Canadian National Railway Company (NYSE:CNI) Q4 2025 Earnings Call Transcript

Canadian National Railway Company (NYSE:CNI) Q4 2025 Earnings Call Transcript January 30, 2026

Canadian National Railway Company beats earnings expectations. Reported EPS is $1.51, expectations were $1.43.

Operator: Good morning. My name is Krista, and I will be your operator today. [Operator Instructions] At this time, I would like to turn the call over to Stacy Alderson, Senior CN’s Assistant Vice President of Investor Relations. Ladies and gentlemen, Ms. Alderson.

Stacy Alderson: Thank you, Krista. Welcome, everyone. Thank you for joining us for CN’s Fourth Quarter and Full Year 2025 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.

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 improvement and increasingly on commercial intensity. And these actions drove our 2025 results. They helped us navigate a tough year and have set us up well for when volumes start to grow across the industry again. Now on our last call, we made 3 commitments to ensure we deliver the type of returns we know CN is capable of.

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 backdrop. Our results today reflect this focus with improvement across all key operating measures. Second, on financial discipline. We reset our capital program 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 operating ratio came in at 60.1%, our best quarterly operating ratio of the year and a 250 basis point 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.

Now volumes held up well through year-end, led by Grain and Intermodal. We set a number of records on Grain. And on Intermodal, we benefited from an easier comparison as we lap the ILWU strike in 2024. We saw notable strength in segments 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 on 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 a fourth quarter record in fuel efficiency.

Now these gains 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 tariff pressures that intensified in the second half of the year and ongoing trade uncertainty, we executed, we stayed disciplined and we delivered. Now looking to 2026, our focus will continue to be on disciplined 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 and 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 volumes will be flattish with 2025. It’s important to note that at this time, the most reasonable approach is 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 actions. 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 gains, although not as significant as those we achieved in 2025.

We have some headwinds to work through in 2026 on mix and in some expense categories that Ghislain will take you through. So on relatively flat volumes, we expect EPS growth to slightly exceed volume growth. Free cash flow 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 in leverage to drive share repurchases, reflecting our confidence in the underlying earnings power of this business when volumes return. And as a team, we’re 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 with 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 have activated over the last 18 months around cost and productivity are now firing across CN. 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 work through the details. UP and NS filed their application and 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 as UP and NS prepare their refiling, and we’re eager to see how they’ll address these issues in their revised application. I’d say they’ve got a long way to go. Now while 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 opportunity 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 and an unparalleled port network that provides a path to every global market. This uniquely positions 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 us with strong operating and earnings leverage as these volumes lift. And throughout, we’ll stay disciplined on capital and focus on execution and free cash flow. Pat, you’re up.

Patrick Whitehead: Thanks, Tracy. I’ll be speaking to Slide 6 first. The team delivered a strong fourth quarter, and I’m pleased that the 3 areas we are laser-focused on are paying off. These are: one, ensure 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, above partly supported by our Grain customers. We carried record-setting Grain tonnage for Western Canada for 4 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 straightforward. 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, selectively 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 manage 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% fully 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 8 capacity projects we committed to at the start of 2025 on time. Our engineering team maintained its tight control over installation costs, totaling 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 costs and ensuring cars spend less time waiting and more time earning. Yards are the anchors to the whole network. 3/4 of our traffic hit 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 growth. With that, I’ll turn it over to Janet.

Janet Drysdale: 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 in 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. Within 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 shipments, we had monthly records in October, November and December. Within Petroleum & 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 were a net impact of less than 1%. Tariffs, 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 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 & 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 given last year’s extended refinery turnarounds, which we don’t expect to reoccur. We anticipate Canadian U.S. Grain to 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. In 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 & Minerals, we have some pluses and minuses. Weak fundamentals for iron ore are expected to continue, and we’re still dealing with the tariffs on steel and aluminum. On steel, we are continuing to hustle hard on mitigating the transborder headwinds with opportunities in for 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 U.S. housing starts are forecast to be flat and Canadian producers manage with the full year impact of the higher tariffs and duties that were applied in August and October of 2025.

