Q3 2023 Canadian National Railway Co Earnings Call

October 24, 2023

Good afternoon, My name is Julie and I'll be your operator today.

Welcome to Cn's third quarter, 'twenty, 'twenty, three financial and operating results conference call.

All participants are now in a listen only mode.

After the Speakers' remarks, there will be a question answer session during which we ask that you kindly limit yourself to one question.

Operator 3: I would now like to turn the call over to Stacy Alderson, Assistant Vice President, Investor Relations. Ladies and gentlemen, Ms. Alderson.

I would now like to turn the call over to Stacy Alderson Assistant Vice President Investor Relations.

Ladies and gentlemen missile defense.

Speaker 0: Thank you, operator. Good afternoon, everyone, and thank you for joining us for CN's Q3 2023 Financial Results Conference Call. Before we begin, I'd like to draw your attention to the forward-looking statements and additional legal information available at the beginning of the presentation. As a reminder, today's conference call contains certain projections and other forward-looking statements within the meaning of the US and Canadian securities laws. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied in these statements. They are more fully described in our cautionary statement regarding forward-looking statements in our presentation. After the prepared remarks, we will conduct a Q&A session. I do wanna remind you to please limit yourself to one question. As usual, the IR team will be available after the call for any follow-up questions.

Stacy Alderson: Thank you, operator. Good afternoon, everyone, and thank you for joining us for CN's Q3 2023 Financial Results Conference Call. Before we begin, I'd like to draw your attention to the forward-looking statements and additional legal information available at the beginning of the presentation. As a reminder, today's conference call contains certain projections and other forward-looking statements within the meaning of the US and Canadian securities laws. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied in these statements. They are more fully described in our cautionary statement regarding forward-looking statements in our presentation. After the prepared remarks, we will conduct a Q&A session. I do wanna remind you to please limit yourself to one question. As usual, the IR team will be available after the call for any follow-up questions.

Thank you operator, what was your first NFC, one and that's where our power costs at all so they are easy task you don't see attitude towards him to be met.

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Good afternoon, everyone and thank you for joining us for CN third quarter 2023 financial results Conference call.

Before we begin I'd like to draw your attention to the forward looking statements and additional legal information available at the beginning of the presentation.

As a reminder, today's conference call contains certain projections and other forward looking statements within the meaning of the U S and Canadian Securities laws.

These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied in these statements.

They are more fully described in our cautionary statement regarding forward looking statements in our presentation.

After the prepared remarks, we will conduct a Q&A session I do want to remind you to please limit yourself to one question.

As usual the IR team will be available after the call for any follow up questions.

Speaker 0: Joining us on the call today are Tracy Robinson, our President and CEO, Doug MacDonald, our Chief Marketing Officer, Ghislain Houle, our Chief Financial Officer, and Ed Harris, our Chief Operating Officer. It is now my pleasure to turn the call over to CN's President and Chief Executive Officer, Tracy Robinson.

Stacy Alderson: Joining us on the call today are Tracy Robinson, our President and CEO, Doug MacDonald, our Chief Marketing Officer, Ghislain Houle, our Chief Financial Officer, and Ed Harris, our Chief Operating Officer. It is now my pleasure to turn the call over to CN's President and Chief Executive Officer, Tracy Robinson.

Joining us on the call today are Tracy Robinson, our president and CEO, Doug Macdonald, our Chief marketing Officer.

Just like Poole, our Chief Financial Officer, and Ed Harris, our Chief operating Officer.

It is now my pleasure to turn the call over to CNS, President and Chief Executive Officer Tracy Robinson.

Ms Stacey <unk>.

Tracy Robinson: I wanna start today by saying a few words about the evolution of our operational structure. We were very pleased last week to announce the appointment of Derek Taylor to Executive Vice President and Chief Field Operating Officer, and Pat Whitehead to Executive Vice President and Chief Network Operating Officer. Now, you've all met both Pat and Derek. They are both accomplished and experienced operating officers, and they will both play prominent roles in CN's future and our success. Now, this isn't splitting Ed's role into two. We're making this bigger, and we'll be focusing on work that we haven't done before. Now, the structure we're creating will strengthen the competencies that are core to our future of driving profitable growth. It recognizes the equal importance and the distinct nature of competencies around building the plan and running the plan.

I'll start today by saying a few words about the evolution of our operation structure. We were very pleased last week to announce the appointment of Derek Taylor.

Executive Vice President and Chief Field, operating officer, and Pat Whitehead to executive Vice President and Chief Network operating Austria, So you've all mesh both Pat and Derek They are both accomplished and experienced operating officers and they will both play prominent roles in <unk> future and our success.

