Good morning. My name is Stephanie, and I will be your conference operator today. At this time, I would like to welcome everyone to Canadian Pacific's First Quarter 2015 Conference Call. The 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 speaker’s remarks there will be a question-and-answer session. [Operator Instructions] I would now like to introduce Nadeem Velani, AVP, Investor Relations to begin the conference.

Thank you, Stephanie. Good morning, and thanks for joining us. I am proud to have with me here today Hunter Harrison, our CEO; Keith Creel, President and COO; Bart Demosky, EVP and Chief Financial Officer and joining us today for the first time Tim Marsh, our Senior Vice President, Sales and Marketing. Before we begin, I want to remind you this presentation contains forward-looking information. Actual results may differ materially. The risks, uncertainties and other factors that could influence actual results are described on Slide 2, in the press release and in the MD&A filed with Canadian and U.S. regulators. This presentation also contains non-GAAP measures outlined on Slide 3. The formal remarks will be followed by Q&A. In the interest of time, we would appreciate if you limit your questions to two. It is now my pleasure to introduce our CEO, Mr. Hunter Harrison.

Thanks Nadeem and good morning to everyone. Thanks so much for joining us particularly on a day when we can report such what I think is a outstanding quarter. It kind of gets old to say record-setting because that's what this organization has continued to do, but to produce the kind of operating ratio that Keith and the operating team put together with 10% growth on the revenue side. In the first quarter and those of you that have followed railroads for a while, understand it season out the impacts of the first quarter and at the same time, we had a little bit of a bottle with a work stoppage, which didn't help. But to produce that kind of OR of 63.2% is really good and staggering and I think we probably to me as a former operating guy, the thing that's most outstanding is when Keith talks to you further about the operating metrics that has been achieved, those are the things that stick that don't go away and you see some of the improvement in these metrics as far as train speed and effectively the velocity of assets I think it's extremely impressive. We also -- I should have -- I mentioned that we, the Board they’re catching on repurchase program and we announced that first quarter and probably to be in that kind of position. So, it's very, very nice to sit in the chair when you got a team that’s producing these kind of results and earnings of $2.26 or 59% improvement. It’s very pleasing and it shows the hard work that this Group has done and I thank everybody around this table but there is more to do. The story is a long way from over and the bucket is not as far from empty. So with those comments, let me turn it over to Keith, to talk to you in more detail about some of these results.

Okay. Hunter I appreciate your comments, real quick for the record though the kind of relationship we have often get too professionally challenging. I rarely get to professionally encourage you. I don’t hit in your formal operating and I know anybody else from this team. So that said, let’s speak to the results. Very strong quarter, 10% revenue growth and a very hard earned, but impressive and respectful 63.2 operating ratio that I want to thank this operating team for delivering and I’d say operating team it happens out on the ground in the operating side it happens in the headquarters function, it happens also in the sales and marketing function. So this is a team effort and the team result is certainly something we’re very proud of. It's a strong testament to the operational focus that this company has, the customer focus that this company and its team. If we put all that together, again with each quarter function day to day converted and it’s pretty powerful model. We’re stable already from the time we stepped on the ice. This is not down to Hunter's point. We’re developing our skill sets continually as railroad is day to day. This is a solid business model and even stronger team and railroaders that continue to grow stronger as we learn from our failure as well as our success day to day. So, I’m proud to be railroading with all 14,000 plus of these guys and girls that make this rail what it is. So operationally in Italy we faced some easier comps with a more normal winter versus last year. This quarter we saw continued improvement in our key operating measures coupled the highlights, we’re pretty pleased with train speed up 22%. Train linked up 8% for the quarter. It continued…

Thank you, Keith. Good morning all. I’m Tim Marsh. I am excited to be part of the CP team. I’d also like to add my special thank you to Mr. Hersh and Mr. Creel for believing in me and giving me spectacular opportunity to come onboard the CP and help push him to the next level. CP is rich with opportunity and I’m here to make sure that we achieve that. CP is further more than just a railroad origin and destinations third-party carrier, rail carrier and we’re here to move the mark forward with all of our customers. I came on Board during our most recent national sales meeting. I had an opportunity to meet up with the whole sales and marketing team, since I've not been able to get around the country to start seeing some of our top customers and see what their concerns are and where we can further benefit their supply chain. And as well we’ve identified tremendous amount of opportunities out there that we will move forward and sell with the CP program going forward. My focus at this point in time is to shore up the national sales team to work on sales training for the team, to create an environment much like the operational environment and we're here to promote strong ideas within. Sell all aspects of the CP railroad and we want to be the origin and destination sourcing final sales partner for our customers. We're here to seek out and secure the best sales talent and bring them on Board and we're here to achieve more face to face customer contact and evolve more information in sales while better understanding the forecasted volumes moving forward. I am still learning and it will take a little bit of time, but we're moving fast and I am excited to become a railroader on the team of the team of the CP. My mandate is clear. I am here to build the world's fast sales organization and then grow the line. I am energized and I am focused and with that I would like to pass it over to Bart.

