Good afternoon. My name is Mike, and I will be your conference operator today. At this time, I would like to welcome everyone to Canadian Pacific’s Fourth Quarter 2017 Conference Call. The slides accompanying today’s call are available at investor.cpr.ca. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question-and-answer session [Operator Instructions]. I would now like to introduce Maeghan Albiston, EVP Investor Relations to begin the conference.

Thank you, Mike. Good afternoon, everyone, and thank you for joining us today. Before we begin, I want to remind you this presentation contains forward-looking information, and actual results may differ materially. The risks, uncertainties and other factors that could influence actual results are described on slide two in the press release and in the MD&A filed with Canadian and U.S. regulators. This presentation also contains non-GAAP measures, which are outlined on slide three. With me here today is Keith Creel, our President and Chief Executive Officer; Nadeem Velani, our Executive Vice President and Chief Financial Officer; and John Brooks, our Senior Vice President and Chief Marketing Officer. The formal remarks today will be followed by Q&A. In the interest of time, we would appreciate if you limit your questions to two. It’s now my pleasure to introduce Keith Creel.

Thanks, Maeghan. I think it's only appropriate I’d start by congratulating and thanking the 12,200 plus CP family. It’s our board dedication and commitment which enabled these results for the New Year, both for our shareholders as well as for our customers. I'm extremely proud of what this team has produced, all time record low 56 points more in operating ratio for the Canadian Pacific, 5% revenue growth, 5% operating income growth, 6% adjusted earnings per share growth. In fact by nearly every measure we talked about these record results. But with that said, this is an outdoor sport this quarter was not about challenges our team responded. The few notables around within our Western Corridor November, we battled severe winter weather across our network as we closed out the quarter as well. But in spite of these challenges, the operating results were solid. They enabled us to produce record revenues and Canadian grain and domestic intermodal. In fact in '17, we achieved record or new record levels for a number of our key commodities. Potash at new record levels, record levels for Canadian coal domestic intermodal, metals and minerals. And an equally encouraging strong performance on the safety front as well with personal injuries down 16%, train accidents down 21% for the quarter. On a full year basis, our train accidents frequency finished in all time low, marking the 12th consecutive year CP has lead the industry in this key safety metric. So looking back after the first year as the CEO of the company when I think about 2017, I note some excellent progress. So started the year with great optimism for the year ahead and certainly was not disappointed. We finished the year with an operating ratio of 58.2, the best in our company's history and we…

Thank you, Keith and good afternoon everyone. Total revenues were up 5% this quarter to $1.7 billion. RTMs were up 4% year-over-year, foreign exchange was a 2% headwind, offset by about the 2% benefit on fuel surcharge. As expected on pricing front, it was offset by negative mix as a result of strong crude, potash, coal shipment combined with weaker volumes of our automotive and fertilizer volume. Overall, contract renewals continue to move in the right direction, landing in the 2.5% to 3% range. As Keith spoke about, we gained a lot of momentum in 2017 and are executing our strategies in a disciplined manner. We focused intensely developing our marketing team and our strategic playbook for all our commodity areas, giving our sales teams specific priorities on how we want to sell, where we want to sell and who we want to sell to. We work closely with our customers our core translodes and short line partners to better understand their needs and how we can work together on growth objectives. This effort led to the implementation of new products and furthest enhancements, including our Detroit business and also our Ohio Valley Lane, new and expanded transload facilities and increase menu of equipment options and information systems that will provide efficiency and ease of doing business for our customer. Just this week, I am super excited to host a cross section of our customers here in Calgary as an advisory council to discuss in detail what they are looking for from CP and how we’ve enhanced our customer experience. I'm excited about the opportunities that came out of this event. And in 2018, we’re going to continue to expand our reach, including the short line conference with our short line partners and work hard to strengthen those relationships and…