Now this isn't splitting his role into two we're making this bigger and we'll be focusing on work that we haven't done before now the structure, we're creating will strengthen the competencies that are core to our future of driving profitable growth. It recognizes the equal importance and the distinct nature of competition.

Vinci's around building the plan and running the plant.

Tracy Robinson: Now, Derek and his field team will focus on continuing to improve the daily execution of our scheduled operating plan across our three operating regions and our intermodal terminal. They will drive on-time performance along with continued improvement in dwell and in first mile, last mile delivery to our customers. Pat and his network team own the plan, and their focus will be on two things, continuing to refine the plan to optimize to our volumes and to improve velocity, and to drive a more focused, longer-term plan, including resourcing and the development and execution of the capital plan to both maintain our network on a lower cost per unit basis and expand it for growth where necessary in a more cost-effective manner.

The Derrick in its field team will focus on continuing to improve the daily execution of our scheduled operating plan across our three operating regions in our intermodal terminal.

They will drive on time performance, along with continued improvement in dwell and in first mile last mile delivery to our customers.

Pat and his network team on the plant and their focus will be on two things continuing.

Continuing to refine the plan to optimize to our volumes and to improve velocity and to drive a more focused.

Longer term plan, including Resourcing and the development and execution of the capital plan to both maintain our network on a lower cost per unit basis, and expand it for growth where necessary in a more cost effective manner.

Tracy Robinson: Now, this structure splits the critical day-to-day focus of running the operation from the very specific work we need to do to ensure that we continue, rather, to operate well while we grow. I'm looking forward to working with Pat and Derek as we continue to refine this model. I'm excited about the performance and the innovation that they will deliver in this next chapter. Now, they're both in the room with us today. They don't have speaking roles, and they're not mic'd up, but they are here with us. It's Ed who, of course, will carry the operations dialogue on this call, and he's here and he's mic'd up and ready to go. You'll be hearing from him shortly. Before he gets to speak, let me just say how much Ed and I have appreciated your willingness to step back in.

Now this structure.

Well, it's the critical day to day focus of running the operation from the very specific work, we need to do to ensure that we continue way continue rabbits to operate well while we grow.

And I'm looking forward to working with patent Derrick as we continue to refine this model and I'm excited about the performance and the innovation that they will deliver in this next chapter now there both in the room with US today. They don't have speaking roles and do not like that but they are here with us. It said who of course will carry the operations dialogue on this call.

And he is here and he might up and ready to go and you'll be hearing from him shortly.

But before he gets to speak let me just say how much and I've appreciated your willingness to step back in.

Tracy Robinson: I've appreciated your partnership in creating our path forward and your leadership in ensuring that we've got the right kind of winning conditions in place with our operations team for this transition. You've made a real difference, and I know that's exactly what you wanted to do. Now, before I hand it over to you though, I have some comments on the business and on the quarter. Our railroad continues to run very well. It is the test of our operating plan that we can maintain our fluidity, our velocity, and our customer service levels through different and challenging conditions. We've demonstrated that over these past few quarters.

And I've appreciated your partnership in creating our path forward.

And your leadership and ensuring that we've got the right winning conditions in place with their operations team through this transition.

Made a real difference and I know that's exactly what you wanted to do now before I hand, it over to you, though I have some comments on the business and on the quarter.

Our railroad continues to run very well it is the test of our operating plan that we can maintain our fluidity, our velocity and our customer service levels through different and challenging condition.

We've demonstrated that over these past few quarters.

Tracy Robinson: Now, through the forest fire season this spring and summer, which was the worst in Canada's history, the flood conditions in the east and west, and the West Coast port strikes, our operational performance remains strong and consistent, and we've demonstrated the ability to recover quickly. Our on-time train performance and our velocity have remained steady. Now, this is exactly what we're looking for. Our last mile service has improved. We've been consistently over 90% for the last two quarters versus about 80% last year. This is the performance and the resiliency that we're looking for as the foundation of our growth plan moving forward. Now, in volumes, we have a tale of different market segments. You'll hear from Doug a little more on this. Our bulk business, so think grain, coal, potash, frac sand, it's been strong all year.

Now through the forest fire season, this spring and summer, which was the worst in candidates history.

The flood conditions in the east and West and the West Coast Port strikes or operational performance remained strong and consistent and we've demonstrated the ability to recover quickly.

