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

Explicit Guidance:

• EPS Growth: Reaffirmed guidance for mid-to-high single-digit growth in adjusted diluted EPS for full-year 2026; currently tracking toward the upper end of the range. Management targets high single-digit to low double-digit EPS growth over the long term (beyond 2026).
• Revenue/Volume: Guidance based on low single-digit growth in Revenue Ton-Miles (RTM) for the full year.
• Capital Expenditures: Expected capital investment of approximately $2.8 billion in 2026, net of customer reimbursements.
• Capital Intensity: Targeting a normalized capital intensity range consistent with North American peers.
• Leverage: Adjusted debt-to-adjusted EBITDA ratio expected to decline to approximately 2.5 times by year-end 2026 (accelerated from the prior 2027 target).
• Cash Flow: Free cash flow conversion at 80% year-to-date; committed to continuing share repurchases through the end of the current program.

Business-Segment Outlook:

• Energy (Petroleum & Chemicals): Expected to benefit from new crude business, including expansion of Strathcona's MIOTA facility and fractionator expansions by Pembina and Wolf. Multi-year growth anticipated for NGLs, refined products, and crude to the Gulf Coast. Long-term catalysts include the ACE terminal (mid-2028) and Dow Path to Zero (late-2029).
• Grain & Fertilizer: Growth expected to moderate in 2027 due to lapping 2026 record performance; record crop production and export demand supported Q3.
• Coal: U.S. export demand expected to remain steady; Canadian volumes remain volatile, dependent on mine production and labor conditions at Prince Rupert (Trigon Terminal).
• Automotive: Trend toward higher offshore imports expected to continue; growth supported by two retooled plants coming online (one already started, second by end-March 2027).
• Forest Products: No expected growth; sector has lapped significant issues with no material new risks identified; BHP facility coming online in H2 2027.
• Metals & Minerals: Constructive demand for steel and aluminum through year-end; frac sand growth in Northeast BC expected to persist.
• Intermodal: Domestic volumes expected to strengthen in Q4 2026 due to truck-to-rail conversion opportunities and commercial gains. Overseas volumes expected to be weaker than prior year levels, though mitigated by CMA-CGM's Indamex service expansion to Halifax.

Market and Competitive Outlook:

• Canada-Mexico Trade: Strategic agreement with Union Pacific Railroad (UP) to extend CN's reach into Mexico positions the company to compete for a larger share of the ~US$45 billion annual Canada-to-Mexico trade flow.
• Growth Strategy: Three-pronged approach to capture Mexico-bound traffic: (1) immediate incremental revenue via extended length-of-haul to Memphis Gateway; (2) competitive bidding for existing rail traffic; (3) long-term conversion of truck-to-rail traffic.
• Pricing Discipline: Commercial strategy focuses on selling service value, with same-store pricing outpacing rail cost inflation (though offset by mix and regulated grain pricing).
• Market Share: Management expects gains in 2026 to be sticky due to superior service reliability; confident in backfilling any potential share normalization in 2027.
• Tariff Impact: Significant tariff headwinds from the prior year ($350 million) have largely been cycled through and offset by commercial wins.

Macro / Industry Outlook:

• Canadian Economic Policy: Supportive of the Canadian government's "one project, one permit, one year" initiative and broader industrial policy aimed at accelerating natural resource investment.
• Legislation (Bill C-39): Positive view on permitting reforms and labor focus; expects minimal impact from extended inter-switching provisions as pilot programs showed no volume diversion.
• Trade Dynamics: Acknowledges volatility in U.S.-Canada trade negotiations (USMCA) and tariff regimes; expects to remain nimble in adapting to shifting trade patterns and potential resolutions.
• Labor: Collective bargaining viewed as a core value; focused on reaching a constructive agreement with the TCRC before the current contract expires in December 2026.
• Fuel Prices: For Q4 2026, assuming current spot rates, expects an EPS tailwind of ~$0.10, though a 100–150 bps headwind to the operating ratio is anticipated due to fuel costs.

Strategic Initiatives:

• FastTrack: Productivity initiative delivering a run-rate benefit of approximately $120 million year-to-date; expected to carry into 2027 as a continuous operational discipline.
• Mexico Access: Finalizing agreement with UP to extend network reach into Mexico's manufacturing corridor; leverages existing network capacity to capture cross-border traffic.
• Canadian Resource Projects: Well-positioned to benefit from $2 billion in federal/provincial investment for Ontario's "Ring of Fire" critical minerals development; positive outlook for LNG Canada Phase 2 and Coastal GasLink.
• Capacity Additions: Record volumes of grain, refined products, and automotive moved; over 200 locomotives currently stored, indicating available capacity to absorb growth without proportional resource increases.
• Transload & Infrastructure: Continued expansion of transload capabilities (New Brunswick, Nova Scotia, Wisconsin); opening of CanExport transload facility at Prince Rupert; ramp-up of GTA fuel terminal Phase 2.
• Technology Governance: Reverting SAP for HANA from greenfield to brownfield approach following project failures; regrouping on dispatch system (PDS) vendor selection; establishing enhanced governance to prevent future technology execution risks.

Risks and Headwinds to Outlook:

• Volume Volatility: Potential for lower grain volumes in 2027 due to lapping record 2026 harvests.
• Labor Disruptions: Ongoing labor disruption at the Trigon coal terminal in Prince Rupert impacting throughput for coal, petroleum coke, and potentially NGLs; duration and resource redeployment remain uncertain.
• Global Supply Chain: Overseas intermodal volumes susceptible to weather-related disruptions in Asia and demarketing of specific lanes.
• Fuel Prices: Continued volatility in fuel costs remains a headwind to operating ratio despite efficiency gains.
• Regulatory/Tariff Uncertainty: Pending resolutions in U.S.-Canada trade negotiations and potential legislative changes could alter trade flows.
• Technology Execution: Recent asset impairments ($118M) related to cancelled technology projects highlight execution risks in large-scale IT implementations.

Management Tone on the Future:

• Confidence: High confidence in "broad-based growth" and the ability to convert volume into earnings via operating leverage.
• Optimism: Explicitly states excitement about the "opportunity set ahead," citing unique asymmetric growth opportunities in energy and Mexico.
• Control Focus: Emphasizes focus on factors the company controls (productivity, service reliability, pricing discipline) rather than macro volatility.
• Sustainability: Projects the ability to generate high single-digit to low double-digit EPS growth over the long term by building resilience into the business model.
• Change in Prior Guidance: No downward revisions to full-year EPS guidance; tracking toward the upper end of the previously stated range.

Miscellaneous:

• Executive Transition: Ghislaine Heuvel retiring as CFO effective end of March 2026 (acting through Feb 1); Jamie Lockwood succeeding as CFO on Feb 1, 2027.
• Share Repurchases: Repurchased ~4 million shares for $675 million in Q3; commitment to continue program.
• One-Time Items: Adjusted EPS excludes a $118M non-cash impairment charge related to discontinued tech projects and $14M in advisor fees.