Thanks, John and good afternoon. As Keith mentioned, this was another record quarter by almost every measure. Despite some difficult operating conditions and outages in the quarter, we archived revenue growth of 7% on an exchange adjusted basis, supported by 4% RTM growth. Incremental margins remain around 75%, thanks to disciplined resource management and a well executed operating plan. The fourth quarter operating ratio was 56.1%, an improvement of 10 basis points and a new quarterly record. This is an exceptional result considering we face cost and operating ratio headwinds, some higher fuel prices, higher incentive and stock based comp and several network disruptions. During our last earnings call, when I guided to mid 50s operating ratio to Q4, I certainly didn’t expect all of these headwinds. So I'm quite proud of the CP team’s ability to deliver. The combination of strong revenue performance and continued cost control translated into record bottom line results. Adjusted diluted EPS was 6% higher this quarter. This further proves that this operating model is adaptable, resilient and consistently delivers results in any environment. A few specifics on expenses in the quarter. Comp and benefits expense was down 3% on an exchange adjusted basis, largely as a result of higher pension income and operating efficiency. This was partially offset by higher stock based comp, which I mentioned, incentive comp accrual, labor inflation and increased volume. Our year end workforce was 12,200, 5% higher than the previous year but flat since Q2. Fuel expense was up 19%, primarily as a result of higher fuel prices. Fuel prices rose sharply in the quarter, which created 100 basis point headwind in the OR. Purchased services increased by $34 million or 16%. In Q4 2016, we conceded the sale of our Obico Rail Yard and recognized a gain on…

Thank you. That said, thank you John and thank you Nadeem for your comments. I am opening it up for the Q&A.

[Operator Instructions] You first question comes from Ken Hoexter from Merrill Lynch.

Keith, if you look at your CapEx I guess maybe not down as much as it could have been and giving your low double-digit outlook. Have you at the point where you need the revenue growth really to get the upside to that low double-digit earnings, but just trying to get where the leverage is, or is it the lack of buyback? I'm just trying to get where do you see the leverage coming into the business, given the growth in volumes you anticipate getting back on board?

Relative to CapEx?

Yes, I guess, it looks like your CapEx starting to inch up a bit, or I guess is that coming down as much as would have expected. I mean, it's ramping up to $1.3 billion, down from the $1.1 billion back in '16, so starting to creep up again.

Number one, we pulled back heavily, we pulled back early on CapEx, back to the $1.1 billion because we have created tremendous amount of surplus capacity and obviously we had adjusted the marketplace. So we’re very strict stewards with our shareholders’ capital so we pulled back but as we go forward, the difference of the delta essentially for the hopper cars. It’s the main primary piece and [indiscernible] would be project as we look to grow our revenue streams that would match up with a strong return relative to John’s ability to bring on new customers. So it's driven, I would say, the lion share of it is on hoppers and that’s a revenue play and a productivity play with some incremental revenue tied to John in project development for us. It's still in the reach of our network transload strategy those type things, none of those are big bucket items, it's just that’s same levels that are out there.

Ken, just to recall, I mean, it wasn’t too long ago when we’ve bumped it up to little over $1.5 billion. So as Keith mentioned, we proactively pulled back early for the pre-recession hit. And we’re in a strong position of having a lot of very good return projects available to us, and it’s a matter of taking advantage of those opportunities as well.

We’ve already said, the first call on cash is internal. We get an opportunity to invest money and integrate a return that other than returning to a share buyback that’s exactly what we’re going to do to grow the company long term.

And I guess if I can get my follow up on the work force, I mean, phenomenal job on the operating ratio, especially as Nadeem mentioned given the weather and what you fought against. But workforce up 5% year-over-year I guess but more importantly, starting the creep ups sequentially. Can you maybe provide or Nadeem your thoughts on the workforce into 2018? Should we expect to see that ramp-up given the volumes coming back on maybe a relative ratio one versus the other?

No, I think you should expect flattish overall headcount. We’ll continue to get more productive, that’s not going to change the story. We’ll do little bit more or less. We got to convert our investments as we continue to strategically and surgically extend sidings and working yards the work we’ve done in Vancouver, just overall mix of productivity initiatives helps us offset those additions. I’ve got one casing point I'll share with you I am pretty excited about. We talked about signing a hourly collective deal in the U.S., we had a progressive deal. We have the engineers now I guess for a year or year and half. Last year, we were able to convert the inductors as well. So our running trades employees south of the border roll an hourly deal, which means we can get more utility, more productivity out of the employees. So essentially what we’re doing is we go forward. We’re shifting our operation around. We’re shutting down Harvey, which used to be a crew change point for us. There we’re really going down to St. Paul and essentially we have been doing this now for about probably two months, running trains with two crews, we’re doing St. Paul, we’ll go to Enderlin, we’ll change crews, we go to the border. And actually vice versa, we come to the border we’ll go to Enderlin, we’ll re-crew it and we’ll put another crew and go down to St. Paul and then we could go from St. Paul there on to Portage, Wisconsin there and the Chicago. So we’re essentially, from a crew start basis, it's not quite half as much in that key corridor for us, but it's very near it. So it's much more cost operation and the services improved, the velocity is improved and our costs have been dramatically reduced. So it's those things that allow us to continue to stay flattish on the headcount.