Okay. Thank you, Tim and good morning, everyone. I like Hunter talking about positive results is certainly something that I never get tired of and in Q1 CP delivered the best first quarter financial results in the company's history. Quarterly revenues grew by 10% to nearly $1.7 billion of the achieved and operating ratio of 63.2% and that's an improvement of a full 900 basis point over last year on an adjusted basis and when we take out the impact, that that's had on long-term debt, adjusted EPS came in at $2.26, a 59% increase versus the last year. Now underlying those record results was the RTM growth of 5% that Keith mentioned and I would say that in spite of that fantastic results in the increase, expenses were down a full 9% on a foreign exchange adjusted basis and that clearly demonstrates our ability to grow revenues at a low incremental cost. There are a couple other notable items that I want to mention that occurred in the quarter. First is around our share repurchase program. In March we did receive the FX approval to implement a new 12 month repurchase program. That program will enable us to buy up to 9.14 million shares, which is about 6% of CP's public float and at today's share price we absolutely continue to see share repurchases at the very, very strong value proposition for shareholders. Now as has been the case in the past, we do intend to take full advantage of our ability to repurchase up to one third of those shares through private share purchase agreements. Those are purchases directly from Canadian financial institutions and repurchasing in that way enables us to buy the share at a discount to prevailing market prices. As an example in 2014, we realized…

Well, thank you, Mark for the contributions you made this organization over the last 18 months and there was going to be questions raised about March potential replacement but Mark has been very cooperative in working with us and staying beyond I think what his original desire were to be sure there is continuity in that transition and so for that we’re very appreciative. We're all Calgary neighbors and look forward to continuing the kind of relationship that we've developed. At the same time I should welcome Tim aboard. I’m not sure you know what you’re getting into, but you’ll find out quick, but it's exciting to have Tim join us and I was very as I've said back last night and kind of reflected on these results getting some appreciation to what it takes to achieve these kind of numbers. I just don't like historically at the last five years and if you can see that CP’s operating ratio if you will, if you want to judge that as a major efficiency started off in 2011 at 90.6%. Now I know the history. I know that 2011 was a real bad year from a weather standpoint, but at the same time, I don't think it represents -- I've never known whether to represent effectively 30 point. And so this organization with Keith's leadership and the team that these put together it's taking us 90 in the 2011 and then 80 and 2012 and 76 in 2013 and 72 and 2014 and now we report a quarter -- first quarter that I’ve never known. I didn’t check the books here but my memory is pretty good. I don’t think any railroads has ever achieved an operating ratio in that level first quarter. And the real question is going to be and I’m going to wait for until the task is where does it go from here and we're glad to talk about that, but this is a solid foundation that the operating group has put together for to build the type of service offering that Tim needs to be up to take to the marketplace. We sometime get this make this business a little too complicated and I would say to the Group all the time look, we had to do two things, okay. Provide service to the customer that all we say we're going to do and control the cost. If you look out how to get the best service, everything else is a picture of it too. So good job to the team and congratulations to all of you and on behalf of the Board and the shareholder our congratulations and with that Stephanie we would be glad to answer your question that the Group might have.

Thank you [Operator Instructions] Your first question comes from the Brandon Oglenski with Barclays. Please go ahead.

Good morning everyone and congrats on setting new benchmarks for the first quarter. Hunter, I guess I will just come out and ask it, so where does the story go from here? And if I can be a little bit more specific, you have the 10% growth target for the next four years but your price and your growth in RTMs were up about 6%, so with incremental challenges in energy what's going to drive the acceleration and the outlook in the network for CP?

Well, I think most of you are familiar with our portfolio and we’re heavily weighted to some degrees towards commodities obviously. Obviously what kind of rain crops we see, but the real opportunity I think that -- I think the team is seeing and we’ll see further is this area what we refer to as the merchandised, domestic intermodal. And there is probably a big card with a little reentry into the may be potentially the international arena. So I think that’s where the majority of growth will come from and I’m not sure that everybody understands the story and maybe I didn't mean to be a story teller. But clearly if you're at 53 first quarter, there is opportunities do better than that. If you look at on a full year basis, if you look at what can be done second, third, fourth quarter and so we clearly said it's that an average dollars capital intensive business is not all about continually going lower that there is a point and we've reached that point where we should be in position to convert the low cost, the productivity gains that's been made into growth. So still achieving record ORs, but being able to convert that into growth through more aggressive price if need in certain commodities given those markets. So I think hopefully that gives you a litter flavor of where we're going in the future. The one last time that I make it this and we're starting to see little bit of this. Its hard in this business the rail business to get people to change. It's very difficult. Tim will find that out. But once you make a breakthrough, wants the big customer fees, your service offering, the advantage it has and that make a shift, their big shift and they tend to stay with you and others tend to follow. So when that -- as that momentum starts to gain, there is a lot of power there. So hopefully that’s helpful

But it sounds like you're still confident that that target is still very relevant today.

Absolutely, I feel, stronger about the story every day. As I said with the foundation we built, with the opportunities that we have, just for an example I've said that some of you early own as far as capital spend that as a result of the turning of the assets and the better utilization of locomotives, we were going to be able to take a holiday until May 2016 or '17 for locomotives. Well that holiday and that might be 2018 and 2019. We've get above 400 locomotives. I think so we've got all the ingredients of what we need here and I am seeing nothing to get in our way.

Well, I appreciate that. And if I can get my second question and I don't mean to beat a dead horse here but we talked about M&A quite a bit about half a year ago and it was very clear that no one really wanted to come to the table back then. However, things have changed. You still have a lot of service challenges in the East. Management teams are struggling with cost and service outcomes. You incrementally have a lot of headwinds from coal. And so is there any new desire to discuss diversifying away from Eastern coal I'm sure shareholders would like it and I'm sure that some of the proven improvements that you've driven at CP could definitely be helpful for some of the other carriers. So does that change the discussion at all for M&A?

No, and I don't mean to be sure about this, but effectively we have no interest.

Thank you, Hunter.

Yep.

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

Okay. Good morning

Good morning, Fadi.

So I mean this first quarter looks like a pretty big nice down payment on your full-year goals in terms of operating ratio and earnings growth and all the metrics you highlighted. Would you say that outside of any major change in the outlook for foreign exchange or energy the biases to your guidance are now to the upside? It looks like you're coming out a little stronger out of the gate here in the first quarter. What set of challenges or what issues do you fear that would not help you do that or exceed it this year?

