. Maybe the second question just would be in competitive dynamic and how you think about pricing against a more challenging cyclical backdrop competition can heat up a little bit. And I just wanted to see how we should think about price next year and headwind from increased competition. Thank you.

Nadeem Velani -- Executive Vice President and Chief Financial Officer

You should expect more of the same from CP. We're very disciplined when it comes to price. We're not going to allow ourselves to be commoditized from a price standpoint, if you want to put a number on it, we've always said two to four is the range historically down markets closer two market closer to four. Who knows what 2020 is going to be there is so much volatility that has the potential to clear itself up in 2020.

But I can tell you this, there always been competition, we're not afraid of competition. We've got a very unique franchise that has its own very unique strength that's blessed with capacity and the best operating team in the industry and I will take that into any competitive dynamic and provide a value proposition for our customer that price can't replicate. The market sets the rate, we've got one of the best if not the best cost structures in the market. If we want to play and it makes sense for our network we can compete for business. If the market goes to a place our competitive options go to a place, it's not healthy for this railway we've shown and we will show again that we have the discipline. We're not going to get in a race to the bottom. It's not a race if you're not in it. We know where our bottom is, we know what our bottom line is, and again I'll finish where I started, we're not going to allow this railway for this team or the value that we represent in present to all of our customers to be commoditized.

John Brooks -- Chief Marketing Officer and Executive Vice President

Tom I can't add anything more to that. That was pretty good.

Operator

Our next question comes from the line of Fadi Chamoun from BMO Capital Markets. Your line is open.

Fadi Chamoun -- BMO -- Analyst

Okay. Thank you. Maybe, John, quickly, what would you consider to be kind of the right spread for crude by rail for the volume to kind of ramp up sequentially, like you've indicated given the liquidated damages and what that bar you left?

John Brooks -- Chief Marketing Officer and Executive Vice President

Yes. So it's interesting Fadi like right now spreads have moved up into that CAD16, CAD17 range and that's starting to hit the sweet spot. I think it is indicative of -- I think the momentum and I think people feeling more and more comfortable that these contracts are going to get resolved in that they're actually might be a what they're calling a SPA program as an offsetting interest curtailment to move, barrels by a rail. I just -- I'm looking specifically at the our contracts. What we did in Q3 and what we have line of sight to with our customers here for Q4. And I expect that uptick 2000 or 3000 additional load up to that 30,000 level to be realistic. It's been a dynamic that crude space has been a dynamic area, there is no doubt about it, we're not counting on it, but certainly I view more optimism right now then there are not.

Fadi Chamoun -- BMO -- Analyst

Okay. And maybe ask a Tom's question a little differently, like in the past you've had a lot of success obviously, converting traffic to your network from trucking from rail and so on. Now we have a little bit of a softer environment, maybe a little bit more capacity in the market. Is that opportunity diminished versus what you've seen in the last two, three years. It's sound like you feel good about what's ahead of you, if you can just help us understand kind of what the next year or two may look like compared to what has been occurring in the last couple of years?

John Brooks -- Chief Marketing Officer and Executive Vice President

Yes. So, maybe I'd characterize it like this. We've got, given the strength of our bulk franchise that number one Fadi give me -- gives me some comfort. Because at the end of the day again, that green coal potash. I think those fundamentals look strong in each of those, frankly give us a tailwind as I look into 2020 and beyond. Some of the other areas, I think certainly the merchandise and some of the industrial sectors, given some of the challenges in terms of broad base volumes there is some question marks that remain in there certainly frac sand.

As I look forward, but I think the differentiator for us that we've been talking about is the unique inland capacity gives us a sales tool to our customers that no other railroad out there is able to replicate over the road capacity is one thing, but the ability do they have the land to attract the customers to make them sticky is something that you've seen us just begin to sort of leverage with some of our transload that we've developed with our Vancouver compound with some of those unique opportunities that we've talked about, but the potential for that and what that looks like in the 2020 and beyond is what sort of gives us this comfort the automotive sector is an area that, as I think by all our codes is going to continue to face headwinds.

And as -- frankly, I look into 2020 and in 2021, I see us significantly outpacing the industry and our peers in that space. Just because we have the unique ability to create models and mouth droughts out there in the industry that is going to bring us share incremental opportunity in that area and other area that I have talked about and I mentioned here is transload space it's the ability for us to go into these major metropolitan hubs across Canada and in the U.S., we have the land of developable it at a very low cost to be able to attractive multi-commodity customers to our franchise. And a lot of that is singles and doubles and carload business, but that's really high margin strong business for us to add-on to our 7,000 foot manifest trains and build that out of low cost.

Fadi Chamoun -- BMO -- Analyst

Great. Thank you.

Operator

Our next question comes from the line of Chris Wetherbee from Citi. Your line is open.