We expect persistent weak demand for U.S. 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 volumes. We continue to price ahead of our rail cost inflation. Unfortunately, we do expect those mix 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.

Ghislain Houle: [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 remain 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, reported diluted EPS grew 12% year-over-year, while adjusted EPS was up 14%. These results reflect 2 notable adjustments: a $34 million pretax charge tied to the workforce reduction program we discussed on our Q3 call and a $15 million in adviser 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 on an adjusted basis, it even was stronger at 60.1%, a 250 basis point 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 2 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 2 items: the benefit of a favorable depreciation study, which we do on a regular basis and the impact from certain assets recognized through purchase price allocations that became fully depreciated during the year. Other expenses rose 27%, mainly due to higher legal provisions, including a nonrecurring $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 in 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 disciplined execution across the business. Finally, we remain focused on free cash flow generation, ending the year at over $3.3 billion, up 8% from last year. We also finished the year $50 million below our Q3 capital projection, thanks to stronger capital discipline and real efficiency gains in engineering. We continue to lean into our share buyback program in Q4, repurchasing 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 and 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 2.7x and then come back to 2.5x 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 ton miles will be flattish with 2025 and importantly, that tariffs 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 traffic, 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 lapping last year’s other income gains.

In our modeling and guidance, we’ve 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 and 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 positions us 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 in the durability of our cash generation and long-term value creation. With that, let me turn it back to Tracy.

Tracy Robinson: Thanks, Ghis. Krista, we’ll go to questions.

Q&A Session

Operator: [Operator Instructions] The first question comes from Cherilyn Radbourne with TD Cowen.

Cherilyn Radbourne: Janet, I wanted to turn to you to just ask you if you could give some additional color on where your team is beating 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.

Janet Drysdale: Yes, for 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 have seen forest products continue to deteriorate even since last quarter with some additional mill closures or curtailments, and 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 a 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 U.S. 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, a little weak right now, but we do see that coming back. So hopefully, that answers your question.

Operator: Your next question comes from the line of Scott Group with Wolfe Research.

Scott Group: Ghislain, can you just clarify first if the depreciation is a onetime thing or if that’s a 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 right, rails could grow earnings even with negative volume, right, because they have pricing and productivity and buyback. And I’m guessing you’d say you slow pricing and productivity and buyback, but I’m guessing I’m hearing a message of like volumes 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.

Ghislain Houle: Yes. 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 2 things. One, the favorable result of depreciation study. And as you know, 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 1/4 of the variance. And then 3/4 of it is, in fact, we overdepreciated the purchase price allocation 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 3/4 of the variance. Maybe to you, Tracy, on the second piece.

Tracy Robinson: Scott, so interesting question. So I would say that 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 outsized impact that’s had on a couple of our sectors, Janet has gone through them on forest products and on metals. 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 as we look at how the economies are moving, we’re getting some extraordinary movements in things like FX and the underlying assumptions. So 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 leaner. We’re focusing on structural cost reduction. This creates that operating leverage that you’re talking about, and it will be considerable, but it will be operating leverage on — and earnings leverage. And so as I look at our network and our opportunities going forward, it’s pretty compelling. We sit on top, as I said, of a pretty strong natural resource base, continuing to develop. It’s across ag, it’s across mining, it’s across the energy sectors across some of the industrial sector. And these are 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 consumer goods to North America. So these opportunities, we’ve seen them start, and we expect them to continue to accelerate. We’ve got capacity. 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 normalize, hopefully, that will happen this year, we’ll see. You’re going to see us — you’re going to see that leverage start to manifest. So we’re pretty excited about that.

Operator: Your next question comes from the line of Fadi Chamoun with BMO Capital Markets.

Fadi Chamoun: Janet, is mix in ’26 kind of flat versus last year, worse or slightly better? Just want some clarification on that. And the question I have is, so when you look at the outlook over the next, whatever, year or 2 or even 3, where do you see CN having differentiated opportunities to grow volume, to grow the business? What 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?

