Canadian National Railway Co (CNI) 2025 Q4 法說會逐字稿

Good morning. My name is Christa, and I will be your operator today. (Operator Instructions) At this time, I would like to turn the call over to Stacy Alderson, CN's Assistant Vice President of Investor Relations.

Ladies and gentlemen, Ms. Alderson.

Thank you, Christa. Welcome, everyone. Thank you for joining us for CN's third quarter financial and operating results conference call. Joining us on the call today are Tracy Robinson, our President and CEO; Pat Whitehead, our Chief Operations Officer; Janet Drysdale, our Chief Commercial Officer; and Ghislain Houle, our Chief Financial Officer.

You can turn to page 2 of the presentation, which includes our forward-looking statements and non-GAAP definitions for your reference. These forward-looking statements reflect our current information and educated assumptions and include estimates, goals, and expectations about the future. These involve risks and uncertainties and actual results may differ from what we expect.

As a reminder, forward-looking statements are not guaranteed, and factors such as economic conditions, competition, fuel prices, and regulatory changes could impact actual outcomes.

It's now my pleasure to turn the call over to CN's President and Chief Executive Officer, Tracy Robinson.

Thanks, Stacy, and thank you all for joining us today. I'm pleased this morning to share our Q4 and full year results. 2025 was a year in which this team delivered strong performance against the backdrop of significant volatility in a challenging macro.

The actions we took over the past year were proactive and exactly what the environment demanded. We've been disciplined, we've completed an important investment cycle. We've maintained a relentless focus on productivity and improvement and increasingly on commercial intensity.

These actions drove our 2025 results. They helped us navigate a tough year and set us up well, when the volumes start to grow across the industry again.

Now on our last call, we made three commitments to ensure we deliver the type of returns we know CN is capable of.

The first was on performance. As Q4 demonstrates, we continue to intensify our commercial execution while maintaining strong, disciplined network performance. Our focus is simple, concentrate on areas we can control and deliver through execution, regardless of the macro backup. Our results today reflect this focus with improvement across all key operating measures.

Second, on financial discipline. We reset our capital programs to reflect today's environment with concrete actions to reduce costs and improve productivity. These actions are strengthening free cash flow, and we remain committed to returning excess capital to shareholders while maintaining a strong balance sheet.

And third, on guidance. Now, given the elevated level of macro and policy uncertainty and limited visibility. We think it's appropriate to provide directional guidance tied closely to volume trends rather than precise targets that can change quickly or become outdated.

So let's turn to the fourth quarter We closed the year with solid momentum, reflecting strong execution, reliable service, and continued discipline on costs and assets. In the fourth quarter, we delivered 14% EPS growth and 7% for the full year in line with our mid to high single-digit guidance.

I'm also pleased with our efficiency. In Q4, our offering ratio came in at 60.1%. Our best quarterly operation -- operating ratio of the year, and a 250 basis points improvement over last year. For the full year, we posted a 61.7% operating ratio, improving 120 basis points versus 2024.

On cash flow, we generated $3.3 billion up 8%, driven by cash from operations. And we remain disciplined on capital spending, continuing to tighten throughout the year. Cash flow remains a top priority, and the actions we've taken continue to support a strong trajectory.

The volumes held up well through year end, led by Grain and Intermodal. We set a number of records on Grain. And Intermodal we benefited from an easier comparison as we lap the ILWU strike in 2024.

We saw notable strength in figments where our service and commercial execution have helped us drive share gains. Janet will walk you through the key revenue puts and takes in just a few minutes.

Across the network, we continue to make meaningful progress in operating performance and efficiency. In the fourth quarter, we saw improvement across all of our key operating measures. Car velocity improved, terminal dwell reduced, train and locomotive productivity increased, labor productivity strengthened materially, and we achieved fourth quarter record in fuel efficiency.

Now these [gain] reinforce my confidence in our ability to perform consistently, even in a challenging demand environment. Pat will take you through the initiatives. He and his team are driving to build on this momentum.

So to sum it up, despite care pressures that intensified in the second half of the year, and ongoing trade uncertainty. We execute it, we stay disciplined, and we deliver.

Now looking into 2026, our focus will continue to be undisciplined execution. We'll prioritize the levers we control, stay close to our customers, and stay grounded amid a volatile macro environment.

As we look ahead, uncertainty remains high in visibility limited. Economic growth looks muted, and it's hard to call where the tariff situation will land or what it means for trade flows. The outcome of the USMCA review could influence trade and freight demand in ways that are tough to size up today.

So against that backdrop. We believe a more directional framework for guidance tied to volume trends makes sense. Given what we see today, our base case expectation is that the volumes will be flattish with 2025.

It's important to note that at this time the most reasonable approaches to assume that current tariff levels stay where they are. So our base case expectations do not build in any upside or downside from further tariff action.

And as the year unfolds and hopefully visibility improves. We'll keep updating our view. And we're going to continue to pull every lever on productivity across the organization, and we will see incremental gain, although not as significant as those we achieved in 2025.

We have some headwinds to work through in 2026 on next, and in some expense categories such as Janet will take you through. So in relatively flat volumes, we expect EPS growth to slightly exceed volume growth.

Free cashflow will continue to grow in 2026, and we remain firmly committed to returning that cash back to our shareholders. We're also taking a deliberate temporary step-up and leverage to drive share repurchases, reflecting our confidence in the underlying earnings call of this business when volumes return.

And as a team were staying locked in on delivering for shareholders in any environment.

Now we're building an engine with strong operating leverage, strong cash generation with resilience and the flexibility, one that will accelerate earnings and margins as volumes improve, whether through a better economic backdrop, clarity on a reasonable tariff arrangement or continued progress on Canadian trade diversification.

And importantly, the muscles we've activated over the last 18 months around cost and productivity are now firing across the end. That gives us meaningful leverage as volumes return without requiring a significant step up in capital, and our teams will continue to push hard for efficiency.

Now, just a few words on the proposed industry consolidation. We know this is top of mind for many of you, and it certainly kept us busy as we worked through the details. UP and NS filed their application in the STB as we expected deemed the filing incomplete.