Chris Wetherbee -- Citi -- Analyst

Hey, great, thanks very much. I wanted to maybe pick back up on that crude by rail comment, I think there is an expectation that you could see some better volumes as you move through 4Q and then certainly in 2020 with the government taking action here. It looks like you're targeting 30,000 in the fourth quarter. What do you think your capacity is? Or what do you think you could get to you on a quarterly basis without a lot of effort as we think about 2020?

John Brooks -- Chief Marketing Officer and Executive Vice President

So, Chris, I'm a little hesitant to call that given all the variability we've had, I look back, we get to the 30,000 run rate level, I look back, that was sort of our peak level during the last crude by rail renaissance. Is there another 5,000 or so, could you get to 35,000 run rate. Yeah, I think, I think there is the bandwidth to do there. Now look, it's not a slam dunk this we still have to get over some hurdles, but in terms of the capacity people the mobile resources to go to that level on a sustained rate, I think that's a pretty good number.

Nadeem Velani -- Executive Vice President and Chief Financial Officer

But I think it's critical to point out that -- that optimism on the upside is not fueling our optimism on our potential for growth in 2020 or even in the fourth quarter.

Chris Wetherbee -- Citi -- Analyst

Okay. So that will be incremental. That's very helpful. Nadeem, you talked a little bit about headcount in 4Q or do you think out to 2020. Can you give us a little bit of sense of where do you think you are obviously the operating ratio performance in 3Q was with very, very strong. Could you give us a sense of how heads play into that when you're thinking about sort of the growth potential of 2020?

Nadeem Velani -- Executive Vice President and Chief Financial Officer

Sure. I mean typically when we've guided in terms of head count will -- we're not going to a one-for-one volumes. So without giving you a sense of volume guide for 2020. I think you talk to some of the positives and our view that we'll see volume growth into, the new year. With that, I'd say, potentially, you're looking at a head count of flat to slightly up, but again, it's a little early to get into that before we get into our full year guidance for 2020. So just rest assured that we'll be able to take on growth, the high-op -- high operating leverage and take on that growth, bring it to the bottom line by adding cars to existing traffic as opposed to adding a huge amount of head count on the non-T&E side.

Chris Wetherbee -- Citi -- Analyst

Okay. Helpful. Thank you very much. Appreciate it.

Nadeem Velani -- Executive Vice President and Chief Financial Officer

Thanks, Chris.

Operator

Our next question comes from the line of Walter Spracklin from RBC Capital Markets. Your line is open.

Walter Spracklin -- RBC Capital Markets -- Analyst

Yeah, thanks very much. Good afternoon, everyone. So first on if we come back to transload, you mentioned some of your inland facilities and credit limit some of the success you've had there selling into forward. Can you update us and I heard in your commentary, it sounds like you're looking at other opportunities for transload. Can you kind of quantify or these Coquitlam type size or bigger how quickly could you see tying in customers in the same way, you did that with Coquitlam in those inland facilities. Just to kind of benchmark the overall revenue opportunity as you roll those out. And again, can you update as to whether you've got the other half a Coquitlam sold as well.

John Brooks -- Chief Marketing Officer and Executive Vice President

So, the other half is sold. So we're quite pleased with how Vancouver has materialized for us again it's been a very strategic property for us not only from an auto perspective. But what I see in terms of future for in transloading not only forest product for export. But other intermodal stuffing opportunities including plastics and grain. I think we're literally if tip the iceberg in terms of the first phase of development of that property. I think in terms of quantum open it. I think that is a sort of a good what we've been able to do there is sort of a good mechanism that you could use across the property.

I can't give all sort of the pinpointed locations and what commodities today, but I can tell you this, if you just look at our footprint in places like Edmonton. If you look at our footprint in places like Montreal, we've got a lot of land available to develop that is ready to go at a low cost. And in those particular areas, I think we see a lot of customers out there that are looking for optionality, they're looking for rail alternatives that are currently trucking today. And I think there's a number of mouse traps that in addition that we can begin to consolidate operations that we have in these regions that gives us not only again customer opportunity but also operating synergies at these locations.

Nadeem Velani -- Executive Vice President and Chief Financial Officer

Walter, I'd say this, we see reasonable lot of side for two to three more of these in '20 and '21 that we're currently working on that, they're not just possibilities or probabilities.

Walter Spracklin -- RBC Capital Markets -- Analyst

So when I look at that as an example, looking at 2020 I'm seeing a lot of kind of new business coming on in tandem with the easy comps, that you are mentioning you mentioned grain and potash, which were tough in the -- in 2019 that could and likely will turn in 2020 Creel, you mentioned as well, Intermodal you got Yang Ming in these transload facilities. Creel you're not giving guidance, but if I add all those up under even a flat environment we're looking at 500 bps in terms of volume growth. Is there something with my math at all else equal, those don't add up to that level? Or is that generally the level that this kind of new business could potentially bring you in 2020?