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

So I want to circle back on the guidance a little bit, you mentioned headcount flattish. Can you improve OR in 2018 or are there some things working against you compared to last year?

We definitely see line of sight to improvement in the operating ratio, Fadi.

Can you talk about potential magnitude given the top line growth that you're going to see…

Looking at it right now, I would say based on -- there is some uncertainty in the marketplace as far as demand but our best guess it's going to be somewhere between 100 and 200 basis points.

And when you look at their top line outlook going into 2018, what do you think could provide potential surprises to the upside. And maybe specifically, are you assuming the crude business continue to build into 2018, or you're not assuming that?

I think we expect the Q4 run rate on crude to continue. I could tell you, certainly the demand has come on strong in that area, but we really strategic on how we're bringing it on. So I think there is going to be opportunities as the year progresses but we're going to pick up partners reliably and we’ll see with how that crude materializes. But frankly, I look across all the other commodities with may be the exception of U.S. grain and a few other bits and pieces there. Things look generally positive. You got heck of an upside in the potash markets and we’ll see what tech guys do. But I think there is opportunity on the coal front. And then our chemicals and non-crude energy business refine products has been pretty solid also.

And I think the key point to keep in mind, Fadi. Number one, we got capacity on this railway, but its operating model and the progress to-date over the past several years we’ve created capacity. And in this environment, we're faced with today, by enlarge day in and day out those customers recognizing; number one, the need for reliable service and the value in that capacity. So we're going to make sure that we, to John's point, partner strategically with those that appreciate that capacity. We’re not going to allow ourselves to be commoditized and we’re going to bring value to the bottom line, both to the customer as well as our shareholder on the basis of the strength of this franchise, the capacity we have that we can get too in very short order at very minimal capital expense of getting with a very engaged workforce.

Your next question comes from Walter Spracklin from RBC. Please go ahead. Walter Spracklin your line open.

Looking at your revenue guidance, is it possible that you could give us a little bit more color on how much mix is going to impact your revenue guidance. And whether are you going to hold the line on price and therefore how that mix affects your volume outlook for 2018?

Well, I’ll answer the price question for John and for you. We're definitely holding the line. As I’ve said, we’ve got a valuable commodity here in capacity and service and we're going to make sure we extract a fair price for that. And I’ll let John speak to the mix point, Walter.

Walter, I think we're going to have a mix headwind that ongoing into 2018. We’ve got -- I’ve no doubt, I think if crude continues to grow at some point during the year, I expect fully strong potash year as I mentioned and also the coal front. On the automotive front, which is typically a high extent RTM, there's not a lot of future opportunities as we move through 2018 in the automotive front. So I expect weaker volumes on that and also fertilizers. So I expect mix to continue to be a headwind. We'll have to see how it plays out in terms of how far it bounces out the price that Keith spoke about.

And in turn both of you mentioned there're some opportunities for some share gain with contract renewals coming up in 2018. Is it safe to assume that you're not including those in your guidance for next year and that would be upside? And if so, Keith you mentioned capacity. How much more revenue growth could you take on or volume growth could you take on before you think capacity might become a little bit constrained?

The best answer relative to capacity depends on the lane and depends on where it is. Obviously, we're talking about additional, train starts of addition of bullet trains. You get it to a point where you look at locomotives potentially, although we have locomotives in storage, that's not a huge concern. But by enlarge capacity unless it's a stepped increase business, I am not concerned. It's a matter of hiring employees, training employees. There's about a six month window from the time we pull the trigger, we try to keep the headcount tied, obviously. We try to control that and match that timeframe against business. So with that said, that's really the only lever I’ll pay the most attention to but I don't think we have any issue with that. And you're right with the assumption on the guidance. We're not baking in and there would be some upside if we had a chance to get contract win there, to your first question, Walter.