The industry still has a long road ahead in evaluating this transaction. It is not at all clear that the transaction as proposed addresses many of the questions around the negative impact on competition. As well as the bigger issue of increasing rail competition.

The concessions required to achieve this will be significant. This should be the focus that UP and NS prepare their refiling, and we're eager to see how they'll address these issues in the revised application, I'd say they've got a long way to go.

Now will this process plays out the majority of our team remains focused exactly where they should be on running our business and driving value to our shareholders. The team is fully aligned on executing day to day, winning every carload, delivering safe and reliable service for our customers and continuing to convert strong execution into growing free cash flow.

I am impressed with how decisively our team has stepped up, and you'll see this continue. Longer-term, our opportunities set as the railroad of the North is compelling. We sit at top an incredible natural resource base with enviable access to North American markets in an unparalleled port network that provides pass to every global market.

It's uniquely positioned us to support customers in both our current markets and as trade flows evolve. And we're seeing to start this play out in some sectors now. The decisions we've made over the last 12- to 18-months, we will continue to refine positions of the strong operating and earnings leverage as these volumes lift. And throughout, we'll see disciplined on capital and focused on execution and free cash flow.

Pat, you're up.

Thanks, Tracy. I'll be speaking to slide 6 first. The team delivered a strong fourth quarter, and I'm pleased that the three areas where laser-focused on are paying off. These are one, insure our people are at their safest and most productive; two, delivering our promise to our customers; and three, to maximize margin by controlling unit costs and asset utilization.

It starts where it always does for us, safety on the ground. In Q4 and for the full year, we achieved the best injury frequency ratio in our history that reflects consistent execution and is core to our performance this quarter and going forward.

I want to first recognize our frontline teams who approach their craft as true professional railroaders. While this record is meaningful, our focus remains on every one of our CN family members going home safely every day. We want this for the families and the communities that count on us. That foundation allowed us to take on more work and deliver for our customers.

Our workload increased 5% year-over-year, a bump partly supported by our grain customers. We carry record setting grain tonnage for Western Canada for four consecutive months, while maintaining reliable service to our merchandise customers with local service commitment performance well above 90%.

From a network standpoint, Q4 tested resilience. Particularly in December, when winter operating conditions required shorter train lengths for the entire month. Despite this, car velocity improved 2% and dwell declined 1% year-over-year in the quarter. That tells us we're not trading service or velocity to manage disruptions we're improving both.

The takeaway from the quarter is straight forward. We handled more volume with discipline, even under a full month of winter constraints.

Turning to the next slide, this is where the operating model shows up in the bottom line. On labor, T&E productivity improved 14% versus Q4 last year. We entered the quarter with approximately 800 furloughs and exited with about 650. So effectively adding resources to support the grain program and winter readiness.

On a full year basis, we improved our T&E labor cost per GTM by 6% with GTMs up by 1%. That's more output with a smaller cost base. That same rigor shows up in how we managed our assets. On locomotives productivity improved 5% year-over-year in the quarter with roughly 10% of the fleet stored on average.

Looking under the hood, locomotive availability reached an all-time high, nudging up 1% over 2024 to 92.5%. Creating a knock-on effect that cleans up our balance sheet. The result was a $20 million reduction in our mechanical inventory or 14% full year-over-year.

We also achieved a record level of fuel efficiency in Q4. Improving nearly 1% year-over-year with full year results just shy of our best performance on record.

On infrastructure, we completed all eight capacity projects we committed to at the start of 2025 on time. Our engineering team maintained its tight control over installation costs. Totalling near nearly $40 million of productivity gains from 2024 while materially reducing reliance on contractors.

Where conditions allowed, including an earlier onset of winter in some regions, we advanced productive capital work deeper into the season, rather than defer it, improving asset readiness. While reducing contractor spend significantly.

As we look to 2026, we're well positioned. The network, locomotive fleet, and car fleet are in good shape. And we're not satisfied stopping there. To move from good to great, our focus is on precision. That means reducing yard dwell, eliminating non-value-added cost and insuring cars, spend less time waiting and more time earning.

Yards are the anchors to the whole network. Three-quarters of our traffic in our major terminals, and more than half of our staff work in these locations. In engineering, we're continuing to strengthen in-house capabilities, control unit costs, and remove engineering-related delays.

Reducing yard dwell only matters if cars move over the road without disruption. Together these levers expand margins, strengthen cash flow and allow the railroad to perform through any cycle. We see an opportunity to lower our operating expense in 2026 through our cross-functional terminal reviews and continued operating discipline with additional margin upside as volume grow.

With that, I'll turn over to Janet.

Thanks, Pat, and good morning, everyone. Happy Friday. I am really pleased with the way the fourth quarter came together. We delivered 4% more RTMs and 3% more carloads. Performance that reflects how hard the commercial team has been pushing on every opportunity, delivering 2% revenue growth in what remains a challenging market.

What stands out for me this quarter is not just the growth itself, but how we achieved it. The team has been out on the market every day, winning share, capturing singles and doubles and staying relentlessly focused on what it takes for our customers to win.

And while we did benefit from a relatively easier year-over-year comp. That tailwind was partly offset by continued softness in key markets like forest products and metals, which remain pressured by weak fundamentals and tariffs. So yes, we expected to outperform last year, but we also had real gaps to backfill. I'm really proud of the results the team has delivered.

Turning to slide 9, I'll provide a few highlights on the quarter before moving to the 2026 outlook. With an Intermodal, both international and domestic revenues were up 13% and 6% respectively. International was notably strong at Vancouver and Rupert, aided by a favorable comparison against last year's port labor disruption.

Prince Rupert also benefited from gains related to the new Gemini service. On the domestic side, we continue to realize service-related gains.

Turning to Grain, we had very strong demand in the quarter and our operating team did a great job in getting the grain from the elevators to the terminals. So not only did we set an all-time annual record in 2025 for Western Canadian Grain segments. We had monthly records in October, November and December.

With petroleum and chemicals, we saw growth in all segments, led by a 9% increase in natural gas liquids volumes driven by strong domestic demand and continued export strength through Prince Rupert. Forest products remained under pressure due to weak demand and increased tariffs and duties.