Keith Creel -- President and Chief Executive Officer, Canadian Pacific

Walter, I think 500 a stretch. I'm going to lay that out to my team and that's our goal to achieve. I think your point is right, so there is a base level, it's I would say more maybe 2%, that 2.5% that gives me comfort in terms of initiatives that we've delivered as we look into 2020, but don't push me any further in the guidance as we look into next year quite yet.

Walter Spracklin -- RBC Capital Markets -- Analyst

Sounds good. Okay. Thank you very much for taking my question.

Keith Creel -- President and Chief Executive Officer, Canadian Pacific

Thank you, Walt.

Operator

Our next question comes from the line of Scott Group from Wolfe Research. Your line is open.

Scott Group -- Wolfe Research -- Analyst

Hey, thanks. Afternoon guys.

Nadeem Velani -- Executive Vice President and Chief Financial Officer

Hi, Scott.

Scott Group -- Wolfe Research -- Analyst

Can you give us just a bit of a more granular look at and how you're thinking about fourth quarter from an RTM overall standpoint. And then maybe specifically, help us on comp per employee that was down in the third?

Keith Creel -- President and Chief Executive Officer, Canadian Pacific

Well, I'll let Nadeem speak to comp for employees. But looking at the fourth quarter, Scott, what I expect and what we see line of sight to is a quarter that sort of the reverse of the third quarter. October obviously is started off soft, we've got a little bit of a hole to climb out of, but we see line of sight to some of those fundamentals, greenshoots of optimism in November and December, be a grain via potash, be at other initiatives that we've got on going that will land us.

I believe at an RTM basis flattish. Is there a potential for a little bit of upside. Yes, a little bit last. Yes. But we think that's a very prudent and probable outcome and from an OR standpoint working, it's a very tough comp last year with that land sale. I would not expect OR improvement, but certainly, I would not expect OR deterioration which bottom line for the year brings us to a place where I see the art of the possible being in and around that 60 or maybe a little better bidding on what stock-based comp does force in the fourth quarter.

Nadeem, you want to provide some color on the productivity number.

Nadeem Velani -- Executive Vice President and Chief Financial Officer

Yes, and Scott, just on comp per employee, obviously, the quarter is the first quarter that our stock price has gone down during the quarter and so that benefited our overall EPS by about CAD0.08, incentive comp year-over-year was down slightly that helped about CAD0.02. So, but overall helped the comp per employee year-over-year.

Scott Group -- Wolfe Research -- Analyst

And Keith, that sort of recovery in November-December, that you see during that specific to you? Or would you expect something broadly like that for the industry?

Keith Creel -- President and Chief Executive Officer, Canadian Pacific

No, I'd say that's micro to CP. Well, obviously we're experiencing some of the same challenges, the industry is experiencing. But what's unique to us again we see sequential growth, we're optimistic we'll get growth on the crude side versus third quarter close out the year. We're optimistic that some of this uncertainty in the potash market, which we are uniquely benefited from will clear up in perhaps India will get resolved and we'll see a bit more movement in November and December then, we currently anticipate with a very bearish view.

Scott Group -- Wolfe Research -- Analyst

All right. That's helpful. Thank you, guys.

Nadeem Velani -- Executive Vice President and Chief Financial Officer

Just, Scott. Scott just obviously being mindful that we do get have winter in our -- into the network, so just mindful that as long as you don't get a very early winter in that November, December time frame.

Scott Group -- Wolfe Research -- Analyst

That makes sense. All right. Thank you guys.

Nadeem Velani -- Executive Vice President and Chief Financial Officer

Thanks, Scott.

Keith Creel -- President and Chief Executive Officer, Canadian Pacific

Thanks, Scott.

Operator

Your next question comes from the line of Brian Ossenbeck from JP Morgan. Your line is open.

Brian Ossenbeck -- JP Morgan -- Analyst

Hey, afternoon and thanks for taking my question. I just wanted to come back to potash because it is a -- it has been a big driver for you and some decent exposure there. In last year, John, you actually we got the -- we got a quick settlement really I guess with the export price. Can you just talk about, it may be risk of this extending a little bit longer? It looks like trying to have some inventories that are pretty high they're dealing with the swine flu. So a lot of moving parts, but it does seem like maybe possibility then it gets pushed a bit into '20, but it sounds like Keith just said that you don't. And they have an expectation that it pops back here. So maybe if you can just put a finer point on that, I'd appreciate it.

Nadeem Velani -- Executive Vice President and Chief Financial Officer

Yeah before John provides the finer point, let me clarify mine. I share your sentiment about China. I have no aspirations or expectations for the reasons that you pointed out, but the China piece will get resolved our optimism is more focused on India.

