Canadian National Railway 2026 Q3 Earnings Call

Thank you, Krista. [Foreign language] Welcome, everyone. Thank you for joining us for CN's third quarter 2026 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 guarantees, and factors such as economic conditions, competition, fuel prices, and regulatory changes could impact actual outcomes. It is now my pleasure to turn the call over to CN's President and Chief Executive Officer, Tracy Robinson.

Merci, Ghislain. Et merci à tous et à toutes de participer à notre appel. Thanks, everyone, for joining our call today. Before I turn to the quarter, I want to take a moment on the announcement that you will have seen come out yesterday. After nearly three decades at CN, Ghislain has decided to retire. He has been a very close partner to me over the past five years, and to our leadership team, and I know to many of you on this call as well. The financial discipline that he has built here is a large part of the CN that we are today. He is not gone yet. Ghislain continues as CFO through February 1st, taking us through our full-year results, and after that, will remain with CN as an advisor until his retirement at the end of March.

Jamie Lockwood, who many of you know, will succeed Ghislain as our Chief Financial Officer on February 1st. Jamie has been with CN for nearly 20 years. He has worked across finance, strategy, supply chain, and operations, and he has been part of shaping our financial and our corporate strategy. We are excited about Jamie moving into the role. For now, I just want to thank Ghislain for his partnership over these last five years, and to congratulate both of you as you move into your next role. Now, onto the business. This was another solid quarter. We moved more freight while maintaining a fluid network, and translated that volume growth into higher earnings and free cash flow. EPS grew 18% on 4% volume growth. Looking at the balance of the year, we are reaffirming our guidance for mid-to-high single-digit EPS growth based on a low single-digit RTM growth.

As we sit here today, one month into the quarter, I can say we are tracking more towards the upper end of that range. We remain focused on running the railroad safely and efficiently, converting commercial opportunities, driving structural productivity, and maintaining financial discipline. This focus is producing results. Now, let me highlight three key messages from the quarter. Firstly, the team continues to execute well. It all starts with safety. We delivered our best third-quarter accident and injury performance in the last decade, while handling more volume and maintaining reliable service across the network. We improved the productivity of our people and assets, and delivered record third-quarter fuel efficiency. These are structural gains which reflect changes to how, size, and deploy our resources and run our network. Fast Track has delivered about CAD 120 million year-to-date, and that run rate carries into next year.

These results demonstrate the strength of our team and our operating model, and the leverage inherent in our network, given the capacity investments we have made over the last several years. We are well-positioned to accommodate additional volume while maintaining our current level of capital intensity. Secondly, our commercial strategy is delivering broad-based growth. Our teams remain focused on opportunities that fit our network and generate value for the railroad and our customers. The close alignment between operations and sales is driving results. Reliable service gives Janet and her team the confidence to pursue new business and price for the value of the service we deliver. The commercial team is moving with speed and agility to convert these opportunities. Our boots-on-the-ground efforts have contributed approximately CAD 300 million in new revenues so far this year. Thirdly, we continue to exercise financial discipline.

Year-to-date, free cash flow has increased 25%, driven by our strong commercial and operating performance and disciplined capital spending. This, in turn, has allowed greater flexibility with our balance sheet, and we have continued to execute our share repurchase program to return cash to shareholders. The railroad is operating well, service is reliable, productivity continues to improve, and we have the capacity and resources in place to support our customers as opportunities develop. Now, looking beyond the quarter, we remain excited about CN's long-term prospects. About a year ago, we updated you on some important changes being made at the company around investment spending, productivity drivers, and a continued commitment to driving shareholder value. We remain focused on what we control, and over the past year, we have developed enhanced capabilities and culture to drive execution.

As we plan for 2027 and beyond, we are pushing further to ensure that we set the agenda for CN, and there is a lot to be excited about. The opportunity set ahead of us continues to expand. The positive final investment decision for phase 2 of LNG Canada and Coastal GasLink reinforce the long-term outlook for the Montney development, supporting additional frac sand and natural gas liquids volume. Additionally, our soon-to-be-finalized agreement with the Union Pacific Railroad to extend CN's reach into Mexico positions us to compete for a larger share of the approximately 45 billion USD in annual Canada to Mexico trade, much of which is tied to Eastern Canada. It creates an opportunity to market directly for additional cross-border traffic. Importantly, these opportunities are supported by a network with available capacity.

We have completed much of the heavy investment required to support growth, and as additional business comes onto the railroad, we can improve asset utilization, lower unit costs, and generate higher earnings and free cash flow without a proportional increase in resources or capital. To be clear, capital intensity is normalized to a range in line with our North American peers, and additional volume on the network will continue to drive operating leverage in our model. The railroad is more productive than it was a year ago, and the opportunity set in front of us is larger. We are delivering on our commitments and have a network that is built to convert broad-based growth into earnings and free cash flow. With that, I will turn it to you, Pat.

Thank you, Tracy. The team delivered another solid quarter, safely moving more freight while maintaining a fluid and reliable network. I want to thank our entire team of professional railroaders across the system for their continued focus, discipline, and commitment to our customers. As always, it starts with safety. Safety is the foundation of everything we do. We remain focused on reinforcing our operating discipline and ensuring that trains run safely and that every member of our team goes home safely at the end of the day. I am pleased to report that we have had the best third-quarter accident and injury ratios in the last 10 years. This is encouraging progress, but we are never satisfied, and we will continue to push to improve. Turning to operations. We entered the quarter with a clear plan centered on network fluidity, service reliability, and productivity.

The team executed that plan, and the results continue to demonstrate the strength of our team, our operating model, and the capacity available across the network. We handled 4% more volume in the quarter while maintaining strong operating metrics. That combination is important. It shows that we can absorb growth, protect service, and make better use of our existing assets and resources. Locomotive productivity improved 5% in the quarter. Employee productivity improved 7%. This is the seventh consecutive quarter with year-over-year improvement. These are not simply operating statistics. They translate directly into the cost structure by allowing us to move more freight without a proportional increase in locomotives or employees. Fuel efficiency is another area where the team continues to raise the bar. We achieved record third-quarter fuel efficiency, including our best month ever in September, further reinforcing CN's position as the industry leader.

We are the most fuel-efficient railroad in the industry, and we are setting new records every quarter, beating ourselves. This performance reflects disciplined train handling, improved locomotive utilization, and the continued refinement of our operating practices. Together, these efforts generated approximately CAD 15 million in fuel savings during the quarter. Focusing on our western region, gross ton miles increased 4% while car velocity improved 3%. We moved record volumes of grain while also moving more refined products, metals, NGLs, automotives, and improving service metrics. We have capacity in place to do more. We currently have over 200 stored locomotives, and we have available network capacity, including in the West. This gives us the ability to respond as additional business comes onto the network without adding resources at the same rate as volume.

As we grow into that capacity, we improve asset utilization, lower our unit costs, and create operating leverage. Fast Track remains an important part of how we run this railroad. We have now realized approximately CAD 120 million in benefits, up CAD 20 million from last quarter. The work began with our major yards and terminals, but the mindset extends well beyond those locations. We continue to challenge how we use our facilities, vehicle fleet, and other assets, and how we manage processes and purchase services across the operation. Fast Track is not a one-time initiative. It is a continuous improvement discipline built into our scheduled operating model. We are pleased with the progress, and we are not done. The takeaway from the quarter is straightforward. We remain committed to safety as the foundation upon which we build this organization. The network is running well.