Janet Drysdale: Thanks, Fadi, for the question. So let me start with mix. And I want to take a minute to remind everyone, there’s kind of 2 aspects to mix. There’s the enterprise level where you see volumes move around, let’s say, between Forest products, Intermodal, Metals and Minerals, but there’s also mix 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 than 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 at a more detailed level. So 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 out, 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 2 perspectives. It’s the natural gas liquids exports 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 as these progress, things like critical minerals, I think that Canada has a lot of in 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.

Operator: Your next question comes from the line of Chris Wetherbee with Wells Fargo.

Christian Wetherbee: Maybe a question on the guidance as we sort of understand it. It seems like volumes may be a little bit more back half weighted. It seems like FX 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 just maybe a little bit of help with the shape of 2026.

Tracy Robinson: 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 what we’re seeing with Janet went over on some of the volumes. We did have some onetime benefits from our cost reduction efforts last year in the first quarter. So you’re going to see that lighter and it will continue to improve over the course of the year. Ghis, anything to add?

Ghislain Houle: Yes. On buyback, Chris, absolutely. As you know, we’re temporarily going to increase our leverage from 2.5x to 2.7x. We want to take advantage of the cheap share price. We’re going to try to front-load that as much as we can. And then we plan on going back to 2.5x leverage in 2027.

Operator: Your next question comes from the line of Walter Spracklin with RBC Capital Markets.

Walter Spracklin: Back to you, Janet, on volume. When I look at your 2026 outlook slide, I’m seeing petroleum and chemicals up. You’ve got U.S. 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 fertilizers, so not quite as big. So when I eyeball that slide, it feels like 2026 volumes are more up-ish rather than flattish. So just curious if you could — is there something I’m missing there and maybe flag some of your strongest upside, downside 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 hoping for there when you had us up the last time?

Janet Drysdale: Okay. So I mean, there is some art involved in the slide, obviously, Walter, but I appreciate your question. We see the greatest strength in ag and energy. So these are the 2 that I would call out. And on the energy side, it’s really the petroleum and chemicals, and going 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 this one is a bit tough to call right now, and it really depends on the health of the consumer. I am pleased with the resiliency of the consumer, particularly on the U.S. side that we’ve seen so far. But the tariff situation has made that segment a little hard to predict, and we’ve kind of gone through these boom and bust cycles. So about 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 had the chance to visit Prince Rupert last year.

The can export 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 Intermodal 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.

Operator: Your next question comes from the line of Brian Ossenbeck with JPMorgan.

Brian Ossenbeck: Tracy, in terms of looking at the last couple of years, you highlighted a bunch of the headwinds that the business has experienced, but we’ve still gone from double-digit earnings growth to mid-single, now flattish, clearly excluding 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 also wondering, is this a time where you 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.

Tracy Robinson: Thanks for the question. So as we look at what we’ve been doing over the last year and 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 Edson 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 EJ&E. So we’ve got our network set up now for the — what we see happening and what Janet has laid out over time. That’s been an important part of us getting set up for the future. And as you mentioned, we’ve done a lot of work on the locomotive fleet.

We’ve gone from the oldest locomotive fleet in the industry to middle of the pack pad. And we’ll 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 2 of that has been really taking a look at structural costs. And over the past 18 months, we have run really hard at structural cost reduction. And we’ve found along the way one-offs and just in-year cost reduction. We’re always looking for 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 mix impact and the tariff impact, 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 that Janet talked about is set to continue to grow as we go forward. So I like where we are. We sit at top an incredible resource base that’s going to continue to develop. Thanks for your question.

Operator: Your next question comes from the line of Konark Gupta with Scotiabank.

Konark Gupta: Just a quick clarification before I ask my question. On the EPS, I don’t think you guys touched upon the pension, if there’s any nuance there? And just are you expecting the buybacks to be net accretive to EPS or not? And my question on free cash, actually, you talked about conversion being higher. If you look at the ’25, I think the conversion on net income was about 70%. And if you just add on the $500 million CapEx reduction, that gets you to 80%. Is there anything else we should be thinking about on free cash conversion in ’26?