Within metals and minerals, we saw lower iron ore shipments driven by weak fundamentals, the mine closure in late Q1 of last year and some unplanned outages. With persistently high natural gas inventories in Canada. We also had a slowdown in drilling which impacted frac sand.

We continue to generate same store price ahead of our rail cost inflation. However, our overall results reflected negative mix and a roughly $70 million headwind related to the repeal of the Canadian carbon tax. We had a fuel tailwind and an FX headwind that combined or a net impact of less than 1%.

Tariff, trade uncertainty and volatility impacted our full year 2025 revenues by over $350 million.

Turning to the 2026 outlook on slide 10. In terms of the macro environment, it doesn't look like it's going to be any better than last year. And recall that 2025's growth was helped by a favorable year-over-year comp, so we know we've got real work ahead of us, but we are leaning in hard.

So starting with petroleum and chemicals, we expect to see positive momentum continue across multiple segments.

We will benefit from a number of CN-specific projects, including Phase 2 of the Greater Toronto Area fuel terminal, new fractionators and crude oil expansion projects. Additionally, we expect a year-over-year comp benefit, get on last year's extended refinery turnarounds, which we don't expect to reoccur.

We anticipate Canadian US grains remain strong, particularly with the record Canadian crop as well as the recently announced improving trade conditions for Canadian canola. In terms of potash, we expect some pressure in the domestic market as farmers balance input costs against lower grain prices.

With respect to export markets, we handled some spot moves in Q2 and Q3 last year, which we generally don't expect to be reoccurring, so we have a bit of a tougher comp there.

Turning to Intermodal and domestic, we're continuing to leverage our strong service to drive growth. For international, it's pretty slow right now and we expect that to continue into the second quarter.

We continue to be very pleased with the growth in volumes related to the Gemini service through Prince Rupert. Within metals and minerals, we have some pluses and minuses. Weak fundamentals for iron ore are expected to continue and we're still dealing with the tariff on steel and aluminum.

On steel, we are continuing to hustle hard on mitigating the transporter headwinds with opportunities in Canada. Frac sand demand is unusually weak so far in Q1, but we have new terminals coming online and capacity for NGL exports is increasing, so we do expect improvement as the year progresses.

The auto segment is expected to be flat. Forest products will continue to be challenged as US housing starts are forecast to be flat, and Canadian producers managed with the full year impact of the higher tariffs and duties that were applied in August and October of 2025.

We expect persistent weeks of demand for US exports of thermal coal. For Canadian coal, positive metallurgical coal prices are driving increased production.

All in, we expect 2026 volumes to be more or less flat versus last year. Q1 will be the toughest quarter on a year-over-year comparable, and you're seeing that in our January volume. We continue to price ahead of our rail cost inflation. Unfortunately, we do expect those mixed headwinds to persist, driven by the ongoing weakness in forest products and metals.

So let me wrap up. We are open-eyed about the difficult environment in which we're operating, but we have a commercial team that is highly energized and moving with urgency and agility. We have available capacity and most importantly, we're providing the service that our customers need to win.

Ghislain over to you.

(spoken in foreign language) Starting on slide 12, we closed the year on a strong note. Thanks to the dedication of our commercial and operations team. We delivered solid performance across the board.

Our financial results were further boosted by our continued focus on managing costs and driving productivity, and we remained active on share buybacks as part of our commitment to creating shareholder value. Especially since we see our shares as undervalued relative to intrinsic value and an efficient way to return capital to shareholders.

During the quarter, we reported diluted EPS grew 12% year-over-year, while adjusted EPS was up 14%. These results reflect two notable adjustments. It's $34 million pre-tax charge tied the workforce reduction program we discussed on our Q3 call and a $15 million in advisor fees related to industry consolidation.

We're very proud of the progress on efficiency this quarter. Operating ratio improved by 140 basis points to 61.2%. And an adjusted basis and even was stronger at 60.1%, a 250 basis points improvement. This reflects the hard work and discipline across the organization in managing expenses and driving productivity.

Revenues were up 2% year-over-year, adding to the solid finish for the year.

On slide 13, let me walk you through a few key operating expense categories for the quarter on an exchange adjusted basis. Labor costs were up 4% versus last year due to the workforce reduction charge and wage inflation. Partly offset by 4% lower average headcount and higher capital credits from an extended construction season.

Fuel expense was down 9% compared to last year, driven by two factors the removal of the Canadian Federal carbon tax and a 1% improvement in fuel efficiency. Overall, the impact of fuel prices on Q4 earnings and operating ratio was negligible, essentially flat for earnings and 20 basis points unfavorable to OR.

Depreciation was down 7%, mainly due to two items. The benefit of a favorable depreciation study, which we do on a regular basis, and the impact on certain assets recognized through purchase price allocations that became fully depreciated during the year.

Other expenses rolled 27%, mainly due to higher legal provisions, including a non-recurring $34 million accrual related to an unfavorable court ruling in the fourth quarter of 2025, which we are in the process of appealing.

The increase in legal provision is essentially offset by a $36 million gain on the sale of a portion of a branch line reported below the line and other income. The effective tax rate for the quarter was around 25%.

Turning to slide 14, given the strong close to the year with earnings supported by strong cost management across the business. We delivered full year adjusted diluted EPS of $7.63 up 7% from 2024 and at the high end of our guidance range.

Our adjusted operating ratio came in at 61.7%, an improvement of 120 basis points compared to last year. A clear reflection of discipline execution across the business.

Finally, we remain focused on pre-cast flow generation ending the year at over $3.3 billion up 8% from last year. We also finished a year, $50 million below our Q3 capital projection thanks to stronger capital discipline and real efficiency gains in engineering.

We continued to lean into our share buyback program in Q4. We purchasing nearly 15 million shares in 2025 for around $2 billion reinforcing our commitment to creating long-term shareholder value.

I'm also pleased to report our Board of Directors has approved a 3% increase in CN's dividend, marking the 30th consecutive year of dividend growth, an important milestone in a reflection of our confidence in the durability of our cash generation profile.

