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

Financial Performance:

• Diluted EPS was $1.96, up 9% YoY, driven by a 18% increase in adjusted diluted EPS to $2.16 (excluding $118M asset impairment and $14M advisory fees).
• Revenues increased 15% in Q3, with revenue ton-miles (RTMs) up 4%.
• Adjusted operating ratio improved 40 basis points to 61%, excluding 60 basis points of negative fuel price impact.
• Free cash flow for the first nine months rose 25% to $2.9 billion, with conversion at 80%.
• Share repurchases totaled ~$675 million for 4 million shares; net debt-to-adjusted EBITDA leverage expected to normalize to 2.5x by year-end.

Guidance and Future Outlook:

• Reaffirmed full-year guidance for mid-to-high single-digit adjusted EPS growth, currently tracking toward the upper end.
• 2026 capital investment expected at ~$2.8 billion; capital intensity normalized to North American peer levels.
• Full-year RTM growth guidance maintained at low single digits, though Q4 and 2027 outlooks anticipate acceleration in non-grain sectors (energy, autos, metals).
• Management targets a long-term EPS growth rate in the high single-digit to low double-digit range.

Business Segments and Product Lines:

• Energy: Petroleum and chemicals RTMs up 5%; growth driven by refined products, crude, and NGLs. Key catalysts include LNG Canada Phase 2, Wolf fractionator ramp-up, and Strathcona MIOTA expansion.
• Grain & Fertilizer: RTMs surged 12% on record crop production; Q4 expected to moderate due to high 2026 comps.
• Automotive: Positive results from share gains and longer-haul imports; two plants retooling will come online in H1 2027.
• Intermodal: Domestic volumes impacted by wildfires but expected to rebound; overseas volumes soft due to Asia demarketing and weather, though CMA-CGM Indamex expansion at Halifax is noted.
• New Developments: Finalizing agreement with Union Pacific for Mexico access; new CanExport transload facility at Prince Rupert; Ontario critical minerals investment support.

Market and Competitive Landscape:

• Positioned to capture growth in the ~$45B Canada-Mexico trade corridor via UP partnership.
• Benefiting from a constructive Canadian regulatory environment, including Bill C-39 ("one permit, one year") and the Carney administration's resource investment focus.
• Coal shipments in Q3 declined due to West Coast production challenges; Q4 outlook depends on mine output and labor resolution at Prince Rupert.
• Market share gains attributed to reliable service and "boots on the ground" commercial execution ($300M new revenue YTD).

Risks and Challenges:

• Labor: Ongoing labor disruption at the Trigon coal terminal in Prince Rupert affecting coal and NGL throughput; upcoming TCRC collective bargaining in late 2026.
• Regulatory: Bill C-39 includes extended inter-switching provisions; management views these as non-material given their service quality but remains cautious.
• Technology: $118M non-cash asset impairment charge due to failures in dispatch (PDS) and SAP HANA implementation; governance and vendor selection processes being re-evaluated.
• Trade Volatility: U.S.-Canada tariff regime impacts remain volatile; management expects 15% of trade to face tariffs, requiring customer adaptation.

Management Commentary and Tone:

• Tone was confident and execution-focused, emphasizing safety (best accident/injury record in a decade) and productivity.
• Announced the retirement of long-serving CFO Ghislain Heuvel (advisor until end of March, successor Jamie Lockwood effective Feb 1) and praised his financial discipline.
• "FastTrack" productivity initiative credited with $120M YTD savings, now embedded as a continuous operating discipline.
• Management highlighted structural capacity gains (25% Western Corridor capacity increase) allowing growth without proportional capital intensity.

Analyst Questions and Answers:

• FastTrack Clarification: Confirmed $120M is realized savings, not gross, and represents an ongoing operating model shift.
• EVR/Neptune Coal: ~50% of traffic will shift handoff points starting Jan 1, impacting 2027 EPS by ~3 cents; commercial team committed to backfilling this.
• Mexico Opportunity: Viewed as a three-bucket opportunity (extension of length-of-haul, competition for existing traffic, and truck-to-rail conversion).
• Capacity Constraints: Western corridor capacity deemed sufficient for near-term growth; East/South have ample capacity; next investment cycle dependent on demand realization.
• Intermodal Rebound: Domestic expected to strengthen in Q4; international rebound viewed as a medium-term trend supported by new transload capabilities.
• Non-Grain Growth: Confirmed acceleration expected in energy and autos in 2027, offsetting a difficult grain comp in H1 2027.

Other Key Points:

• Safety remains the foundational priority, with record Q3 fuel efficiency (15M in savings) and asset utilization.
• The company is "building for growth" with a network designed to convert volume into operating leverage as demand increases.
• An Investor Day is being considered for 2027, pending resolution of regulatory and merger landscape clarity.
• Management reiterated commitment to returning excess cash to shareholders via share repurchases.