Well I -- really I guess the two biggest questions we have right now is one that I guess everybody has is, which we're going to have with crude, crude yield down and nothing much it has and then it goes up. Nothing much happens except the long railroad. But clearly it has had some impact and will have some impact in the future as it shapes out and we -- and crude settles in and then I guess the other issue will be what kind of crop we see with Canadian grain. So if Canadian grain is I quote “normal crop on some five-year average or whatever you like to look at” and we're let's just say, we're close in our estimates on crude, I think that it's all pretty well upside. Once again if there happened to be bad crop, if we're wrong about crude, will it put some pressures on them? Sure. But I think those are the two largest pickers.

Okay. Tim you're welcome to the call actually and happy to have you, but you mentioned in your remarks, I don't mean to put you on the spot, but you mentioned in your remarks that you've identified tremendous opportunities as you've sort of talked to customers. I am wondering if you can go talk a little bit specifically about the segment whether you think that opportunities for CP to sort of improve the share of wallet with customers as you've looked around so far?

Simply Bob, we've sales people all over in North America and we've to now make sure there is now in every possible component that CP has to offer. Traditionally in the past maybe we had areas of lines of business that we were working with and they were focused on one area. Now having started to diversifying the sales package for each person, we're also going to move out other opportunities where we have assets in place that we can work, sell and try on profits for the CP Railroad. We're trying to put the CP sales team on steroids at this point in time.

Okay. Thank you.

Our next question comes from Tom Wadewitz with UBS. Please go ahead.

The strong results very impressive performance and especially in the first quarter, I wanted to ask you Hunter about how much visibility this gives you to a sub-60 OR this year? Just taken your first quarter results gives you high confidence that the full year will be a lower OR than 60 or how might we think about the OR outlook for the year given the first quarter numbers?

I can see it from here. I don't just know the timing exactly. I think that and I anticipated this question at some degree and I know the staff is sitting around the table here. They can launch the size with what our response will be. I think it doesn’t take a genius to do the math and see what this operating team has put together from a cost structure and if we have any success and Tim brings to us and becomes a super charger if you will on the sales side, Tom it's easy for you to do the numbers and get to the number that's just below 60. Now am I telling you we're going to do that, no. Am I changing again formally, no. But at the same time, if somebody do deserve a chance, the two that have hit on all cylinders could get all shares. I am not trying to kid anybody. You call can do the math, but that's in the card. Now once again it's just timing issue and that issue then becomes sensitive with the conversion towards the growth. I think everybody buys in to the cost side. I think there is a little reluctance that we can have the growth. So we're going to show you that, but yes, I think that we can certainly see 60 and the issue is more timing than it is. It's not if, it's when.

Okay. Yes, I appreciate that. As the second question when I look at your intermodal volume growth in the first quarter, domestic intermodal in particular up about 6% that is a deceleration versus the 15.5% volume growth you saw in domestic last year. And I think intermodal so your base is domestic intermodal serving area that you're focused on growth, do you think that we would expect that to accelerate this year versus the [sixth] [ph] and how much of it, how much of a factor is your competitor's response because my impression is that they're going to try to hold on pretty hard to both domestic and international business. And I guess I don't know how much growth you can see if it's only from the trucking market and if it's up to a win rail share?

Let me take that one. I don't know if I can. On the domestic side, you got some dilutive performance here because of the strike. So that 6% adjusted is not 6% that we plan to finish second quarter better and actually on target, which represents about low double-digit increase versus last year as far as growth for domestic. So we won't get the 15%, that's a quantum leap that we made from the previous year, but certainly stronger than 6% and as far as what my competitor does, I really can't be too concerned whether I can tell you that I know the product and if product matters and if service matters, they don't have a product they can compete with us railway domestically. So that's all I'll say for that. We continue to provide excellent service in the marketplace. We continue to have customers knocking on our door. That train is sold out, gives you an opportunity and improved margins, increase the yield on and get to a point where if we're going to have a second train or not and continue to grow that domestic offering and domestic service. On the international side, to Hunter's point, when those contracts come into play in the future years, which were included in that multiyear plan, it's our strategy, it's our objective to be at the place we were at now. Two years ago, I didn't enjoy the same cost structure. I didn't compete if I chose to compete in the market and make a buck, I can today. So I go to the table with the different set of cards to play with an idea two years ago, I can still make about doing this. I am not doing it for practice and we're going to be in position if it makes the right financial sense for this company to play in those market.

Okay. That's great. Thank you for the time.

Your next question comes from Walter Spracklin with RBC Capital Markets. Please go ahead.

Thanks very much. This is Erin Lytollis in for Walter. I just have a quick accounting sort of question for you. In your most recent disclosures you pointed to an FX entity of about $0.07 EPS or $0.01 strengthening in the U.S. dollar. Does that relationship still hold today or has that changed?

That still holds today.

Okay. Great. And just as a follow-up I just wanted to confirm, are you still looking for 140,000 crude car loads today for the full year?

Listen, that sort of number we haven't changed, so that's -- we're going to be doing things here. There could be headwinds there. There could be risk there. There could be upside there. I don't know. You guys probably know about as much as I know, which is none of us really knows. So at our point, it's too pre mature to change anything. We took a conservative approach when we set that number. So we're holding to it for now.

Great. Thanks very much.

Give Walter our congratulations as well please.

Thank you. I will.

Your next question comes from Chris Wetherbee with Citi. Please go ahead.

Good morning, guys. Just wanted to go back have to clarify the comment I guess I just wanted to make sure I understood your comments in regards to the M&A question. No interest in doing anything at this point, is that a fair way to characterize your view?

Yes.

Okay. That's helpful. Thank you for that. And then switching gears on for the pricing side, Keith maybe you can talk a little bit about sort of the pace of pricing. It seems like it's stepping up kind of across the rail industry as we look in early 2015. Can we see better numbers as the year progresses or should we -- I don't want to get too far ahead of myself, but is it fair to assume that you might get a little bit of a tighter market as the year progresses or somewhere in that sort of 4% range is probably thing to think about?