Your next question comes from Chris Wetherbee from Citigroup. Please go ahead.

Wanted to touch a little bit on -- when you think about the guidance for next year, how should we think about land sale opportunities, both from an OR perspective, I guess maybe EPS perspective, as they run through the operating results as well as maybe from a free cash perspective. Should we start seeing some acceleration in those numbers? Just want to get a sense on how you guys are thinking about it whether it's included in your guidance?

As we mentioned last quarter, we had one deal we expected to close in 2017, that's been pushed into 2018. You should assume a magnitude of about $50 million to $60 million of land sale lumpy but I'd say Q2 and beyond. I would assume in terms of free cash that yes we're going to see a good ramp up in free cash. You should expect $1 billion plus, $1.1 billion probably a fair number, that type of magnitude.

And the 50 to 60 is also in the EPS guide?

Yes.

And then you mentioned in the prepared remarks about some deleveraging opportunities and obviously you're moving towards your leverage target, following some of the tax law changes. Are there opportunities for you from -- to move some of the debt from the U.S. to Canada I don't know what the opportunities are in that respect? But does the tax law changes present some incremental opportunities, which could maybe drive that tax rate certainly be lower than the range you're giving us for 2018 when you look out to 2019 and beyond?

Yes, it's certainly something that we're looking at. I don't have an answer for you now in the sense that some of the recent changes of tax reform, we're working through the various opportunities. We’re going to do what's right, what's best for the business at the bottom line. Certainly, when we look at debt in some of your capital allocation as well, it's outside in and we’ll continue to look at where we can best use our cash and where we can best take advantage of opportunities from a leverage point of view as well. So I don’t have a firm answer for you right now, Chris.

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

I guess, I wanted to just talk a little bit if you could on the potential trajectory of growth for 2018. Is it fair to assume just looking at the volume numbers and the lap periods from last year? Or is it something else specific that might change that trajectory a little bit?

No, I mean again as I said, I think most of the commodities look green in my eyes. We've got a good opportunity in terms of continued I think natural share rebalance out there in the marketplace other than U.S. grain, which I certainly see a headwind. And certainly I guess there is uncertainty as we get into the new crops or Canadian grains and other pieces but the rest of the area presents a good upside.

I guess, John maybe I didn’t asked that properly, but I was talking more about the quarterly breakdown. Is it more like just Q1 a bit of an easier lap and then Q2 as a bit of early harder lap I guess? How do I think about that from volume growth perspectives on a quarterly basis?

I've got that. Yes, definitely, that will progressively quarter-over-quarter get tougher as we move through the year.

And I guess if I would ask just one more on the crude by rail. You talked a little about getting strategic partnership with some of these players. I guess I was wondering to the extent that you can help us here. Are the oil companies at all interested in getting some times of longer term commitments or is that what you’re trying to get? Or if you can give us some color there that would be helpful?

We’re not talking about longer term commitments. We’re talking about strategic realignment with customers that do other than ship crew. So we understand the crew is only going to be here for a certain period of time. We're looking for strategic partners that s long-term objective that along with ours that allow us to have a more stable book of business and that falls in line with rebalancing business and what shares our franchise well how we can bring value to the bottom line. We have to move their assets to lower their transportation cost while we bring value to our shareholders. So those are the type of customers that we’re talking about, customers that do business not only in crude but also wether ones.

So I guess could just that means just getting a bigger share of the wallet for the customer overall, is that going to work over…

That’s correct with the overall book that's exactly what we’re talking about.

Your next question comes from Brandon Oglenski from Barclays. Please go ahead.

And I apologize in advance, it's going to be a merely analyst question for you Nadeem. But can you go back to the [multiple speakers] I think you called out pension income moving up about $100 million this year. Is that right?

Yes.

And then if I heard Keith right, I think you guys are looking for about 100 basis points to 200 basis points of core margin improvement. So thinking about 2017 and then moving the pension income out. But nonetheless, I think when I do that math what mid single digit revenue growth, we are getting to earnings growth that would be probably north of mid double digits. So, I guess how do you reconcile that your full year earnings forecast?