John Brooks -- Chief Marketing Officer and Executive Vice President

Yes. So, Brian, I mean its potash alone has been about a 2% our team headwind. So you're right, it has been fairly significant for us. We're staying very close to certainly Canpotex and K+S of this develops. I think there is a little optimism out there that at the end of the year contract, if anything will be the first to settle and optimistically, let's call that in the next 30 days. And again I'm, this is more hoping and fingers crossed, but if 30 days that grades of price discovery, I think that overall, we'll give the market that comfort. Now whether or not we can, we can see some of that benefit then ramp up in the December, is we're not banking out to the point, but we think it could be realistic and good that opportunity could be out there it more normalized those volumes. That being said, as we build out our 2020 model, I think the expectations remain pretty strong that the volumes that we've become accustomed to will normalize pretty, pretty quickly. And don't forget, we do have K+S continuing to ramp up that production. So, we're going to see I think a pretty decent jump with them to it's part of this.

Nadeem Velani -- Executive Vice President and Chief Financial Officer

Finally, the first quarter of this year, we could not and we were not in a position to move the demand that was there in the normal market given our unique challenges that we had with our catastrophic derailment.

Brian Ossenbeck -- JP Morgan -- Analyst

Got it. All right. Thanks for all that. Maybe a quicker follow-up on crude and just the liquidated damages. John, I think you mentioned it was about 1% of freight revenue growth, I guess CAD20 million in this quarter. Nadeem, could you give us a sense as to what type of cost that those are going to cover it was just a material mover on the numbers this quarter and it sounds like you're expecting this to come through based on the contract structure in this -- the speed or lack of speed. I guess, transferring from the government, but I just wonder if you could put some more context around that and if you expect this to be kind of a one-and-done event here in 3Q as volumes hopefully ramp-up in 4Q?

John Brooks -- Chief Marketing Officer and Executive Vice President

Well, obviously, Brian, the liquidated damages that the premise to protect you to have the resources in the capacity to service the business, which we did. So whether it's headcounts capital investments, etc that we put toward set aside to move that traffic? Or it's not taking on other business that would consume some of that traffic in that capacity. So, in terms of expense associated with it, there are expenses, there is expenses with people, there's expenses with locomotives with assets and network maintenance and so forth. So I'd characterize it that. I'm not going to give you an operating ratio on that the margin on that business, but safe to say there are expenses associated with it to based on the premise of liquidated damages.

Brian Ossenbeck -- JP Morgan -- Analyst

Okay. Got it. Thanks for your time.

Nadeem Velani -- Executive Vice President and Chief Financial Officer

Thanks, Brian.

Operator

Our next question comes from the line of Benoit Poirier from Desjardins. Your line is open.

Benoit Poirier -- Desjardins -- Analyst

Yes, thank you very much and good afternoon. Could you discuss a little bit about the dynamics between the Western ports and Eastern ports on the back of the trade issues with China? I was wondering if the volume is weaker in Vancouver as opposed to Montreal. And if you could give us an update about the contractual expansion near Montreal whether it represent an opportunity for CP in the medium term? Thank you.

Keith Creel -- President and Chief Executive Officer, Canadian Pacific

I think certainly Ben, what we're seeing in terms of blank sailings and some of the impacts relative to the trade is definitely more, at least as we've seen more of a West Coast issue. Our East Coast volumes have hung in there fairly well in terms of contractual, you know, it's an opportunity that we're staying close to. We also have the critical port relationships with Montreal that we continue to manage. So we're going to stay close to that file it did, we view it presents an opportunity for our Eastern strategy [Indecipherable] assured will be all over it. Frankly, right now, we're maximizing and focusing on what's existing there with our customers and partners that at Montreal.

Benoit Poirier -- Desjardins -- Analyst

Okay. And my second question for Nadeem just in terms of capex. I understand CAD1.6 billion for this year, obviously, there is no guidance for 2020. But if we look at the direction would it be fair to assume kind of a stable capex or if we don't see the volume recovery as expected, would there be a, do you have some flexibility to lower the capex, let's say for 2020, Nadeem ?

Nadeem Velani -- Executive Vice President and Chief Financial Officer

Benoit, so when we had our Analyst Day, a little over a year ago we highlighted kind of capex and that CAD1.6 billion range for a few more years, so at least into 2020. And just a reminder, the bulk of our commitments on the capex side, beyond what we do on the basic maintenance capital of CAD800 million to CAD850 million a year we have a few specific very large investments that we've committed to, so one item is the grain hopper cars, book CAD600 million over the life of that. So about a CAD150 million a year plus we're doing some locomotive modernizations that we've committed to.

So when you put it all together, there is somewhat limited flexibility. So if you were to say to me that volumes are going to be down significantly next year you're could we take capex down to down CAD100 million potentially, we're not of that view, we think as Keith pointed to that we going to have some positive next year. So, I think being around that CAD1.6 billion level into 2020 is a good number to think about for us and what that could mean in terms of free cash flow going forward. Now beyond that timeframe, I'll just point out that we've said that we could see some that capex number drift lower as we start not having to do the hopper cars as those roll off those are pretty significant investments year-over-year as PTC rolls off, you'll start seeing some of that roll off our capex, and we have the potential to see that CAD1.6 billion come down in the outer years 2022 and beyond.