I would just stay with that 4%, we're going to have 4% maybe a little bit upside, maybe it's 3.8%, maybe it's 4.2%, but I would model it I think and I think that's strong reliable number to count on.

Okay. Perfect. Thanks for the time guys. I appreciate it.

Thanks Chris.

Your next question comes from Steve Hansen with Raymond James. Please go ahead.

Oh yes. Good morning, guys. Congratulations on a good quarter. Just a quick question on the composition benefits, the expense came in actually quite favorable versus what we're looking for here and just trying to think about how that rolls through the balance of the year recognizing there is lot of moving parts related to pension headwinds and others.

Yeah, I can maybe comment on that. Just on stock based comp currently it’s every $1 change in share price means a $1 million change in expense. We’re modeling on the pension expense side for the $24 million negative each quarter. So that's obviously a headwind versus last year but that's fixed in for the year and we assess that and make a change on that in January of each year. So those would be the two key components you can see that how that perform over the year.

Okay, great. And then just the follow up to Keith’s comments earlier on the velocity hitting new records, Keith how do you weigh that increased velocity relative to some of the volume headwinds that might be showing up in some of the bulk categories and your ability to deliver on OR improvements?

When you say weigh relative to reduction in demand or increase in demand which commodity?

Yeah, well, some of the bulks that we've got some of your key bulk category is going to come under pressure on a year-over-year basis, grain in particular and it sounds like Teck now has taken some of the guidance down on a coal basis. So I am just trying to offset that perhaps some of the volume headwinds relative to the speed advantages you are getting and how that translates into the OR?

Here is a bottom line, obviously the OR is a combination of our cost and our revenue. So let me speak specifically to the improvement on the cost side and in the service side. Via, Teck, it initially exceeded our expectations for Teck in the first quarter. I know they adjusted I read this morning little bit in the second quarter but we see that as a wash. So there is nothing material there. I am not concerned about Teck. It's my objective to continue to put them in to position so they can succeed in their marketplace with the low cost and a great service which we're doing. We never moved coal sets any faster. We are moving fewer sets. We are consuming fewer locomotives, fewer crews. Our margins are better. Their margins are better, their reliability is better. We are not stopped even in the phase of reduced coal demand we have opportunities on the operational improvement side and the productivity side we're working with Teck to convert three more of their mines to auto load out post to previous history where we have had train crews taking over those trains packing them through their facility which again impedes sometimes reliability and it drives additional cost. So take that out, turn the assets faster be it softness in coal, be it softness in grain, that gives me assets to turn in a more fluid environment and lower cost and I get asset benefit terms on every other product I move. We've got strength in potash. It’s moving in the same corridor that tells me with strength in potash that potash I'm moving even at last year’s rates with an improved rate if I can do it faster and turn the assets, I have got it at lower cost, I have got it at better margins, so it's going to help us on the operational ratio side. So again a lot of puts and takes but by and large I don’t see anything that's causing me concern. We are not changing our guidance. We've got a strong franchise that gets stronger every day and I think this is great story.

Very helpful thank you.

Your next question comes from Turan Quettawala with Scotiabank. Please go ahead.

Yes, good morning, great quarter here. I guess my first question is on just the yield on the domestic intermodal side. That was a little bit weaker I guess than just the average. Keith, can you comment on that? What are renewals coming in out and maybe a sense of how much mix is impacting that?

Yeah, the weakness you see is directly related to fuel surcharge as far as renewable we're taking price increase again I reiterate the point we're providing service we are not doing this for practice. So I feel pretty solid about the international side.

Got it.

On the mix, there is a little bit of mix impact did you see in percent per RTM because we are actually eliminating empty miles in the backhaul, we are taking equipment that otherwise we would be shipping east for the head haul move empty and putting product in it which obviously maybe at the lower RTM versus the head haul business. So there is some mix impact.

Understood. Thank you very much. And I guess maybe overall could you give us a little bit of sense on what the RTM outlook is for Q2 here? Obviously a little bit weaker here in initial part of the quarter but obviously its early days just a sense there would be appreciated. Thank you.

Right now what we see is sort of flattish, I would assume same for the balance of the quarter.

Great. Thank you very much.

Your next question comes from Bill Greene with Morgan Stanley. Please go ahead.

Hi, there, good morning. Hunter, at the Investor Day we talked a bit about the potential for labor deal. My guess is given the experience of the last few months but that's kind of off the table. Is that sort of fair? Can you sort of comment on where we are in that process at all?

I think it's fair to assume that in Canada. I think it's still an open book in the U.S. but the leverage is much larger in Canada. But having said that as Keith mentioned earlier there was a neutral appointed yesterday who I don’t know but I know he has a wonderful reputation and had some rulings back in '95 that were pretty significant in changing the landscape of labor agreements. And so to some degree I'm not sure what he might have in mind. Now I think, I think you folks understand our story conceptually. I think it’s clear where labor position is and so it is certainly off the table at some bilateral deal, but what is going to be handed down in arbitration is kind of the wildcard and I think it’s better that we don’t speculate on that.

Fair enough. All right. Thank you. Let me ask a one question on the guide, you talked a little bit on the OR side. I've gotten a few questions about the buyback seems like that should be additive. We didn’t really change the guide but it is kind of open ended at the EPS level. Can you talk about whether there is sort of a deterioration in core here at all in terms of what you are thinking about for the back half of something and so added buyback sort of keeps you even or could that just mean sort of more upside from the buyback?

I think it's probably more upside potentially. But given my earlier comments there is a couple of question marks out there. But yes I mean it's fair to make an assumption that if everything else being equal, the buyback will be additive.

Okay. Excellent. I appreciate the time. Thank you.

Thanks Bill.

The next question comes from with Allison Landry with Credit Suisse. Please go ahead.

Taking my question, I was wondering if you could comment on any developments that you’ve seen with the recent JV with DREAM Unlimited in terms of the surplus land.