I'm not sure I answering the analyst questions, Brandon. You know, I think there is couple of things, certainly, if you want to call the conservative -- the guidance is a little conservative, you can call it conservative. There are some headwinds that currency you can say, we are in the range to currency fall, right now, it's below our guidance, it's 124 and seems to be strengthening more than -- Canadian dollar seems to be strengthening, which could be up a headwind for us as well. Anything you can ask for fuel prices right that’s per OR and could challenge the 100 to 200 basis points improvement. So, it's just still early in the year. What we would like to do better than the low double digit guidance absolutely. I just think it's -- we think it’s a prudent thing right now in early January of the year to have guidance that we think is very achievable.

I guess Keith for being where the market can get really fixated on OR, but just given this real estate change with pension accounting. Do we still think above 60s or maybe even a high 50s OR is the right place to run this business? Or do we look at top line opportunities and say a slightly higher OR is okay?

I mean Brandon we've always talked before this pension change that we are capable of getting to a mid 50s operating ratio. It's going to like I said it's to be about a 400 basis points change with the accounting standard, so mid 50s or get to high 50s. So I think we do think we can still improve the OR from low 60s to back to something little price may not be this year, may not be -- might take a couple of years to get back to that level. We are not fixated on the OR, it's kind of a product of what we do know to reinvest in the business. I mean we are focused on return on invested capital or focused on earnings growth as a whole. So I think if you do all the right things in those areas typically you also get a very good OR.

The magic recipe here is it's not so magic. We have been doing it for a while. I have been doing it for a couple of decades now. You control your cost, deliver great service. Operating ratio is a natural or positive outcome of that, but most importantly drives earnings growth. That’s what our shareholders want. I think that’s what they appreciate, certainly we appreciate that the shareholder and that’s what ultimately going to be what leads us to the right decision.

But you shouldn’t take this release in our comments in any way to think that we don’t think that we could have the strongest OR best OR in the industry, which I'm predicting you probably will have this quarter.

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

Keith or John, I just wanted to get some thoughts in terms of how your -- your broader look on volume versus price seems that I guess maybe it's more true for the North America and terrific transportation capacity situation, but things seems really tight in Prague, pretty good outlook for volume on rail. And there is on a fact from what your competitor does, so how you think about kind volume growth this price and whether you would expect a little bit of acceleration price to the function of some tightness? Is that same to be the case in the market?

Tom, I guess just a couple of comments. I think certainly we've seen through 2017 an uptick just about every quarter. So I don’t think anything is changed. If anything that capacity that you spoke about probably continues to get a little tighter as we move into 2018 and I think that does present an opportunity. I mean certainly our position and Keith has been loud and clear on it. I've been loud and clear with my marketing and sales team that we want to try to capitalize on some of that opportunity. We may be seen a little more actions on some of our cross broader and some in the U.S. in terms of direct tightening of truck capacity. But again I expect that to sort of spread North through our Canadian market, as we move into 2018 and present a fair amount of opportunity in our domestic and our model fit.

So would you say that how should we think about the price that embedded in your guidance? Is it kind of 2.5% to 3% type of price? And also the potential for that to be above that level and may be drive up but the guidance?

So, you're right. I think we're in that 2.5% to 3% and keep checking. I think we do believe there is some upside to that as we look into 2018. I don't if that goes to 3.5% to 4% or that will just have to see how that plays out.

Okay, but that would be upside versus what you got into any kind of earnings and revenue guidance.

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

Could you maybe talk a little bit about the assumption for FX and fuel in 2018, Nadeem, what you assumed?

We've assumed that $3 for storage fee and currency fee of in the range of 125 to 130.

Could you talk a little bit about the ramp up at K+S on the weather? There is a further growth opportunities or whether you’re at full capacity or any update on K+S fleet?

Yes, so Benoit, they actually ramped up pretty good the back half of the fourth quarter. I think there objective is ultimately to get to that 2 million tons. I think I'm not sure that’s going to be a 2018 number at all, but certainly we expect them to get in that 1 million and 1.5 million range.

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

So this may sound like a 2018 question, but I promise it's actually a bigger picture of the question. Keith, both you and Nadeem said that you're really excited about 2018 and certainly in our most recent shipper survey, some of the numbers that came back were kind of eye popping in terms of how bullish people are. Yet your guidance on the volume side points to pretty much low single-digit growth, if you're going to back into that. Is this kind of the range we think off for the rails going forward where kind of maybe close to bigger cycle and things are really going well, you're growing volumes like low single-digits, and then what's the downside when things are good? I am just trying to figure out what that range or volume growth looks like at various points to the cycle?