Ghislain Houle: So thanks, Konark. On pension, just 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 expect it with the reduction of capital, obviously, to improve. If you look at free cash flow conversion in 2025, it was 70%, so we’ll improve on that. You’ve got to take into consideration when you look at cash that we have a sizable cash tax payment on a year-over-year basis in ’26 versus 2025 because — and this is the reason why our effective tax rate is actually increasing is because in our modeling, we expect more profits to be taxed in Canada at a slightly higher tax rate than it is in the U.S. So when you put all of this together, it reconciles to the numbers that you’re coming up with.

Operator: Your next question comes from the line of Ken Hoexter with Bank of America.

Ken Hoexter: Great job on the OR for the quarter, looking for more next year. I guess, Tracy, let me get you back on your soapbox on 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 in negotiations, what is the risk here? Or what is the benefits that you see come out of this? Or is the base case that it’s just renewed and things stay the same?

Tracy Robinson: 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 in our view, falls considerably short. It portrays the merger as a complete end-to-end in spite of obvious areas of overlap. They didn’t use all the data. They didn’t give us the projected market share of the new entity and therefore, how big it would be and the potential harm that would come from market power. So these are only examples that they suggest the gap in assessment of harm.

And as 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 and 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 the merged entity. And of course, its impacts are permanent. So should this proceed, I think there needs to be a lot more data and information. There’s a lot more we all need to know. And that will lead us 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 the STB 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 and 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 roads, but it won’t be 0. And so if this merger is to proceed, we intend to rigorously pursue concessions that will protect and improve competition. And that means protecting the interest of our customers and our network and the competitive integrity of our network as we think about it. And we believe that there’s opportunities if 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 are going to have that negatively 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 and how they will step into this question of how they will not only offset the competitive impact, but also increase competition. It’s going to be really interesting. We’re ready. Our response will be informed by their next reveal and which I understand we will expect before too 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 you know, we’ve seen the impact. There are certain sectors that have been impacted. And some of them like Forest Products, quite significantly impacted.

And we’re continuing to work. Janet and team are working very closely with all of our customers in those sectors to try 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. As I read the papers every day, I expect it’s going to be bumpy. And there is a prescribed time line. 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 3 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’s sitting on the sidelines and 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 the kind of uncertainty that we all need, then that is an important first step. There is an opportunity for some mitigation on those sectors, so 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 are 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 look at.

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, is that we’ll have folks at the table this year and hopefully come up with an agreement.

Operator: Your next question comes from the line of David Vernon with Bernstein.

David Vernon: So Janet, maybe I wonder if you can help us kind of how big of an impact this tariff stuff has had on overall RTM. It sounds like the Western Canadian stuff 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 has kind of come off purely because of tariffs? I think it would be helpful to just understand kind of what the relative weight of the changes in the trade regime has had on your business.

Janet Drysdale: 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 for 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 volumes. Obviously, it’s been most impactful, as we’ve 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.

Patrick Whitehead: And hopefully, it’s going to be a tough one.

Operator: Your next question comes from the line of Ravi Shanker with Morgan Stanley.

Ravi Shanker: 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?

Tracy Robinson: 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, withdraw guidance or just miss guidance. And so that’s not a very productive way to engage with you guys or a way to engage with our business. So we think that this is the right model for right now with this level of uncertainty. Next year, 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.

If we look — 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 than I expect they would. They’ll suffer, I’m sure, as we have, and I think they mentioned it on their call as well, the impact on tariffs. Ghis, do you have anything to add?

Ghislain Houle: Yes. Maybe gave a little bit of visibility on some of the one-timers that I talked about 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 P&SM as well. When you look at other income, we have about close to $100 million in 2025. Now we always have some other income, but we don’t believe that it will 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 in being more productive and being more efficient, which we have been tremendously in 2025. We did a 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 of these headwinds that we had in 2026.

Operator: Your next question comes from the line of Stephanie Moore with Jefferies.