It's Mark Wallace speaking. So we’ve been really active with our partners at DREAM. As you know these are development properties that we’re looking at and so it does take time to start developing these properties. We are fast-tracking a few of them in Toronto, so hopefully by the back half of this year into early next year we'll start to see some progress there. We handed over a large portfolio of properties to our partners. We had many discussions with them on the properties. We have identified five to seven or so that are probably not right for developments. So as I said at the Investor Day last year, we should expect to see some land deals on board probably by back half of this year and early into next year. So that's good news on that front.

Okay. And then just maybe switching gears, in terms of the 22% increase in velocity, is there a way to sort of disaggregate how much of the improvement came from easier weather comps versus efficiency gains? And specifically are you seeing a benefit from moving less resources intensive of crude by rail and frac sand?

Well and I'm not going to kid myself. Some of it obviously you know operating kind of winter we operated in last year helped. Chicago has worked much better than it did last year. We have seen a significant pickup in our train speed in the U.S. properties as well as progress in Eastern Canada and Western Canada. So that's some of it but that's not all of it. It's hard for me to quantify, I would be guessing but I would just give you a compared second quarter was more normalized versus the harsh, harsh first quarter and although there is some winter impacting there. Quarter-to-date we are up 30% versus last year. So it is meaningful and it’s not just weather, it's investments in sidings. Like I said last year, we invested in about 11 extended sidings. We've got train linked up, we've got train late up, we've got crew starts down, we've got RTM growth, that’s a powerful, powerful model to deliver superior service at a very low incremental cost. So that’s exactly what’s inspiring on this network and we'll continue to do that. This year, as I said we've got a total of about 30 that will come online and we are looking at the same thing for 2016 and '17. So this story still has a tremendous amount of runway lap when it comes to if I just want to focus on productivity, sheer raw productivity turning assets.

And I think if I could add to that, I think you can get maybe a better flavor of that when you look at what potentially the second quarter achievement could be. And keep in mind and people overlook this, the trains are moving a lot faster and they are bigger, heavier trains. So this is the leverage year is very powerful. And I’ve done a little work on this in the past and I would tell you that my number would be about 75% to 80% of this improvement is core, it’s just better railroading and those other things might account for 20% if you will.

Okay. Excellent. That was very helpful. Thank you.

Sure.

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

Congratulations for the good quarter. If we look at the revenue growth this year still maintaining 7%, 8%, is it a fair statement that there is a few tweak in the sense that probably the yield will be a little bit better than expected and maybe a few downward revision in terms of RTM? Is that a fair assessment?

Benoit, I would say it’s too soon to tell. I mean yeah there is possibility, I’m looking on the product side that 4% RTM growth 3.5, 4%, plus or minus. That gets into that 7%, 8% number which is I’m pretty consistent with maybe we get a little pick up on exchange as well, I mean that's modeled at $0.83 so maybe we get little tailwind second half that pushes us beyond that but that's pretty much where my head is at with the numbers.

Okay. And looking at the RTM in Q2 obviously it's coming down from a tough compare when we talk about the grain. Is it the most key reason why you would be able to increase speed and also can we assume that there will be further headcount reduction given let's say the softer volume potentially taking place?

I would not say the reduction in grain is material to impact train speed at all. To Hunter's point it's about executing. The Board has given us the resources, the cash generation has given us the resources to deploy to strengthen the robustness of this franchise but at the end of the day you've got to convert what you've got. You've got to use the tools you're given and that's what this team is learning how to do better and better day-in and day-out. And that goes from the conductors and engineers operating these trains all the way through the leadership team. So we're just becoming better equipped with the tools and better railroaders. Obviously, we get a little bit of velocity opportunity with reduced business but it's not material at all. So it's just us railroading better, converting the assets that we're investing in.

Okay. Thank you very much for the time.

Let me add that the question I'm surprised that hasn't been asked and is not asked this, how do you gain revenue tons and get more growth at the same time lowering the headcount when other people are raising the headcount and now they are concerned about how much they’ve raised them. This is just basic fundamental raw productivity. Just doing a better job with what you’ve got. It's not any double reverses or four corners its basics.

Okay. Thanks.

Your next question comes from Ken Hoexter with Bank of America. Please go ahead.

Good morning. Hunter, if I can just expand on that it's amazing to see you continue to expand and Keith on the lead over your peers in the industry. But Hunter you threw out before you're kind of dismissive of M&A at this point in the industry but given a lot of management changes the divergence in performance has only gotten worse. So I just want to give you a chance to maybe expand your thoughts on that a little bit. Given how much you were focused on that a couple of months ago at least the opportunity and what you could do, seems like the ability to achieve has only widened given their poor performance with exactly what you're saying, hiring more and more and adding so many more assets.

Well, I appreciate the opportunity but I don’t need it. The only answer is responses is this and we just don’t have any interest right now. We have got a strong franchise here; things are rolling that’s where we’re going to focus our time and attention.

Okay. And then your thoughts on the given Keith your comments on the volume growth before, is that in light of the economic slowing perhaps in some areas? And then obviously with the tougher comps you're facing on the grain side, or maybe you can just talk about what your economic view is built into that growth outlook?

That something is obviously considering some headwinds on the crude side, there is some risk there to Hunter's point. I’m encouraged that I think the arbitrage get more favorable some of that crude gets into the money but the Hunters point right now it's just rhetoric. So I’m not going to and build the church feast for Sunday, we’re have in the past, we are not going to now, I’m seeing some positive signs on the merchandise forest products we been stronger. We’ve got potash its moving stronger. Canpotex has settled with China, that sort of sets the bar there, so we expect that to continue to have strength that gives us some upside. We've got our domestic partner on the potash side, Mosaic, which is the largest domestic potash producer in North America that were partnered strongly with. We moved records amounts of their product in the first quarter and that’s not just a revenue story and that’s a great operating story as well. We partnered with Mosaic and taken our approach to white-boarding and developing operational efficiency turning assets, inside internal to these facilities. We’ve gone Gudio has led these, our Senior Vice President of Western region, literally sat down with the leadership teams at Mosaic and their facilities two of the three large producing potash mines to effectively drive out a significant and meaningful amount of car supply, car dwell days which allows us of course to move more potash, fewer assets, less cost, the story goes on and on and on. And at the same time in a material way lowers Mosaic’s cost improves their margins may give them an opportunity to shift higher cost productivity from a U.S facility to their expanding capacity lower cost more allowable service Canadian facility. Those are all great powerful leverage that are making this success story work force that gives us confidence to maintain that view as we look at the revenue opportunity for 2015.