Our guidance was actually mid single-digit, which exceeds what GPD would give you naturally. This company's tailwind still writing chapters about repatriating business about winning business based on our service offering. So, again there're puts and takes in that, but by and large to John's point, there's the macroeconomic as well as the micro specific to see environment is favorable. So, I expect this company over the next year to two to three years that gets I can make some information I've got in front of me to exceed what normal GDP growth is. I've got a couple of points. There's opportunity out there to convert them. We're bit conservative in our guidance. We've got to work hard to achieve it. We're not going to get arrogant. We got to be humble and run our customers business every day, but this operating model and this franchise, there's a lot of opportunity to create value for our customers and we're meeting for middle term create that.

And just a follow-up to that, there's been some talk recently about NAFTA and then some concerns coming out of Canada that NAFTA maybe changed in its current form. I am just wondering kind of what your current views on that? And what CP's exposure or what are you thinking off in terms of bull, bear and base scenarios, if there were to be a change with NAFTA?

My concerns on that is more to macro level, what does it do the broader North American economy, on a micro level, number one we're staying very close to this, myself, staying close to the minister, the Transportation Minister, Foreign Affairs, how this does potentially could affect commerce between the two countries as well as the U.S. Ambassador to Canada that’s something topical for us. We're paying attention to it. But at a micro level, our direct commodity exposure is fairly modest, 30% of our business is cross border, but this number our stakes are true exposure. Our cross border is primarily agricultural products stuff like grain, potash fertilizers, chemicals, some autos. Again auto has done a huge piece of our business it's about 3% of the book for crude and forest products which is standard outside of NAFTA. In reality as U.S. relies heavily on these raw materials that we're shipping south to support the overall economy. So at the end of the day macro concerns, not as much micro, certainly we'll stay close to it, worst case if NAFTA repeal, we feel that we're going to go revert back to what existed before, which is an agreement between Canada and U.S. on free trade, and/or worst case WTO level commodities by creating fertilizers in steel, they don't have any cares at all. So at the end of the day, we're going to pay attention to it. Still think it's early in the game, I am starting to see some signs that Mr. Trump is probably seeing, the same things we see that makes a whole lot of sense to have healthy commerce and trade between these two countries.

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

I just wanted to follow up on I guess Brandon's question earlier about some of the moving pieces and guidance. So if we're doing the math right between pension, interest expense, share tax rate and real estate. You got 11% and 12% earnings growth just from that. Nadeem, I think you laid out a couple of headwinds. Is there another way just to help quantify what the headwinds are that you see that for sort of offset that? I know you laid out fuel and currency maybe somewhere else, but can you also quantify what those headwinds are?

Yes, I mean if you look just currency alone if you take this fall rate and played that out I mean that could be $0.30 or 3% EPS headwinds. Fuel is more of an notional headwind on the operating ratio rather than really an earnings headwinds, but I'd point out that and then I just point to while we just the previous question from Ravi about both NAFTA and uncertainty and what that what could change from a demand factor with rising interest rates, what could change from any sort of geopolitical pensions or any sort of pulling out of NAFTA, what that could mean to this the overall economic environment. But I think you just captured it well, there are some better more tailwinds and there are headwinds and there is probably more upside than there is downside risk. Again, I would just say it's early in a year and you never know what's going to happen with the crop year, you never know what's going to happen and with weather. You could have a challenging January, February with weather and so forth. And so I think it's just the prudent thing right now to lay all the a low double digit EPS scenario.

And then for John. Can you explain why you think the run rate for crude doesn't move further --that doesn’t move up more just given where differentials are and where production is coming? And then just maybe along these topics of crude growth and you talked about mix, relative to that 3% or so pricing that you are expecting this year order of magnitude is mix similar sized to that on the headwind or any sort of directional on sizing mix?

Yes, on the mix comment it could be, it could bring in the price mix both to flat, again well it's sort of depends on, if to your first point, if more crude does come on and we find those partners that Keith spoke about and those opportunities materialize, that can certainly continue to drive that mix issue. So it could bounce that out. The crude demand, no, doubt has accelerated and I think we are doing what we've said we are going to do from day one. We're going to be very prudent. We're going to be cautious. We've been moving forward in this market. If the mobile resources are available, the opportunity make sense with the right partners will move on it and will move swiftly and will capture those opportunities, but we got to evolve so whether win or weather operating right now, we've got a lot of grain to move. We've got operating challenges with other railroads in North America. But balancing all that is the prudent thing to do right now and look as we get into the grain and you sort of see what's going with grain and other areas. And if we can pick those right partners, yes, I'd say there is some upside.