In addition, the Board has authorized a new share buyback program allowing the repurchase of up to 24 million common shares from February 4, 2026 to February 3, 2027.

Looking ahead, we expect our debt leverage to increase temporarily to roughly 2.7 times and then come back to 2.5 times in 2027 as we take advantage of what we view as an attractive share price. The modest increase is intentional and fully aligned with our disciplined balance sheet strategy.

Now let me turn to our 2026 financial outlook on slide 15. As Tracy mentioned, given the uncertainty in the environment, we think a more directional approach is the right way to frame the year. For planning purposes, we're assuming revenue to mass will be flattished with 2025 and importantly that tariff stay at their current levels throughout the year.

On that basis, we expect EPS to grow at a rate slightly ahead of volumes. Pricing should continue to outpace rail cost inflation, and we're carrying a good momentum on the productivity side. Recognizing that much of the heavy lifting on efficiency was done in 2025.

That said, we do have some notable headwinds this year, which will weigh on margins. A continued unfavorable mix with less forest products and metal strapping, lower capital credits related to fixed overhead costs as a result of smaller capital program, a higher effective tax rate in the range of 25% to 26%. And the fact that we're laughing last year's other income gains.

In our modeling and guidance, we neutralized foreign exchange, assuming the 2025 average rate of $0.715. Our FX sensitivity is unchanged at roughly $0.05 of EPS for every penny move. At current spot levels, that would represent about a $0.10 EPS headwind.

With CapEx set at $2.8 billion for 2026, a $500 million reduction versus last year, we expect to see continued improvement in our cash conversion rate.

In conclusion, let me reiterate a few points. We're very pleased with our Q4 in full year 2025 results having delivered on our EPS guidance and build strong momentum heading into 2026. While the demand environment remains uncertain, our guidance approach is grounded in discipline and realism.

At the same time, the fundamentals of our business remain solid. Our focus on pricing discipline, productivity, and cost control combined with the inherent operating leverage in our model, but this [instruct] well to generate attractive returns when volumes return.

As conditions evolve, the framework gives investors greater transparency into the sensitivity of earnings while underscoring our confidence and the durability of our cash generation and long-term value creation. With that, let me turn it back to Tracy.

Thank you, Christa will go to question.

(Operator Instructions) Cherilyn Radbourne, TD Cowen.

Thanks very much and good morning. Janet, I wanted to turn to you, to just ask you if you could give some additional color on where your team is feeding the bushes. And whether there's any update on the incremental revenue target that was given in Q3, I think you generated $35 million in Q3 and we're approaching $100 million in Q4.

Yeah, sure, thanks, Cherilyn for the question. So we did, kind of close with $100 million of course that pipeline continues to develop and we probably have another $100 million, so far kind of in our scorecard that we're keeping track of in January.

What I will say is that this is what's helping us to close the gaps in some of the weaker markets, so we do, scene forest products continue to deteriorate even since last quarter, with some additional mill closures or curtailments, when we see the continued weakness in the metals and minerals side.

So we are out there beating the bushes everywhere, I would say, across the board and even in the markets that are little bit more pressured by the tariffs, for example, we are finding some stickiness and some new moves to ship metals, from Central Canada to Western Canada.

We actually have some optimism more recently around aluminum and the potential to move some of that back into the US now that inventories are depleted, that's helping us there.

I would say the service is an important one I want to call out that's been helping us win on the domestic Intermodal side and we're leveraging the strength of our franchise in Western Canada around the NGLs and the frac sand and little weak right now, but we do see that coming back.

So hopefully that answers your question.

Scott Group, Wolfe Research.

Hey, thanks. Good morning. Ghislain, can you just clarify first if the depreciation is a one-time thing or if that's the new run rate. And then Tracy, I just have a bigger picture question, if I think over a long period of time, the beauty of rails was the ability for earnings to decouple from volume and like rails could grow earnings even with negative volume, right?

Because they had pricing and productivity and buyback. And I'm guessing you'd say you still have pricing and productivity and buyback, but I'm guessing I'm hearing a message of like [lines] aren't growing so earnings aren't really growing.

Like, is the historical sort of algorithm sort of broken or is this sort of we've got some unique headwinds. I just want to sort of really understand like the big picture message here. Thank you.

Yeah, thanks, Scott, for the question. Let me answer the depreciation question first and then we'll turn it over to Tracy. So when you look at the total variance of depreciation, it's composed of two things. One, the favorable relative of depreciation study. And as we do these on a regular basis and we try to push the use of our assets and the life of our assets as far as we can. So that is about a quarter of the variants.

And then three quarter of it is in fact we over depreciated the purchase price location of some of the acquisitions that we've done in the past and we discovered this in Q4 and we corrected it. That's about three quarter of the variants.

Maybe to you, Tracy on the second piece.

Good morning, Scott. So, interesting question. So I would say that no, it's not decoupling, there's some unique things that are going on right now. If you think about the unusual impact of the tariff situation, particularly the tariff situation between Canada and the United States and the outside impact that's had on a couple of our sectors.

Janet's gone through them and force products and on metal, that could correct itself over time. But right now, we're looking at pretty significant mix headwinds which wouldn't be normally something you'd see.

The other thing is we look at how the economies are moving, we're getting some extraordinary movements and things like CapEx, so the underlying assumptions that's something that we deal with, of course more than most of our peers and so those are moving around.

So here's what we are doing. We're using this time of a quieter macro and while the tariff situation gets worked out to get, pretty fit, we're getting near, we are focusing on structural cost reduction, this create that operating leverage that you're talking about and it'll be considerable, but it'll be, operating leverage on and earnings leverage.

And so, as I look at our network and our opportunities going forward, it's pre compelling. We sit on top, as I said, of a pretty strong natural resource base. Continuing to develop its across [ag], it's across mining, it's across the energy sectors, across some of the industrial sector, and these are the commodities that the world needs, we've got a pretty privileged position in the routes into the North American markets.

We've got, an unparalleled path to ports, that access all of the global markets and so we're positioned pretty well whether it's, at the exports or whether it's the import of of consumer goods to North America.