Keith, let me tag on there, Ken. I think with due respect some look at this wrong. Let me just make some observations about Teck. If you go back when we went through this management change we were running effectively the same amount of coal with 28 sets and today Keith and team are doing it with 18 and 19 sets. That is powerful on the cost side. And as a result, the margins and the net-net is a whole lot more powerful and people were looking at this initially well you’ve got 10-years contract, you can’t raise rates, what you’re going to do. That’s where the cost leverage comes in. Now there was an announcement this morning and people were nervous Teck just made an announcement. Well we can adjust accordingly, we’ve been working with the Teck people very closely. There hadn’t been any increase in price but there has been a huge increase in margins and that’s the power of the cost containment.

And reliability, let me speak to the point. I don’t want to beat a dead horse here but on the reliability side, if you are sitting in Teck's shoes and get down to the mine so to speak, when we got 28 sets out there and we’re trying to demand those trains. We’re trying to provide locomotives. We’re trying to weave those trains in and out 28 of them in a busy corridor going to the West Coast to export that coal, that impedes Teck’s ability to provide their suppliers with the product they sold to provide reliable service to make sure they maintain their presence and their power in the marketplace. So while we benefit from a more fluid railroad on the margin side, they’ve got a reliable supply chain, reliable source of coal in a world markets they can compete in at a low cost, so yes there is some headwinds but it’s powerful and the headwinds and it’s extremely powerful once they become tailwinds and the demand picks back up.

Truly appreciate that additional insight and add-on. I'm just still baffled by the answer to the first question given that you were the ones that broached the subject before but I will leave it at that. I get the answer. But thanks for the time and I appreciate it. And great job on the quarter.

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

Hey, thanks. Morning. So I do want to try and go back to the M&A question. Hunter, because it’s rare we get short answers from you. And I just want to try and understand what has changed, because it seems like a pretty dramatic change in your thing not just from a few months ago, but for years you’ve talked about the belief in M&A of rails and that there would be more big deals coming. Do you feel comfortable giving us anymore thoughts in terms of why your view has changed and if that’s a permanent change or temporary change?

Do you want a long no interest speech? I mean look there’s a lot other things that came into play here. You just don’t do a merger activity regardless of what the circumstances are. Sometimes the stars that’s aligned there is a lot of things that we have to work to make these happen to make them accretive to make them smart for your shareholders. And those things aren’t happening. Also what had happened before and so if you want me to say I’ve got interest when I don’t I don’t have any interest in them doesn’t work.

And what doesn’t work I guess was because it would have worked, what’s changed right doesn’t work anymore if I can?

Well, I think that’s maybe inappropriate for me to comment on.

Okay. Fair enough.

Then I’m starting to do your job critiquing what another organization is doing and I don’t think that’s not my job.

Okay, that’s fair. And then I want to just follow-up though about Tom’s question about the OR so if we look at a first quarter typically can the full year can be I know 500, 600, 700 basis points better. So it seems like we’re kind of well better on a run rate much better than that 60 OR for the year. What are some other things that we might be missing why you don’t have like the clear visibility in terms of the timing for this year?

Well, I think it is what it is. I think there were some moving parts the first quarter, but I mean as we look down to the basics we know what it takes to achieve this and we’re comfortable with the run rate. Now stock-based comp is a big swing for an example. When we start trying to project I don’t know where the market is going to be at the end of next quarter and we have to mark to market in some of those. I mean the message is this, I think is this is a strong operating powerful franchise. It's the leader in cost controls, it's the leader in operating metrics and it will continue to be and that's good. And we will -- we're going to take that and leverage that further and to grow strength with Tim and his team and you will continue to see the kind of results that you've seen in the past and even better.

Okay. Thank you guys.

They don't have any interest. That was just a little humor out there.

Your next question comes from Jason Seidl with Cowen and Company. Please go ahead.

Hunter, I promise not to ask you why you have no interest here. You made an interesting comment at least in my mind about sort of the dynamics between volume and pricing going forward. Clearly you've gotten your network to be much lower cost. I was wondering if you can maybe give us some more meat on the bone and talk about the areas in the network that could potentially favor CP for going after more volume. Is it everywhere, is it more bulk, is it more truck competitive business?

Yeah, I think all those you named but I think the maybe the next larger breakthrough is selling to capacity. Although, we have increased and Keith and company have done a hell of a job in increasing train size and their capacity management I referred to as there's still a lot of opportunity to grow this business on the merchandise side of it which there is huge leverage. I mean you've heard the story those last 10 cars on the train pretty low cost, okay. You can be pretty aggressive which creates more growth. So as we establish more of our brand, our core, our reputation that wasn't the best in the world, as a first-class player here with first-class service that the customer can depend on and we can start and look at a quarter and let's just say theoretically that quarter the trains have 150 car capacity. Well, at 100 cars of train you are still making money so you don't want to exit it but at the same time if you fill the plane up or the train and we're not going to get to 150 we get to 135 or 140, the growth it is huge. It's like a slot machine in Vegas standing below it and you hit the jackpot. It just comes rolling out because of the leverage. And if you've got that kind of leverage with your margins you can be more aggressive in the marketplace in trying to fill those slots up. So that's kind of I think Keith would tell you that the train speed is not over, the train size is not over. A lot of the basic fundamentals are not over but that's one that when we convert that's when this $10 billion hurdle is not going to seem so high.