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

Just a quick one for me. As it relates to the new services John or Keith, can you explain some or describe some of the traction you've been seeing with your new service offerings or down from that you described? And perhaps what you might be planning for 2018 in terms of adding to those?

So, I don’t have our latest Detroit volume in front of me, but I can tell you it's been widely successful. Our partner Hapag-Lloyd has been very pleased with our performance in that lane. We are delivering the service and trains that we had expected in that lane. I think it's going to be an attractive service with some of the contract we are working on, where we are working towards a launch of our Ohio Valley service here, and I would say let's call to next 30 days. Again, we are excited about the sort of the backhaul reload opportunity that that’s going to present and again give us more optionality with some of those moral customers. I'm excited about a new ag trains load that we are on the cuffs of announcing maybe little deeper here in the probably the next month in the twin cities area, again to give our Intermodal customers broader opportunities for the DRP and export lanes back out of Vancouver. I still see a pretty tremendous transload opportunity for us in the Toronto and Hamilton area. We've recently made some investments in some warehousing and liquid hazmat and non-hazmat transload opportunity in Hamilton that I think brings a fair amount of Intermodal opportunity. And I can say there is the list sort of goes on, but I can't tell you all my secrets.

I think the last hazmat material may important and I am excited about week from Sunday I guess. John and on team bringing over to Asia to open up our Asian office located in Shanghai, so we'll up there doing a grand opening, connecting with customers, educating them about the service offering and value of this railroad brings to the table in North America. So that’s announcement we are pretty excited about.

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

So clearly you've done a very good job staying disciplined pricing for the value of the service, not chasing volume, but now the market looks more supportive and pivot. Dynamic is probably getting a little bit easier in the last couple of quarters. And what sort of controls incentives are there in place of CP to make sure you follow the quality of revenue and not just the revenue?

We measured and actually our compensation programs have a measurement in there with the quality of the revenue is part of the measure. So number one could be compensated for to receive the commission for the account versus your objectives just got to qualify make those minimum profitability and margin threshold before it even counts. So, there are definitely some very surgical focused measures that’s specifically speak to quality revenue. We are not going to grow for the sake to grow and we are going to make sure we can bring it to the bottom lines that are embedded into our comps or our marketing team.

Just to build on that the key thing on, we actually for 2018 significantly increased our, what we call our price components and quality of revenue component for that compensation for our sales team, they are motivated to drive that area no doubt.

And I guess people on my team that are the judge and jury on that making sure that that is paid out in right manner. So, we all have to check the balance and move each other accountable and constructive tension that keeps that there is lot to be effective.

Okay, that's good to hear if we've seen some disciplined there and that quite holding recent times, so that could help. That’s quick one we're just talked about taking market share, growing existing customers. But most specifically converting trucks off the road, it's how much of the book of business would you say is exposed to true truck competition both in U.S. and Canada where you can actually get loads onto the rail and off the road?

Certainly, a fair chunk of the domestic Intermodal is all sort of exposed to that area. It probably is lesser degree as we go down the rest of the commodities. I would say that we -- the domestic Intermodal team at CP has done a heck of the job, frankly last three years. The growth in that franchise and converting the service has been sort of fair amount. It's been in the focus and it's carried with its disciplined pricing. And you know what, as I look into 2018 and there is actually, look we're missed, we’re talking about the commodity areas where we got growth opportunities and headwinds, I fail to mention domestic Intermodal, but there is no reason that we can back another year like 2017. On to that and I do believe and I don’t know if it's 30% or 50% of that growth, but can come off the road. I still believe there is, as we keep talks about deepening seeking presence in our customer total book of business and total wallets, there is a lot of over the road conversion out there that still exits and we're keenly focused on it.

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

So you guys talked about there is Bluegrass JV starting up and you've telegraphed in the past looking for more deals, so just curious of any additional -- there have been any additional ones that you identified that have a reasonably high probability of occurring? And then longer term, are these types of partnerships the key to GDP plus volume growth or even outsized growth relative to your peers?