So these opportunities we've seen them start and we expect them to continue to accelerate. We've got [passive], we've done the investments in our network, so we're getting really fit, we've got considerable leverage and as you see the tariff situation normalized. Hopefully that'll happen this year we'll see.

You're going to see us some, you see that leverage start to manifest, so we're pretty excited about that.

Fadi Chamoun, BMO Capital Markets.

Okay, thank you. Good morning. So, Janet is mixed in '26. Kind of flat versus last year, worse or slightly better or just want some clarification on that.

And the question I have is, so when you look at the outlook over next whatever year two or even three. Where do you see CN having differentiated opportunities to grow volume, to grow the business. What's a segment or what market do you feel that you have an opportunity to be differentiated versus the economy and kind of compared to the market.

Thanks, Patty, for the question. So let me start with mix. And I want to take a minute to remind everyone, there's kind of two aspects to mix.

There's the enterprise level where you know you see volumes move around let's say between forest products, Intermodal metals and minerals, but there's also mixed within each segment.

So for example, if we look at forest products and we think about lumber, even within that segment, we may be skewing more to shorter haul moves and longer haul moves, just as some of the geography changes occur related to the tariff impact. So, in terms of thinking about, the '26 versus '25 and '25 versus '24, right now it's looking to be about the same level of impact, I think that's how I would quantify it.

But again, we're kind of forecasting on a forecast and added more detailed levels so you know you're going to see some of that come through as you follow the weekly volumes and where they show up.

In terms of where I think we have a great opportunity to differentiate ourselves going forward is really the northern nature of our franchise, the exposure that we have to Canada's natural resource base, and the -- overall Canadian focus on diversifying trade and getting our products to new markets.

I would call on in particular the BC north, which is just a tremendous region for us, including the Montney Shale which has one of the largest unconventional reserves. So that's great for us from two perspectives, it's a natural gas liquids ex-force and it's the frac sand as an input.

I would call out on a longer-term trend our exposure to Canadian grain and the yields that we're seeing improve there in the canola crushers, and I would particularly do that now in the context of some of the trade resolutions that we've seen with China, as we think about 2027.

I like our exposure as well to potash, and I would say, the just natural resources is as these progress things like critical minerals, I think that Canada has a lot of and just finding new markets.

So there's a lot to be optimistic, Fadi, I would say as we start to think about how we get into '27 and beyond. Thanks for the question

Chris Wetherbee, Wells Fargo.

Yeah, hey, thanks. Good morning, guys. Maybe a question on the guidance as we sort of understand it seems like volumes may be a little bit more back half weighted. In the [CapEx] is maybe a little bit more of a headwind in the first half.

So it's kind of the way to think about it maybe down earnings in the first half, potentially higher earnings in the second half, kind of gets you that little bit of a premium I guess maybe the buyback could be something that we need to consider in there too, but maybe a little bit of help with the shape of 2026.

Chris, I think you've got the contour of the year, pretty good. It will be a softer front end given the compare last year and we're seeing what Janet went over in some of the volumes. We did have some one-time benefits from our cost reduction efforts last year in the first quarter, so you're going to see that lighter and it'll continue to improve over the course of the year. Do you think anything to add?

Yeah, on buyback, Chris, absolutely as you know we temporarily going to increase our leverage from 2.5 times to 2.7 times. We want to take advantage of the cheap share price, and we're going to try to transload that as much as we can. And then we plan on going back to 2.5 times leverage in 2027. Thanks for the question

Walter Spracklin, RBC Capital Markets.

Yeah, thanks very much, operator. Good morning, everyone. Back to you, Janet, on volume. When I look at your 2026 outlook slide, I'm seeing, petroleum and chemicals up. You've got US grain up, you've got Canadian grain up, you've got domestic Intermodal up. Those are big segments, the ones you have down is just forestry and fertilizer, so not quite as big.

So when I eyeball that slide, it feels like 2026 volumes are more up-ish rather than flattish. So I'm just curious if you could, is there something I'm missing there and maybe flag some of your strongest upside down side declines, and you could also is Prince Rupert, would you say that's still is that running at the [10%] run rate that you were, you were hoping forward there when you had us up there last time.

I -- okay. So, I mean -- I --there's some art involved in the slide, obviously Walter, but appreciate your question. We see the greatest strength, in ag and energy. So these are the two that I would call out and on the energy side it's really the petroleum and chemicals. And again, kind of one level deeper, it's the NGLs, the refined petroleum products and hopefully towards the end of the year we see some incremental crude come on as well.

Now some of that growth depends of course on our customers and some of them are ramping up. And so, you always want to be a little bit careful about how aggressively you forecast somebody else's ramp up. So I would say that about the business.

In terms of, where things are expected to be weaker. I'm going to still call out the forest products as well as the metals, and Intermodal, I think you know this one's a bit tough to call right now and it really depends on the health of the consumer, I am pleased that the resiliency of the consumer, particularly on the US side that we've seen so far.

But the tariff situation has made that segment a little harder to predict and we've kind a gone through these boom-and-bust cycles. So, I've got some question marks around that.

Really pleased with Prince Rupert. And really pleased with the growth that we're seeing there in terms of the Gemini volumes in terms of the overall performance. And I'm really excited as well now that I have the mic, I'll take a few more minutes just to talk about a few other things that we see on the horizon, especially for those that have the chance to visit Prince Rupert last year.

The connect port facility is continuing to ramp up, so you'll remember that that's really an innovative large scale export transloading facility where we have the opportunity to do different types of commodities, be it grain, be it plastics, and that expansion is really expected to take hold late this year, maybe a little bit into 2027.

We didn't get time to spend while we were up at Rupert around [Intermodex], but I want to call that one out as well, so that's really import transloading, and that gives shippers the ability to consolidate and mix ocean containers into 53 foot domestic units so both of these are examples of how we're continuing to invest in the end to end supply chain and our intramodal ecosystem at Prince Rupert.

So again, I see a lot of optimism on the horizon around that if we can get past some of the near-term macro issues. Thanks, Walter

Brian Ossenbeck, JP Morgan.