And let me add some color to that more specifically we're starting to see some encouraging trends there. We've actually this sell to capacity the information that we're giving Tim and his team to convert we started this in March so it's in its infancy stages. But 10 specific claims that we've targeted where we have capacity to sell if I look at those 10 specific claims our merchandise trains, train length is up about 10% versus a lower-single-digit number on the balance of the network. So that tells you that it's starting to gain some traction. Now again it's in its infancy stages. This is going to have to grow into what we think it will become eventually but it's very encouraging from the start.

And sort of tagging onto that you just opened with 10 lanes assuming this continues to go well, how quickly is the rollout going to be? Are we going to see another 10 by the next quarter or is it going to be up to 100 by the end of the year?

I don't know if it's going to be 100 by the end of the year but this would be progressive over the next three quarters.

Progressive, okay.

Our sales we're going to be careful not to cannibalize any business. We're going to make sure that we're doing what's smart, making the right business decision. We're educating our sales team. We're changing their focus. I mean this is a sales team that they weren't as diversified as they need to be. They didn't spend a lot of time with the customers. It was more time behind the computer. So developing relationships, face time, establishing accountability, that's a huge word in this company. You've got to have the construct attention on accountability be it operations, be it marketing, be it the finance function, be it any HQ function, you've got to add value day-in and day-out. You've got to skate hard every time you come on the ice. You've got to have measures, that's part of Tim's challenge. Not measure it quarter-to-quarter, measure that sales activity week-to-week to make sure his skaters are out there skating hard developing those relationships, getting face time with customers and selling our product, which that is just one of the many bullets that we've got in this gun so to speak to succeed. So again you'll see it as we roll this thing out that we will gain momentum. It's going to help us be accretive and help us deliver and gives us confidence in that $10 billion number as well as short term our 2015 numbers.

I appreciated the time, I appreciate the colors and I really appreciate the archaeologies. Gentlemen, thank you.

I’ll appreciate it even more, if those Blackhawks go all the way.

Your next question comes from Bascome Majors with Susquehanna. Please go ahead.

Yeah. Can we get an update on the CFO search timeline and what experience and style you're looking for as you fill that role?

I didn’t quite hear that question.

I’m sorry. Can we get an update on the CFO search timeline and what experience and star you’re looking for in filling that position there?

Well, look, I mean I don't want to go through what all we're looking for. I mean I think you can appreciate that. What we're focusing on to my comments earlier with Bart is that we have someone selected, the right individual at the right time here with the fit and to be in place prior to Bart walking out the door where there will be a smooth transition. So that's really what we're focusing on. I feel pretty confident we'll be able to do that.

Alright, and you've made so much progress since mid-2012 and today's results clearly show that the railroad continues to run extremely well here in 2015. Once you and Keith, Tim and your new CFO get up to speed and things reach a steady state in the C suite again, is there a scenario where you, Hunter, would hand over the reins before the contract ends in mid-2017?

Well, I hadn't given that a lot of thought. I mean could it be? Look, the plan is right now that I have an obligation through the middle of '17. I think things are going well. I think that we're building a pretty strong team here. I think Keith and I are a pretty good partnership and I think there's still a lot to do. Now that's my view. If others viewed it differently and said that this could be done better than one or something I guess something could happen but I kind of doubt it. I mean it's hard to and I say this hopefully with a little bit some degree humility it's hard to argue this track record here. So this thing has been working pretty good and I wouldn't want to mess with a winning combination here.

And I couldn't miss the hockey analogy Hunter. You know what if you get to skate with Wayne Gretzky, the greatest goal-scorer of all time on the ice, you don't want to leave the ice early. I hope that Hunter does stay through 2017 as planned now. And if he stays longer that's great as well too.

Alright, well, thank you for the time.

Your next question comes from Matt Troy with Nomura. Please go ahead.

I just wanted to clarify we're running long here, when people start talking about price and Hunter to your comments earlier about the margins getting to a point where you can start using your low cost and your service to go after business and then at times price might be an appropriate level to pull and then some of Keith's comments just now about selling to capacity, there is perceptual danger to a marginal pricing strategy. You've been at this a long time. No one thinks you're going to do anything crazy or nuts. But maybe if you could just clarify and put a finer period on the end of the sentence that you're talking about opportunistically going after business where it makes sense at a margin and a return threshold that is consistent with that which you've achieved so that Chicken Littles of the world on this call don't need to go out and write about the potential for pricing escalation. Thanks.

Yeah. Look, we've always said that, I'm a believer that the market gives you the price. You decide whether you want to be a player or not. What I'm saying is we have the opportunity because we have such large margins now to effectively go after certain business to Keith's point earlier that we might not have gone after. Now look, we're not going to go out there and have some giveaway and give green stamps or coupons for somebody that brings us a load of freight. That's not the story. But if there is a certain lane that we can be competitive in that brings a powerful margin on because of our cost structure and so there is an opportunity for us to be more aggressive, appropriate on the price side expect us to do that. This is bottom line deal, okay in my view. And Teck is a great example. We hadn't made any increases with Teck and people said gosh you missed whole opportunities, the margins are a whole lot better than they were three years ago. Powerful. And it's all about cost. There is two sides to the component and so and that's why I hesitate because some are misunderstanding the strategy.

Which is why I asked the question. Thank you for the time and I'm pulling for the Rangers. Sorry, Keith.

You're a great straight man.

Your next question comes from Cherilyn Radbourne with TD Securities. Please go ahead.

Good morning. We are running long so I'm just going to ask one. I guess it's a bit of an accounting question. Your EPS was up a very strong 33% year-over-year on an as-reported basis. So I wonder if you could just explain the adjustment that you're making to calculated adjusted EPS. What that represents and why you think it's necessary to properly understand the numbers?