Stephanie Benjamin Moore: I wanted to maybe go back to the consolidation in the space. You did mention about $15 million in advisory fees associated with the industry consolidation. Can you provide a bit more color on maybe what drove the decision to bring in external advisers and what areas are helping you to evaluate, including the evaluation of potential further consolidation options?

Tracy Robinson: Listen, yes, 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 experts 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, if not nearly all of this organization needs to be focused on delivering for our customers every day. On Pat, there he goes delivering the next level of cost reduction, Janet on growth. And so we have important and trusted advisers that we bring to bear on this.

Ghislain Houle: And I would say that this is clearly nonrecurring, 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.

Operator: Your next question comes from the line of Benoit Poirier with Desjardins.

Benoit Poirier: I understand 2026 will be impacted by mix, tax, other income and FX. Ghislain, you provided great granularity for 2026. But looking beyond 2026, let’s say, 2027 under a normal environment with stabilized mix FX environment, what kind of volume growth would you need in order to generate double-digit EPS growth? And I’m sure you already ran lots of scenario, but I would be curious to see what kind of volume growth you need in order to generate double-digit EPS growth under a more stabilized environment.

Tracy Robinson: Benoit, listen, 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 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 double-digit EPS.

Operator: Your next question comes from the line of Steve Hansen with Raymond James.

Steven Hansen: 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 petchem, coal, met min all got beat up last year through 2Q, 3Q on some onetime issues, either at the customer at the mine site level. And then we’ve got a record Grain carrier, harvest carry over here that should benefit those same quarters, all while we’re looking at a comp in Q4 that’s the record Grain movers, 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.

Tracy Robinson: Yes. I think that’s probably a great way to think about it. There’s 2 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 shutdowns and what was it Q2, Q3, 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 lumpier, although a bunch of that was early on in the year. So I would say that the way you’ve constructed that is pretty good. So we’ll go with that.

Operator: Your next question comes from the line of Kevin Chiang with CIBC.

Kevin Chiang: Maybe I will throw this one to Pat there. Janet laid out 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 this 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 do you feel you have excess capacity now to absorb this growth?

Unknown Executive: Kevin, I think Janet coerced you into the question by way, great question. Thank you for that. I would say this, the investments that we made in 2025 in the West, particularly, as Tracy pointed out, the Edson Sub being now 63% double track previously at around 40% has created about, we would call it, 6 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 levers 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.

Janet Drysdale: And I would just add, we’re going to take the growth where it comes, and we’re going to figure out how to handle it. I think you have to appreciate as well that some of the weakness in forest 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.

Operator: Your final question today comes from the line of Jonathan Chappell with Evercore ISI.

Jonathan Chappell: Ghislain, further to Scott’s question, you gave a good explanation to what happened to D&A in the fourth quarter. But as we think about that going forward, if we took the fourth quarter run rate, annualize that, put 4% inflation on it, you’d be looking at a D&A number that’s down $40 million year-over-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 some purchase services. What’s the comp per employee look like under that scenario?

Ghislain Houle: Okay. Well, depreciation, Jonathan, depreciation on a year-over-year basis, if you look in the past, it’s 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’s lower — slightly lower than 3%. And then comp per employee is — when you look at comp per employee in Q4, it was about 7%, and it’s going to be in the mid-single-digit range for 2026. I hope that answers your question.

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

Tracy Robinson: Thanks, Christian. 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 has elected to retire on May 1. So as you all know her, she’s had an exceptional 30-year career here at CN, defined by leadership, integrity, lasting impact, and she’s touched many parts of our business over those years, strategic planning, acquisitions, network development, financial planning. She’s done it all, Stacy. 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 happy for your family on the next chapter. Thank you.

So we’re not leaving the job open. I’m pleased to announce the appointment of Jamie Lockwood as Vice President, Investor Relations and Special Projects. Now Jamie is back in Montreal. He brings about 18 years of deep railroad experience. He’s got a strong perspective. He’s spanned finance, internal audit, supply chain and most recently, a big kind of job in engineering where with Pat, he’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 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 of 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.

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