Hey, good morning. Thanks for taking the question. So, maybe be Tracy, in terms of looking at the last couple of years, you highlighted a bunch of the headwinds that the business had experienced, but you know we're still gone from double-digit earnings growth to mid single, now flattish, clearly including the headwind on FX, which will be volatile.

So just wanted to understand maybe a little bit more in terms of, what you think has changed or maybe not changed from the underlying earnings power in the business and I'm also wondering is this time we need to spend a little bit more on CapEx through the cycle.

I know it's coming down this year, but I think most of that's on equipment and other things like that. So maybe just some comments on the earnings power and the underlying investment you think you need to be there. Thank you.

Thanks for the question. So as we look at -- what we've been doing over the last year in the last couple of years, you've seen us invest in the network. We had some really kind of important pinch points if we think about what our portfolio base, what our commodity base is going to look like going forward.

We've got the essence sub now 63% double track, we've added considerable capacity to the Vancouver corridor. We've got work going on at the Prince Rupert. We did a very high return project around the [Eugene Lee].

So we've got our network, set up now for the what we see happening in what Janet has laid out over time. That's been an important part of us getting set up for the future. And as you've mentioned, you know we've done a lot of work on the locomotive fleet.

We've gone from the oldest local off we in the industry to middle of the pack pack and continue to work a little bit on that over the time and we've got most of our railcar fleets where we need them, so we're poised.

Part two of that has been really taking a look at [abstractional cost] you know over the past 18 months, we have run really hard at structural cost reduction and we found along the way, one offs and just in year, cost reduction we'll always look into those as well.

And so the engine our underlying margin engine is healthier this year than it was last year and it's going to be healthier next year. So we are right now under the weight of a pretty substantial mixed impact and the tariff -- the tariff impacts which I'm hoping will normalize a little bit as we get through the USMCA review, over the course of what I hope will be the next year.

So I think we're poised, we're exactly where we want to be. We have a Western network that is very attractive from the perspective of exports in the global markets and imports out of Asia. We've got an ag sector that's incredibly strong and growing. The mining the Janet talked about, is set to set to continue to grow as we go forward.

So I like where we are, we sit atop, an incredible resource base that's going to continue to to develop. Thanks for your question.

Konark Gupta, Scotiabank.

Thanks, and just a quick clarification before I ask my question, on the EPS, I don't think you guys touch upon the pension, if there's any nuance there. And just so you expecting the buybacks to be net accreted to EPS or not.

And my question on free cash, actually, you talk about conversion being higher, if you look at the '25, I think the conversion on netting income was about 70% and if you just add on the 500 CapEx reduction that gets you to 80%. Is there anything else we should be thinking about once we cash conversion in '26.

So thanks, Konark. On pension, this in 2025 pension was versus 2024 was a tailwind of about $60 million. If discount rates and interest rates remain where they are, pension will be a tailwind of $40 million in 2026 versus 2025.

On share buyback, if you look at it versus after financing costs and where interest rates are, it's very slightly accretive to earnings, not a whole lot.

On the free cash flow conversion, we expected with the reduction of capital, obviously to improve. If you look at free cash conversion in 2025, it was 70%, so we'll improve on that.

Got to take into consideration when you look at cash that we have a sizable cash tax payment on a year-by-year basis in '26 versus 2025 because and this is the reason why our effective tax rate is actually increasing it because in our modeling we expect more profits to be taxed in Canada at a slightly higher tax rate than it is in the US.

So when you put all of this together, it reconciles to the numbers that you're coming up with. Thanks for the question

Ken Hoexter, Bank of America.

Great, good morning, great job on the OR for the quarter looking for more next year. I guess Tracy, let me get you back on your [Norfolk] on the, the merger, right? You mentioned you're spending millions into the process. You target significant concessions, you said.

Can you talk about what that means? Like, is that protecting sustained access? Is it a dollar amount? I just want to understand when you say significant, what does that mean?

And then same thing for USMCA, just big picture, if you're going to go on negotiations, what is the risk here? What is the benefits that you seek come out of this or is the base case that it's just renewed and things stay the same. Thanks.

Thanks, Ken. That's a couple of big questions. So, first on the merger, listen, we are a very strong proponent of competition and as we look at this application we have great concerns and a lot of questions around how it does what it's supposed to do, including when it comes to the standard of increasing rail competition which is a pretty big bar.

And it, in our view, falls considerably short it portrays the merger as a complete end to end in spite of pretty obvious areas of overlap it, they didn't use all the data they didn't give a projected market share of the new entity and therefore how big it would be in the potential harm that would come from market power.

So these are only examples that they suggest the GAAP in the assessment of par, and that's importantly, I think. It failed to propose conditions that would, adequately preserve competition and it said nothing on how it was going to enhance competition, save an open gateway model that I think has been proven not to work in a gateway commitment that applies to by our assessment just a very small fraction of the impacted traffic and not at all the Canadian railways.

And it expires with an emerged entity and of course it impacts are permanent.

So should this proceed, I think there needs to be a lot and that'll lead it to more information on the impact to the shippers across the network, and what I believe is a much more substantive portfolio of concessions to mitigate those impacts.

If we are held to [ESTB] new rules, so as we look at it from a CN perspective. And we've run a number of scenarios as you would expect and based on the information that we have, what we think their intent is, which, we need a lot more on that.

There will be an impact to competitive access for our customers and for our business now our assessment would suggest that the impact on CN will be less than that of the other row.

But it won't be zero and so if this merger is to proceed, we intend to rigorously pursue confessions that will protect and improve competition, and that means protecting the interest of our customers in our network and are the competitive integrity of our network as we think about it.

And we believe that there's opportunities that this is done properly. For us, for our network, for our operations to play a bigger role, an extended role in providing options to our customers in the regions that you know are going to have that negative would be impacted by the merger.

So, we think our network can be very helpful there. So they've got a lot of work to do. I'm interested in seeing what they come forward with, how they will step into this question of how they will not only offset the competitive impact but also increased competition.