Hi, it's Bart here. The main item there is just simply foreign exchange on our U.S. dollar denominated debt. That debt is core. Our focus when we add debt to our book for our share repurchases is to get the lowest cost debt that there is which has been U.S. dollar denominated. Each quarter we simply have to translate that back into Canadian dollars but that debt will remain part of our balance sheet going forward so it's not something anybody needs to be concerned about replacements down the road. So it's just simply a translation item. And it's non-core so it needs to be adjusted out to understand the performance of business.

Okay, thank you. That's all for me.

Okay. Thanks.

Your next question comes from Brian Ossenbeck with JPMorgan. Please go ahead.

Thank you. Good afternoon. I just had a real quick question on the regulatory front. You mentioned crude, crude and crop being an uncertainty through the rest of the year. I just wanted to make sure that that didn't -- that was more market specific and didn't have anything really related to regulations like tank cars and the Canada Transport Act. And if you could just give us a quick update on those two as they progress if there is anything in particular that you're concerned about at this point in time. Thanks.

Market related not directly related to the government's action. Obviously concerned that the governments on both sides be it Canada, be it U.S. number one are aligned as they develop this final tank-car standard and any other applications to moving crude I think improved safety, so yes concern. We stay very close to the fall. Certainly have not been bashful about voicing our opinion on the areas that we believe make a significant improvement to the safety of the operation of these trains. But at the same time we continue to be seized on doing what we can do within our own control to continue to operate those trains safely to avoid incidents. So we're doing some very progressive things to help strengthen our case to make us bode well such as it's been a lot of time, effort, energy and money patrolling ahead of crude trains during the first quarter as we transition from the winter freeze to the spring thaw, track conditions change. We want to be out there ahead of that, ahead of those trains potential broken rail, track conditions that may impede safe movement of the trains. So it's something that we are concerned with. Long answer to your question but we're focused on it, we're cognizant of it. We're going to do our dead level best to make sure that we don't create any kind of case for change and continue to do what we do well moving our product safely for our customers.

Okay, thanks. And then just one quick follow-up on ECP brakes, is that something that you see a favorable cost-benefit to installing those across the system or is that something you think is going to be have to be mandated from a regulatory aspect?

Yes, absolutely no cost-benefit, not necessary, not needed. To me money can be well spent to improve safety in other areas, not ECP brakes. The Canadian design at this point does not have ECP brakes, don't know yet about the final plans for the U.S. side. Certainly to have continuity and to have interoperability we need the same standards. So that's back to the point of alignment.

Great.

But from a cost benefit standpoint I'd never be an advocate, always an opponent of the ECP brakes especially considering the marginal if any safety benefit that are associated with them.

Okay. So find out in a couple of weeks. Thanks for your time.

Just before we end there it's Bart here. I just want to mention that after I made my response on the foreign exchange question somebody externally made an extremely inappropriate comment. I want to assure you it was no one on this end of the call. So I'm not quite sure where that came from but some of you may have heard it. Thank you.

Your next question comes from Jeff Kauffman with Buckingham Research. Please go ahead.

Thank you very much. Thanks and congratulations guys. I want to ask a question on basic fundamental raw productivity, I guess as Hunter would say. Keith, you mentioned the 30 sidings this year, and perhaps another 30 to 60 sidings in the years that follow. I guess the question is twofold. Number one, where do you believe you'll be able to get some of the productivity measures after these 30 sidings this year and where do you think we could be say two or three years from now? And I guess secondarily aside from the sidings, what other capital investments are being made to improve efficiency and productivity?

We're not starting from zero anymore, so those kind of quantum leaps that we've enjoyed in the past two years are not easily duplicated. I'm not going to suggest that we'll be able to but what I will suggest and what I know from experience the plan for that additional capacity to drive those synergies is in step line with where we see the revenue growth and it's in step line in those corridors where we're going to experience the revenue growth. So the end game is to not just protect our existing operating efficiencies but for stepped improvement. So you will see us transition instead of 8%, 10%, 14% constant improvements once this gets more to a steady state 2% to 3%, 4% something more modest but at the same time raising the bar on a continual basis. And we'll do it right now at sidings, to your point about other investments we're investing in certain yards. We've taken some hump facilities obviously out, taken a lot of cost out. We haven't spent a lot of money repurposing and redesigning all of those hub facilities that we now do flat switching in. So that's just the one of for instance where we're spending some money to optimize capacity to minimize cost in the handling which are those high cost centers in our yards. St. Paul is another location that we've looked at trying to invest in to take a hump facility that was antiquated, that was built for short trains effectively and created to be a very efficient low cost productive facility that can handle longer trains. So there are those singles and doubles all over this railway that we still have not converted yet that are going to help us drive those continual improvements, although not quantum but consistent and respectful and meaningful on those raw productivity numbers.

All right, guys, thanks so much.

Thanks, Jeff.

Your next question comes from Steven Paget with FirstEnergy Capital. Please go ahead.

Thank you. Like several people have said it's well into the second hour so I'll just ask one question. My question is what sort of merchandise shippers stack 10, 20, 30 cars on a train? Are these shippers converting from truckloads seeing a good price and adding and deciding to convert to rail or are these merchandise trains are they then splitting and being tacked onto existing trains?

It could be share pickup in markets that we serve where we haven't enjoyed the service to be able to convert some of that product yet it also was truck conversion, other transportation seeing it some of our existing customers again tied to reliable service if not trusted us with that particular freight. There is a compelling cost advantage obviously going from truck to rail. So it's a little bit of both, Steve.

Thank you, Keith.

Thank you.

Mr. Harrison, there are no further questions at this time. Please continue.

Well, thanks very much for joining us. We appreciate your interest and I have no interest further. And we'll see you next earnings call with some more exciting announcements.

This concludes today's conference call. You may now disconnect.