Third Quarter 2026 Financial and Operating Results - CANADIAN NATIONAL RAILWAY CO

Explicit Guidance:

• Reaffirmed FY2026 adjusted diluted EPS growth of mid-to-high single digits, driven by low single-digit RTM growth, with current Q4 tracking toward the upper end of the range.
• FY2026 Capital Investment expected to be approximately $2.8 billion (net of customer reimbursements).
• FY2027 EPS Impact: The Oak Valley coal agreement transition (Jan 1st) is expected to result in a ~$0.03 EPS headwind.
• FY2026 Q4 Fuel Outlook: Assuming fuel prices remain at current spot rates, expects an EPS tailwind of ~$0.10, but a 100–150 basis point headwind to the operating ratio.
• Leverage Ratio: Expects adjusted debt-to-adjusted EBITDA to return to approximately 2.5x by end of 2026 (accelerated from the previously cited 2027 target).

Business-Segment Outlook:

• Petroleum & Chemicals: Growth expected in Q4 driven by new crude business, Strathcona MIOTA facility expansion, and fractionator expansions by Pembina and Wolf; long-term growth supported by NGL exports via Prince Rupert and refined product shipments to GTA.
• Energy Long-Term: Positive outlook for Montney development (LNG Canada Phase 2, Coastal GasLink) supporting additional frac sand and NGL volumes; ACE terminal coming online mid-2028; Dow Path to Zero project online late-2029.
• Automotive: Trend toward higher offshore imports expected to continue; growth supported by two retooled plants (one online, second expected end-March); potential share gains in long-haul imports.
• Grain & Fertilizers: RTM growth expected to moderate in Q4 and 2027 as the company laps record crop production from the prior year.
• Coal: Canadian shipments face short-term headwinds due to labor disruptions at Prince Rupert (Trigon terminal impacting coal and propane); U.S. coal export demand remains steady; long-term outlook depends on mine-level production.
• Metals & Minerals: Demand for steel, aluminum, and frac sand in NE BC remains constructive through year-end; BHP facility expected online in second half of 2026.
• Intermodal: Domestic volumes expected to strengthen in Q4 supported by truck-to-rail conversion; overseas volumes expected to be weaker than prior year levels, though offset by CMA-CGM's Indamex service expansion to Halifax (first vessel late November).
• Forest Products: No growth expected, but risks from previous market challenges are considered lapped.

Market and Competitive Outlook:

• Canada-Mexico Trade: Secured extension of reach into Mexico via Union Pacific (UP) agreement, positioning to compete for a larger share of the ~$45 billion annual Canada-Mexico trade (majority moving to eastern Canada).
• Mexico Opportunity Strategy: Three buckets: 1) Extending length of haul via Memphis Gateway; 2) Competing for existing rail traffic via compelling service; 3) Long-term truck-to-rail conversion (substantial market size).
• Market Share Dynamics: Management expresses confidence that 2026 volume gains (driven by service excellence) are "sticky" and will not revert to competitors (CP) in 2027.
• Pricing Discipline: Strategy to price ahead of rail cost inflation and focus on value-based pricing; "boots on the ground" efforts generated ~$300 million in new revenue year-to-date (approx. $100 million/quarter run rate).
• Competitive Landscape: Successfully replaced $350 million in tariff headwinds from the prior year through commercial agility and operational efficiency.

Macro / Industry Outlook:

• U.S.-Canada Trade: Acknowledges a volatile year due to tariffs; 85% of trade remains tariff-free, but sector-specific impacts (steel, auto, forest products) persist. Outlook depends on finalization of USMCA extension or new deals; expects continued nimbleness in navigating policy.
• Canadian Policy Environment: Supports Bill C-39, specifically the "One Permit, One Year" provision, viewing it as a catalyst for natural resource investment. Views inter-switching provisions as having negligible impact if service levels are maintained.
• Economic Cycle: Expectations to "rise and fall" with the broader economy, but leveraging unique asymmetric opportunities (energy, North American connectivity) to drive high single-digit to low double-digit EPS growth over time.
• Regulatory/Labor: TCRC collective bargaining agreement expires end-2026; management focused on a constructive outcome; supports collective bargaining as a core value.
• Currency/FX: Adjusted results noted for foreign exchange impacts; tax payments expected to be higher year-over-year.

Strategic Initiatives:

• FastTrack Productivity: Continuous improvement initiative realized $120 million YTD (run rate carries into 2027); focuses on asset utilization, train handling, and fuel efficiency (record Q3 performance); not a one-time event but embedded operating discipline.
• Capacity Investments: Western Corridor capacity increased by 25% (Edson Sub double-tracking 2/3 complete); over 200 stored locomotives available to absorb volume without proportional capital spend; capital intensity normalized to North American peer levels.
• Mexico Integration: Finalizing agreement with UP to extend CN's reach; leverages existing network and "Ferramax" rail ferry to access Mexico's manufacturing corridor.
• Infrastructure Expansions:
  • New Wolf midstream fractionator (online).
  • GTA fuel terminal ramp-up.
  • Canola crush capacity addition.
  • Expanded grain elevator in Illinois (first unit train shipped).
  • CanExport transload facility at Prince Rupert (open).
  • New transload facility in New Brunswick; Nova Scotia expansion ground broken.
• Technology Reset: Discarded failed dispatch system (PDS) and reverted SAP HANA from greenfield to brownfield approach; new governance implemented for vendor selection.

Risks and Headwinds to Outlook:

• Labor Disruptions: Ongoing labor disruption at Prince Rupert coal terminal affecting throughput (and potentially propane/NGL volumes) in the near term.
• Seasonal Comparables: Strong year-over-year comps in Q4 2026 due to lapping record grain volumes from the prior year.
• Fuel Price Volatility: Current fuel price levels create an operating ratio headwind (100-150 bps) despite EPS tailwind.
• Regulatory Uncertainty: Potential for regulatory changes or trade policy shifts (tariffs, USMCA) to impact specific sectors (steel, auto, forest products).
• Weather/Disruptions: Wildfires impacted domestic volumes previously; future weather events in Asia could impact overseas supply chains.
• Merger Dynamics: Ongoing industry consolidation discussions; CN's strategic positioning includes mitigating merger risks while seeking to extend reach.

Management Tone on the Future:

• Confidence Level: High confidence in the network's ability to convert growth into earnings and free cash flow without proportional capital increases.
• Sentiment: "Excited" about the expanded opportunity set (Mexico, Energy, Resource projects); describes the business as "built for growth" and "more productive than a year ago."
• Execution Focus: Emphasis on "running the railroad safely and efficiently," "financial discipline," and "continuous improvement."
• Growth Outlook: Aiming for high single-digit to low double-digit EPS growth over the long term; management indicates readiness for an Investor Day in 2027 or shortly after once tariff and merger environments clarify.
• Trend: Shift from "wait for the upcycle" to actively capitalizing on asymmetric growth opportunities and operational leverage.

Miscellaneous:

• Leadership Changes: CFO Ghislaine Heuvel retiring (continues through Feb 1, 2027, then advisor); Jamie Lockwood succeeds as CFO on Feb 1, 2027.
• Financial Metrics: Q3 Adjusted Operating Ratio 61% (40 bps improvement); Free Cash Flow conversion 80% YTD; Share repurchases of ~4 million shares ($675 million) in Q3.
• Safety: Delivered best Q3 accident/injury performance in the last decade.
• One-time Charges: FY2026 included $118M asset impairment (discontinued tech) and $14M advisor fees; non-recurring.