It's going to be really interesting. We're ready. Our response will be informed by this reveal and in which I understand we will expect for very long. But we're not getting ahead of them.

In the meantime, the rest of the organization is focused on running the day-to-day business which is equally important.

The second question around the USMCA, this is, right now, as we've seen the impact there's certain sectors that have been impacted, and some of them like [forcepars] quite significantly impacted, and we're continue to work.

Janet and team are working very closely with all of our customers in those sectors to try to to get their goods into alternative markets. We've had some success on that. As we look forward, it's very difficult to say. Maybe you have a better view, but it's very difficult to say how this will work out.

I read the paper every day. I expect it's going to be bumpy and there is a prescribed timeline. July is an important month on the review of the USMCA, at the end of the day, as Saner heads kind of prevail. We know the -- I think we all understand the importance of the relationship between these two countries and how much we depend upon each other, and I'm hopeful for a productive agreement.

And now, what that means is, I mean, the most important, the biggest risk around the USMCA is uncertainty. There's investment that sitting on the sidelines, in our customers included, wondering under what rules they'll be investing in the future and whether they should do that and I think that as we get an agreement, if it brings a kind of uncertainty that we all need, then that is an important first step.

There is an opportunity for some mitigation on those sectors, to a reduction of impact on those sectors that have been impacted, forest products, steel and others. And then of course there's always the risk that there's certain other sectors that will have to deal with the level of tariffs and depending on what those levels are and which sectors they are, we are working with all of our industries, all of our customers to understand the range of options that they (inaudible)

And so it's going to be a busy year from that perspective. I'm not equipped to tell you what to expect on where it will land. I think the good news is that we'll help folks at the table this year and hopefully come up with an agreement. Thanks for your question

David Vernon, Bernstein.

Hey, good morning and thanks for taking the question. So, Janet, maybe I wonder if you can help us kind of figure out how big of an impact, this pair of stuff has had on overall RTMs. It sounds like the Western Canadian stuff is -- has been growing. It's just been offset by the tariff losses.

I'm just trying to figure out like if you were to look at '24 to the end of your year plan at '26. Like how much of your business is kind of come off purely because of tariffs. I think it'd be helpful to just understand kind of what the relative weight of the changes in the trade regime we've had on your business.

Thanks, David, for the question. So I don't have the volume numbers at my fingertips, but what I did say in the remarks is that [4 2025], the tariff impact was, in excess of $350 million and the IR team can kind of help you with that after the quarter just to kind of translate that back to volume.

Obviously it's been most impactful as we said in forest products and metals and minerals. Feeling very popular today with the questions. I think the next question should go to Pat for anyone who's listening out there.

And hopefully it's going to be a tough one.

Ravi Shanker, Morgan Stanley.

Greet this morning, everyone. Maybe this is for Janet or Ghislain. I know you've changed your guiding philosophy like you said last quarter. But when you look at the delta between your guide and your peers, particularly your direct peer. Based on what you can see so far, kind of is that all down to your new approach to guiding, or is there something, idiosyncratically different with your end market approach or your comps relative to others this year.

I'm going to start off with that, Ravi, listen, we did a lot of thinking around guidance and we've seen over the last number of years in what is a very volatile kind of environment. A number of peers and including us that have had to change guidance with draw guidance or just misguidance.

And so that's not a very productive way to engage with you guys or way to engage in with our business. So we think that this is the right model for right now with this level of uncertainty. Next year is if we're in a different position, we will look at maybe something more precise.

But as we look forward we think that this is given the unique volatility that we're facing around the tariffs, the tariff impact that Janet has gone through, the currency and how it's moving this year in particular, we think this is the right way to go.

And if we're looking, if you're talking about us and our Canadian peer, I would say that over time as our networks and our business have evolved, we would have more exposure to Canada then I expect they would.

[Other] suffer, I'm sure, as we have, and I think they mentioned it on their call as well, the impact on tariffs. Should you have anything to add?

Yeah, maybe give a little bit of visibility on some of the one-timers that I talked about in in my prepared remarks. So obviously having a smaller capital envelope, it impacts capital credits, and I would, it's sizable. I would quantify it to be in the range of about $100 million.

That will be mostly in labor and fringe benefits and a little bit in PNSM as well. When you look at other income, we have about $100 million in 2025. Now we always have some other income, but we don't believe That it'll be probably as high in 2026 that it is in 2025, and as I said, our effective tax rate is increasing. We finished in 2025 at 24.7, we're giving a range of 25% to 26% to quantify this, I think it's close to $100 million.

So these are sizable headwinds that we have to work to try to offset as much as possible and being more productive and being more efficient, which we have been tremendously in 2025. We did the heavy load over there. And we're still going to be, we're still going to turn all the rocks in 2026 to try to offset as much as these headwinds that we have in 2026. Thanks for the Ravi for the question.

Stephanie Moore, Jeffrey.

Hi, good morning. Thank you. I wanted to -- maybe go back to the consolidation and the space. You did mention about $15 million in advisory fees associated with the industry consolidation.

Can you provide a bit more color, maybe what drove the decision to bring in external advisers and what areas they're helping you to evaluate including, the evaluation of potential further consolidation options. Thanks.

Listen, yeah, thank you for that question. Listen, this is a big deal. It's an industry-changing deal and I think it inherent upon all of us who are going to participate that we understand the detail and there is a great level of detail that we're going to be looking at on how this is going to impact the industry.

So I think where I would expect most or all of us to bring in an expert. Let's make sure that we do that and we do that in a way that isn't disrupting how we run the day-to-day business, right?

Most, it's not nearly all of this organization needs to be focused on delivering for our customers every day and now Pat, there you go, delivering the next level of cost reduction, Janet on growth. And so, we have important and trusted advisor that we bring to bear on this.

And I would say I would say that this is clearly non-recurring and it's not reflective of our operating performance, and this is why we have non-GAAP, the amount.

We're being very conservative on this stuff and very intentional and this is the reason why we have non-GAAP it .

Thanks for the question

Benoit Poirier, Desjardins.