Benoit Poirier -- Desjardins -- Analyst

Okay. That's great color Nadeem. Thank you very much.

Nadeem Velani -- Executive Vice President and Chief Financial Officer

Thanks, Benoit.

Operator

Your next question comes from the line of Brandon Oglenski from Barclays. Your line is open.

Brandon Oglenski -- Barclays Capital -- Analyst

Hey, good afternoon, everyone. Thanks for taking my question. And at the risk of repeating the questions on 2020 growth, but I think it's important, because I think a skeptical investor could look at you guys and say well, your primary competition in Canada went through some capital and capacity constraints last two years now. It seems that they're back. They were talking about some Intermodal contract wins this quarter as well. So I guess when John or Keith, when you to talk about that 2% to 2.5% of incremental growth that you see coming. How much of that is more innovative to what you guys are doing on the footprint of CP with your customers as opposed to just simply a jump ball for freight that comes up every year?

Keith Creel -- President and Chief Executive Officer, Canadian Pacific

I'll let John provide color about the bottom line Brandon, it is all of it.

John Brooks -- Chief Marketing Officer and Executive Vice President

Yeah. Look, I mean I think the bulks again Brandon provide a unique opportunity next year, we saw these headwinds in the delayed harvest that are going to present nice incremental opportunities for the base. In addition to that, and again, without all the details we've got a good chunk of initiative and wins that are banks that are going to come on again mostly mid and Yang Ming early that are going to give us a tailwind in those spaces. And then there is this third chunk of these opportunities that we continue to work that, are they in the bank, but no they are unique to us, though versus just a contract renewal that we're competing on a head-to-head with our competitor.

These are unique opportunities we're targeting specific customers to generate value long not only, I think for next year, but also long-term by using these tools, is that we have with our real estate in our property. I think the other thing to remember is business become to Vancouver, become to Prince Rupert is not a zero-sum game for the Canadian ports. The Canadian ports in the Intermodal space international Intermodal steamship lines are winning share because of both railroads compelling service offering into the Midwest. That's not changing that dynamic is not change. There is a cost advantage in a service advantage that both railroads get to enjoy now is the mix changing a bit. Yes, but at the end of the day again, it's not a zero-sum game and their space for both railroads to do well. That's the bottom line, which represents growth now varying degrees of growth. Yes. But again it's not zero for one and all for other either.

Nadeem Velani -- Executive Vice President and Chief Financial Officer

We've had a tremendous to that point Brandon, we've had a ton of successive here and in our transload development in our Shoreham facility in Minneapolis, that Minneapolis market is unique to CP, it's not directly competitive with our Canadian competitor, it's been a big growth engine, and I expect it to be a continued to be a strong growth engine for us not only in the international space Intermodal space, but also in terms of exports and opportunities in and out of there. And again, that's a, that's an opportunity that we're enjoying that really have nothing to do with our competitor.

Keith Creel -- President and Chief Executive Officer, Canadian Pacific

And we choose that our partners carefully our partners will benefit from the value of our service from the value of our franchise. The capacity we have in our terminals the shorter routes to the markets for Vancouver to Chicago, Vancouver to Toronto, Vancouver to Montreal. At the end of the day they're going to get the best service in the marketplace, which is going to allow them to grow with our customers in their marketplace, which is a win-win for both of us that thesis has not changed. And it will not change regardless of the competitive option that's out there, because our product at the end of the day lower stocked wells, not by what we Dave about what we've done and what they've experienced that they can take it the marketplace with the quickest routes in the most efficient reliable route to the marketplace, it's a very compelling value proposition, which we feel confident and confident will allow them to grow their own unique share on their ships which also where we've been -- we're going to benefit from it.

Brandon Oglenski -- Barclays Capital -- Analyst

I appreciate the thorough answer. It sounds like the constructive tension is working. And Nadeem, on your leverage profile remind us again your target and by a healthy or I guess walking with from a buyback this quarter, does that mean, potentially a different focus on dividend over buyback in the future?

Nadeem Velani -- Executive Vice President and Chief Financial Officer

No, I wouldn't read too much into that. So we are -- our target leverage is 2 times to 2.5 times. We are, it does get impacted by currency given our predominantly US dollar debt and in the Canadian dollar volatility that we've seen the last few years. No, I'd say that's a lot of the cash we generate very back-end loaded, part of the rationale is to align our buyback with kind of the end of the year in terms of our capital allocation, we've been very aggressive in increasing our dividend. Our payout ratio target is closer to the 25% to 30% in a level. So we're going to be balanced going forward in terms of how we look at doing of returning cash to shareholders. I think share repurchases are going to be a big part of it and I think we have a lot of room to grow our dividends as well. So reminder, we typically do that at our AGM in that April-May timeframe. So nothing changed don't read too much into it, it's more of a timing issue and you can expect further updates on the buyback, if we get to the end of the year.