I would say this right or wrong CP in some of those areas whether it'd be with short line partners or connecting roads had lost little focus. And in 2017 I think with Ohio Valley and some of these opportunities that I spoke to, we're bringing that back in and we’re prioritizing that extension of reach in some of those opportunities. I would answer you and say certainly, I think as I mentioned, we're going to embark as aggressively as we do in terms of sales with our customers. We're going to aggressively sell with our short line partners in 2018. And I think naturally whether it'd be for our auto franchise or bolt-on for our Intermodal franchise or the frankly our carload franchise. I think that does present the new opportunities are the ones that I am ready to tee up and talk about today, not quite yet. But I would say I am fairly optimistic that the first half of this year, we've got a few more of those for a lot of play book.

And just my follow-up question related to PTC. How should we think about the maintenance puts us in 2018? I think you mentioned previously something in the $40 million to $50 million range. So, is that still the right way to think about it? And then do you think that the productivity benefit from the PTC itself can offset this? Or are those going to flow through later on as the system more fully rolls out perhaps in 2019 and 2020?

With the operating expense I think we've got all confusion, I've to clear up. The operating expense for us is non-material. We're going to absorb the submission, some level of the productivity, so we're not going to speak to operating expense meaning any material impact to the Company. The 45 million to 50 million you're talking about is actually our capital outlay investing in PTC, which after we get through '18 it's about 45 to 50. We're looking at about the same number for 2019 and then it follows away. And we'll have that space within our existing capital envelop to deploy elsewhere.

So just to be clear on the sort of net maintenance that you've planned, so you're saying that whatever going to maintenance expense, is that will be offset by the PTC productivity benefits?

No, we're absorbing it. It is in our cost structure, today, a little bit higher absolutely. But it's nothing else and that we can't over come through other productivity. We're not going to say it's coming directly from PTC savings, but throughout its headwind and overcome through other cost initiatives.

Our last question comes from Seldon Clarke from Deutsche Bank. Please go ahead.

So you talked a lot about items on both the revenue and cost side which we don't need rehash, but if you do some quick math you get to and implied the incremental margin like close to 45% somewhere in the mid 40s. Is this still the right way to think about like the business longer term and kind of like post-precision railroad world? Or are there some more kind of higher cost inflation in 2018 and like I guess won't continue longer term?

Well I think one thing that you should factor in as well, I mean we have an assumption on stock-based comp that's we're going to perform well and that's a stock will continue to run, and so that's going to be an embedded cost factor, I mean depending on how you do your incremental margin calc is something you might want to exclude it, but so I would just point that was kind of one item. But no, there's nothing material in terms of increased inflation and so forth, I mean this is guidance that we're giving you in January and where we see things in the year unfolding. Certainly, I talked about our 75% incremental margins is being something that we feel good about and confident about. So I'd say look to your Q1 results come through and let's talk about the incremental margins on actual and then we can as a bit more of a fulsome discussion over actual results.

And then if you look at just CapEx and takeout the green stuff, I think you are implying somewhere close to 20% of sales. Is that a good run rate to think about longer term?

It's a time as a percent of sales of the difficult ratio and not something else we really even look at. It can be impacted by a number of things to that currency, fuel surcharges and so forth. I think a fair number is that range we gave you. We have pretty significant number tided to potentially to the cover offers. So I'd say a range of 1.3 to 1.5 billion is a good number to think about and utilize over the next several years.

And then just quickly, was there anything in particular in Q4, I think just CapEx came a little bit higher than we're anticipating. Is there anything particular in Q4 drove that?

As we put forward some opportunities in Q4, so we have some opportunities to put forward on the engineering side that we did and that's why we got a little lumpy.

Alright that's why we wouldn’t really see much growth excluding the green stuff.

Right.

And that was our last question at this time, please continue.

Okay. Well, that's going to wrap our comments today. On the closing saying, we had a very solid 2017 instead our sales up for a very positive 2018, and we certainly do not expect to disappoint our shareholders. We've got our best-in-class team, they're energized. We've got energized work force. We've got some very valuable capacity out here that we're in the marketplace converting, but I caution you and I had emphasis to control the sustainable growth. With that said, I'll wrap up the call and we look forward to sharing our results end of the first quarter. Thank you.

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