Yes, thank you very much and thanks for taking my question. I understand 2026 will be impacted by mill, sacks, other and com infects as she's saying you provided the great granularity for 2026. But looking beyond 2026, let's say 2027 under a normal environment with stabilized mid effect environment.

What kind of volume growth would you need in order to generate double digit EPS growth. And I'm sure you already, ran a lots of scenarios. But I would be curious to see what kind of volume growth you generate -- you need in order to generate the double-digit EPS growth under a more stabilized environment. Thank you.

Well, listen, I, here's maybe the way to think about it. We are continuing to build a more efficient and lean engine which is very good that gives us great operating leverage.

And as we go forward, the real catalyst for realizing that leverage is volume growth, as you know. And now it always depends on which volume growth and where in the network it is. But in general, I would suggest that if you think about mid single-digit volume growth with the cost structure that we've built and are continuing to build, you can see us generate the double-digit EPS.

Steve Hansen, Raymond James.

Hey, good morning, guys. Thanks for the time. I just want to come back to the contour aspect of your guidance if I might. Is it possible that the belly of the year might not be stronger than the back half specifically.

I'm just cognizant of the fact that I think [Petcam Co], [Metman] all got beat up last year through 2Q, 3Q. On some one-time issues either the cost or the mindset level, and then we've got a record bring carry harvest carryover here that should benefit the same quarters.

All while we're looking at a comp and Q4 that the record grain moves, I think you articulated in your comments. I'm just trying to understand that contour side a little bit better and whether or not we have a better opportunity in the middle part of the year. Thanks.

Yeah, I think you're probably that's probably a great way to think about it. There's two pieces of it, of course. One is how the volume showed up last year and I think you've got that right. We did also have the refinery shut at -- shutdown and what was it tore Janet?

The other side of it, of course, is the cost and our efforts on cost and when some of those appeared over the course of the year, and that is a little period though a bunch of that was early on in the year, so I would say that the way you instructed that, it's pretty good. So we'll go with that.

Kevin Chiang, CIBC.

Thanks for taking my question. Maybe I will throw this one to Pat there, Janet laid over to some of these unique opportunities, we talked about these Canadian nation building projects.

It seems like a lot of it hits your western network and when I think back to the Investor Day a few years ago, it felt like a focus was creating a more balanced network, but there's growth pipeline might actually exacerbate that imbalance.

Just wondering how you think about the long-term capacity investments you might need to make on that part of your network or or do you feel you have excess capacity now to absorb this growth?

Kevin, I think Janet coerced you into a question my way was a great question. Thank you for that.

I was -- I would say this, the investments that we made in 2025 in the West, particularly as Tracy pointed out, the Essence of being now 63% double tracked previously at, around 40% has created about we would call it six trains of capacity in that corridor so we have plenty of room to grow.

We have, locomotives that are stored. We have, today, we're almost at 800 furloughed employees, so we have leverage to pull as volume shows up and I would say that as it relates to balancing we do a lot of work around balancing each of the corridors.

So I feel good about our ability to grow, the capacity is there, the locomotive fleet is more reliable than ever, and we feel very good about our ability to grow in that corridor.

And I would just add, we're going to take a growth where it comes and we're going to figure out how to handle it.

I think, you have to appreciate as well the some of the weakness and force products will actually help create some capacity in the western region for other commodities as well. So, Pat and I stay very closely connected on thinking about, where the volumes are going to come online and how we're going to handle them.

Jonathan Chappell, Evercore ISI.

Good morning. Ghislain, to further Benoit's question, you gave a good explanation to what happened to the DNA in the fourth quarter, but as we think about that going forward, if we did, took the fourth quarter run rate, realized that, put 4% inflation on it, you'd be looking at a DNA number that's down $40 million, year to year, so I want to make sure we're thinking about that from the right starting point.

And then also just overall inflation, you mentioned that $100 million potentially in the comp and Ben line with someone purchase services. What's the comp per employee look like, under that, scenario.

Okay, well, depreciation, Jonathan depreciation that year-over-year basis. If you look in the past, it always been about a headwind of about $100 million. It's still going to be a headwind between 2026 and 2025, but it's going to be smaller, call it half of it, going forward because we'll have the full year effect of the depreciation study impacting 2026, so that's going to help a little bit.

That's your first piece of the question in terms of inflation, when you put the all-in rail inflation. I think that it's smaller, it -- it's a lower, slightly lower than 3%. And then com per employee is when you look at comp per employee in Q4, it was about 7% and it's going to be in a mid-single-digit-range for 2026.

I hope that answers your question.

This concludes the question-and-answer session. I would now like to turn the call back over to Tracy Robinson.

Thanks, Christa. Now, just before we conclude today, I've got one more piece of important news. Today was the last call for our Head of Investor Relations, Stacy Alderson.

Stacy's elected to retire on May 1, so you all know her, she's had an exceptional 30-year career here at CN defined by leadership, integrity, and lasting impact, and she's touched many parts of our business over those years strategic planning, acquisition, network development, financial planning done at allacy and of course our relationships with all of you, we see your fingerprints on this organization everywhere.

Stacy, we're going to miss you, but we're very happy for you and we're happy for your family on the next chapter.

Thank you.

So we're not leaving the job open. I'm pleased to announce that the appointment of Jamie Lockwood as Vice President in Investor Relations and Special Projects. Now Jamie is back in Montreal. He brings about 18 years of a deep railroad experience.

He's got a strong perspective, he span finance, internal audit, supply chain, and most recently, a big kind of job in and engineering where with Patty's been leading the transformation of our engineering strategy and execution. Jamie, we're happy to have you back here in Montreal, and I know all of you will enjoy working with them.

So Stacy and Jamie will work closely together over the next month or so to just to ensure a smooth transition. I know you'll join me in congratulating both of them.

And then just finally I want to take the opportunity to thank the entire CN team for all your contributions, your focus, your resilience, all over the last year and in the year coming, railroading isn't an easy business, but you all do it very well, and it's an honor to work alongside all of you. Thank you for joining us today and we'll talk to you soon.

Ladies and gentlemen, the conference call has now ended. Thank you for your participation, and you may disconnect your lines.