Brandon Oglenski -- Barclays Capital -- Analyst

All right. Thank you.

Nadeem Velani -- Executive Vice President and Chief Financial Officer

Thanks.

Operator

Our next question comes from the line of Allison Landry from Credit Suisse. Your line is open.

Allison Landry -- Credit Suisse -- Analyst

Thanks. Good afternoon. Another one on capital allocation. But maybe from a longer-term strategic standpoint and specifically thinking about some of the tuck-in acquisitions that your main competitor has folded into their network recently to support growth and the Intermodal franchise. How do you think about that and is this something you might consider at any point in the future to increase penetration in the Intermodal market?

Keith Creel -- President and Chief Executive Officer, Canadian Pacific

I guess Allison, what I'd say is it's not something that we're all over today, I think, not that we don't consider it and look at every opportunity that might be certainly accretive to the business, but we're not in the trucking business today, we're focused on the organic and initiatives that we've talked about as being our growth engine and you know what, I think there's other ways to develop some of that expertise. If you look at the innovation that the trucking industry in the first mile, last mile business and wanting to really understand that deeply. There is a lot of good partners out there that be focused on really partnering with strategically to better understand that space to build our expertise going forward without having to spend the capital bond.

Nadeem Velani -- Executive Vice President and Chief Financial Officer

[Speech Overlap] Add some more color to follow on that, that certainly not a space that we're sitting still in.

Allison Landry -- Credit Suisse -- Analyst

Right. Okay. And then I think you mentioned just in terms of the peak season maybe sort of modest expectations in terms of how that's playing out. But any commentary on what you're seeing from an inventory level standpoint or though. Are you seeing indications that, but those are starting to come down or any thoughts you could offer that would be helpful. Thank you.

Nadeem Velani -- Executive Vice President and Chief Financial Officer

Allison, it's a tough freed like consumer spending is frankly quite robust on both sides of the border, unemployment is as we know is low, the markets are performing generally well. So, those retail spaces have been frankly, have held in pretty well for us. I'm not expecting big things in terms of a big or maybe normal peak as we have seen in the past. But certainly, our transload business in the domestic space has picked up over the last few weeks. And I think, we're fairly optimistic that that's going to continue in the fall here.

Operator

Our next question comes from the line of Jordan Alliger from Goldman Sachs. Your line is open.

Jordan Alliger -- Goldman Sachs -- Analyst

Yes, hi. Just -- I just want to make sure, I clarify what you would comment on in terms of operating ratio in the fourth quarter? I just want to make sure I heard right that you expected even with the land sale last year that things should be about flat in the fourth quarter. I think that's what you're referring to, but I wanted to make sure.

Nadeem Velani -- Executive Vice President and Chief Financial Officer

That's correct.

Jordan Alliger -- Goldman Sachs -- Analyst

Okay. And then just a second question, I know you've touched on a lot of the opportunity set, etc, but I'm just wondering on the international intermodal front, given the global trade issues and what have you -- while, I know you have a unique opportunity set. I'm just wondering is -- is the pipeline get impacted at all in terms of opportunities you may be seeing is people sort of hold-off on decisions as to what to do? Thanks.

Keith Creel -- President and Chief Executive Officer, Canadian Pacific

Well, have we seen certainly with the volume pull ahead that took place last fall, create an inventory good across the U.S. and in Canada? Yes, to the point, I was just talking around Allison's question is, I think we've seen that subside a little bit. We're seeing a little bit of a -- of our peak season. But what we're until a lot of these trade resolutions get ultimately resolved, I think, yes, that continues to be cautious area. We do in the West, we have seen some blank sailings continue as volumes have been muted with some of our steamship lines. But it's sort of a watch and see that's one we're keeping close. And frankly there's other areas to attack that can create some unique opportunities in that space outside of just going after and trying to win some additional of that steamline -- steamship line business.

Operator

Our next question comes from the line of Ravi Shanker from Morgan Stanley. Your line is open.

Ravi Shanker -- Morgan Stanley -- Analyst

Thanks to everyone. If I can follow-up, the international intermodal question, some of the U.S. rails are now kind of starting to openly acknowledge that you're seeing share shifts from the U.S. sports to the Canadian ports. And you mentioned kind of Vancouver being a shorter distance Chicago and such. How early innings are we do you think in that share shift? Do you think the bulk of that has happened and we stabilize here? Or do you think more of that volume keeps coming way?

Keith Creel -- President and Chief Executive Officer, Canadian Pacific

Well, yes, I think the Vancouver have benefited in that process. I think overall, the base low is -- is down, so some of that might be muted in terms of the real value of what has shifted between the U.S. ports up to Vancouver. I can tell you, I think, we think it's an ongoing value proposition that we're targeting, whether it'd be into the Minneapolis market or in the Chicago market?

Ravi Shanker -- Morgan Stanley -- Analyst

Okay. Got it. And just a follow-up on crude-by-rail, it's regarding to see you saying that you know we are pretty close to getting the volume is moving, with the exception for crude-by-rail to the curtailments. But are you still looking at crude-by-rail as a two or three-year window of opportunity? Or do you think I know with DRU this becomes more of a longer-term opportunity for you guys?

Keith Creel -- President and Chief Executive Officer, Canadian Pacific

Yes it is, we think it's two to three, our best guess based on the probability of win pipelines might be built. But we think, there is a high degree of probability that a DRU will come to fruition, and again this railroad is uniquely positioned to benefit from that, be it built-in [Indecipherable] which we will uniquely serve or Edmonton, which we would equally serve with destinations that offer franchise strengths with optionality to our customers.

Nadeem Velani -- Executive Vice President and Chief Financial Officer

Yes, I don't -- I don't just to build on Keith's comments like, I don't see any imminent pipeline coming into play that this three year opportunity, three years ago to me it still feels like a two to three year opportunity before we realistically see new pipes.

Operator

Our next question comes from the line of Justin Long from Stephens. Your line is open.

Justin Long -- Stephens -- Analyst

Thanks, and good afternoon. Wanted to follow up on just kind of the cost opportunity going forward. Nadeem, I know you gave kind of an initial head count look for next year may be flattish to slightly up, but as we think about the company's specific opportunity for cost improvements in the business. Is there anything you would highlight into 2020? I know we've talked a lot about kind of volume and revenue opportunities that are cost specific or company specific, just wanted to get your take on the cost side of the equation?

Nadeem Velani -- Executive Vice President and Chief Financial Officer

I mean we'll get into in January a couple of things I would point out. We have a very easy comp in Q1 given a very difficult winter and catastrophic incident that we had, that had a huge amount of casualty costs. So, certainly that's a tailwind to us in Q1. I'd say some of the headwinds could be pension depending on how interest rates that will at the end of the year, but certainly pension could be a bit of a headwind.

Beyond that, certainly, we've shown what we could do in terms of operating leverage when volumes are growing and this quarter, we've shown what we can do from a cost control point of view when volumes are flat to slightly down. So, it is in our DNA to improve our cost that is something that, that we're very focused on. We're going to drive the earnings one way or another. You're not talking about potential when you're talking about CP [Phonetic] you're seeing the real execution of cost take out. And I know my boss has a expectation of what we do as an organization in terms of continuing to take out our costs and doing it's in a constructive way and doing it while not compromising safety or service.

So all that to say, we do have a number of initiatives in place, some of the items we highlighted at our Investor Day a year ago you know as we continue to get the benefits from the new grain cars and what that means to our overall capacity and throughput both on the loading side and on the unloading side the density of our grain trains. What we're doing on the locomotive modernization side and what that means to overall fuel efficiency, what that means to the liability the overall network fluidity.

So, we do have other productivity initiatives that we have direct capital investment tied to, some of the things that we're doing on the technology side that we've put in place, whether that's RPA Robotic Process Automation that's helped drive our head count down that will continue to see opportunities on that side. So, I mean, we could go on for at length with other initiatives suffice to say, we've taken ROR down to industry best this quarter and we expect to that to continue.

Justin Long -- Stephens -- Analyst

Great. That's helpful. And Nadeem maybe to just follow up on pension if rates stay in line with where they are today through the end of the year, any initial take on what that pension headwind could look like in 2020?

Nadeem Velani -- Executive Vice President and Chief Financial Officer

There's two elements to it. There is -- those are our service costs, our current service cost that's above the line, and then there's the recovery that we've seen in the below the line that we've benefited from. It's a little early to say, I don't want to give you numbers based on something that's three months away from setting in stone. So, let me just say, Justin, let's stay tuned to January, shipped a bit of full there and to set up an expense assumption based on something in October when there such volatility in overall treasuries right now.

Maeghan Albiston -- Assistant Vice President, Investor Relations & Pensions

Justin, just building on that to give you a sense, we've seen the discount rate bounce around by 20 basis points even in the last week. So really is a volatile environment out there. But happy to help you model that a couple different scenarios offline after the call if you like.

Operator

Our last question comes from the line of Ken Hoexter from Bank of America Merrill Lynch. Your line is open.

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

Hey, great job on the double-digit growth. But John and team, maybe just to follow on Justin's first question there. Maybe your thoughts on shifting resources. What are you doing now in terms of employees and the like? I know, Chris asked about employee specifically but cost overall as you look at volume volumes in a flat environment. Are you now looking to take more cost out? Or given your growth into next year, are you adding resources?

Keith Creel -- President and Chief Executive Officer, Canadian Pacific

Let me, take that, Nadeem, I'll let you add more color. But essentially Ken, that's something we started back in July, we saw the potential for a softening environment relative to what our own unique expectations are and we started to adjust locomotives and adjust people then and adjust hiring and adjust training. We did some things unique with opportunities to do some training upfront we carried some people a bit longer than we normally would have to get people engineer qualified to get people more time in the seat to do some things now that will prepare us to bounce back when the demand comes back.

We've gone through those things, we've got furloughs, that we're looking at on a weekly basis it's not something that we want to do, but it -- certainly, it's our responsibility to do we pay very close attention to our metrics that our metrics are our guard relative to demand to constantly adjust resources. So it's part and parcel of what we're doing week in and week out you won't hear any major down, so from us saying well, we won't get up and realize, we've got a soft environment looking in our review mirror and going forward, we're going to make some monumental shift in head count. It's just not the way we run the business.

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

Okay. I'm sorry, I thought that you going to have -- maybe add on. Yes.

Nadeem Velani -- Executive Vice President and Chief Financial Officer

Yeah. I'm not sure what's more I can add other than we highlighted that the culture that and how we operate as a team. So this is, this isn't something that's where we just sit in a room and kind of model on a spreadsheet or something the interactions that we have that John has with his team on the marketing sales side working closely with our operating team working closely with the financial business partners etc. This is something we do on a weekly basis. And the Keith point, we've been ahead of this and this is something that they, you should just expect from us.

So as we go into Q4, and as we go into next year. We are not in a position where we're going to sit there that we have to add a huge amount of resources to meet the demand. We have these conversations ongoing. And if we need to take locomotives out of storage and put them back into the rotation absolutely we have that ability and we can move that fast. If we need to manage those for furloughs that Keith spoke to. We can adjust that very quickly. So, we're certainly not going to build the church for Easter [Phonetic] Sunday. But we're not going to compromise our service that, that we've worked hard to get to industry leading levels, and so it's balancing both the service and the costs and it's something that we feel we are very good at and we can, we can adapt very quickly on both ends whether having the resource up or resource down.

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

I appreciate that. And if I can just squeeze in my follow-up real quick. Just Keith you mentioned I think maybe four times about not chasing business and that you won't do it. Is this something where you're seeing increased competition or you just talking in general what you would expect, given the efficiency that you and your peer have and recent contract switching is there something that's heating up that that you're raising that more frequently during the conversation or just pre-empting it?

Keith Creel -- President and Chief Executive Officer, Canadian Pacific

Yeah. Not at all. Yeah, it's just more restating and making sure that people clearly understand philosophically what we believe in and we know to be true is the right way to run this business in a long-term, sustainable basis.

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

All right. I appreciate the time. Thanks.

Keith Creel -- President and Chief Executive Officer, Canadian Pacific

Thanks, Ken.

Operator

And there are no further questions at this time. I will turn the call back over to Mr. Creel for closing remarks.

Keith Creel -- President and Chief Executive Officer, Canadian Pacific

Okay. Well, thank you. Thank you for joining us today. I certainly hope after this robust discussion, the questions that people walk away with the same sentiment in view that we have this team is equipped and proven to manage responsibly when we have tailwinds and certainly the managed responsibly when we have headwinds, which we're currently going through for the long run. Long-term sustainable, profitable, financial results that our shareholders, our customers and obviously our employees all benefit from. We expect to close 2019 strong in line with our guidance, which is going to set us up for a very encouraging fourth year of performance leading the industry in growth as well as earnings, earnings in RTM growth in 2020 and beyond. But that said, we look forward to discussing our fourth quarter results in January.

Operator

[Operator Closing Remarks]

Duration: 73 minutes

Call participants:

Maeghan Albiston -- Assistant Vice President, Investor Relations & Pensions

Keith Creel -- President and Chief Executive Officer, Canadian Pacific

John Brooks -- Chief Marketing Officer and Executive Vice President

Nadeem Velani -- Executive Vice President and Chief Financial Officer

Tom Wadewitz -- UBS -- Analyst

Fadi Chamoun -- BMO -- Analyst

Chris Wetherbee -- Citi -- Analyst

Walter Spracklin -- RBC Capital Markets -- Analyst

Scott Group -- Wolfe Research -- Analyst

Brian Ossenbeck -- JP Morgan -- Analyst

Benoit Poirier -- Desjardins -- Analyst

Brandon Oglenski -- Barclays Capital -- Analyst

Allison Landry -- Credit Suisse -- Analyst

Jordan Alliger -- Goldman Sachs -- Analyst

Ravi Shanker -- Morgan Stanley -- Analyst

Justin Long -- Stephens -- Analyst

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

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