Or I'm trying to train performance and our velocity has remained steady now this is exactly what we're looking for and our last mile services improved we've been consistently over 90% for the last two quarters versus about 80% last year.

This is the performance and the resiliency that we're looking for is the foundation of our growth plan moving forward.

Now when volumes, we have a tail of different market segments, you'll hear from Doug a little more on this our bulk business, so think grain called potash frac sand.

Tracy Robinson: Our merchandise business is continuing to firm up. You know, for instance, we've seen an inflection in chemicals and plastics starting in August. In our consumer-related business, particularly the intermodal business, continues to be murky. Our domestic intermodal volumes are holding up relatively well, thanks to initiatives like BMP and the Falcon Service. However, the international intermodal has been affected by two things. Destocking, lower overall consumer consumption, which has impacted port volumes across the continent for everyone, and then the West Coast port strike. Now coming out of the port strike, our Canadian destined volumes have returned. Our US-destined volumes moved to US ports during the strike and have not come back fully as yet. Now, this is a temporary situation.

Wrong all year.

Our merchandise business is continuing to firm up for instance, we've seen an inflection in chemicals and plastics starting in August.

There are consumer related business, particularly the intermodal business continues to be murky, our domestic intermodal volumes are holding up relatively well thanks to initiatives like the E&P and the Falcon service.

However, the international intermodal has been affected by two things.

Destocking lower overall consumer consumption, which has impacted toward volumes across the continent for everyone.

And then the West Coast Port strike.

Now coming out of the Port strike, our Canadian destined volumes have returned.

Our U S destined volumes move to U S ports during the strike and have not come back fully and yet you know this is a temporary situation. We're confident in the value proposition that the Canadian ports offer.

Tracy Robinson: We're confident in the value proposition that the Canadian ports offer in both service and cost, and we continue to work to get those volumes back to the northern gateway. Now, I believe we've seen the bottom on volumes. We've started a controlled ramp-up of the operation to support growth. The growth plan we laid out earlier this year is continuing to progress. It's a mix of growth tied to economic strength and growth tied to specific customer initiatives. Now, the volume growth tied to the economy will come as the economy lifts. The benefits of our customer-specific initiatives are unfolding pretty much on plan. In both cases, we will see considerable margin leverage as volumes increase. I'm a big believer in the resiliency of the North American economy.

Both service and cost and we continue to work to get those volumes back through the northern Gateway.

And I believe we've seen the bottom one volumes we.

We've started a controlled ramp up of the operation to support growth.

The growth plan, we laid out earlier this year is continuing to progress.

It's a mix of growth tied to economic strength and growth tied to specific customer initiatives.

So the volume growth tied to the economy will come as the economy.

The benefits of our customer specific initiatives are unfolding pretty much on plan in both cases, we will see considerable margin leverage as volumes increase.

I'm, a big believer in the resiliency of the North American economy. This.

Tracy Robinson: This team has managed extremely well through the softer volumes, and what we can control continues to go very well, faster and better than planned, in fact. We're ready as the volumes turn up. I've got a lot of confidence in this team, in this network, and in this plan. Now turning to our Q3 results, I'll keep it to just a few highlights. Our Q3 EPS was 21% lower than last year, and our operating ratio at 62% was higher than last year, but remains at or near best in the industry. I am extremely proud that our customer service and operational efficiency have been top-tier for 6 quarters now. The team will take you through the details in the quarter. I'll turn it over to them now, starting with Ed.

This team has managed extremely well through the softer volume and what we can control continues to go very well faster and better than planned in fact.

And we're ready as the volumes turn up but a lot of confidence in this team and this network in this plan.

Now turning to our third quarter results I'll keep it to just a few highlights.

Third quarter, EPS was 21% lower than last year, and our operating ratio was 62% was higher than last year, but remains at or near best in the industry.

I am extremely proud that our customer service and operational efficiency have been top tier for six quarters now.

The team will take you through the details in the quarter I'll turn it over to them now starting with you know as I said, a few nice things earlier, but I need now to mention that this is your last quarterly call with <unk>.

Tracy Robinson: Now, Ed, I said a few nice things earlier, but I need now to mention that this is your last quarterly call with CN. Thank you, and let's make it a good one.

And let's make it a good one.

Ed Harris: Thank you, Tracy. Thanks for the kind words, I think. Before I jump into the quarter, I just wanna take a minute to talk about these two guys, Derek and Pat. I've really gotten to know them over the past year, and they are among the finest operators I have ever had the pleasure to work with. Investors got to see a bit of their great chemistry and relationship back in May at Investor Day and how they work together. The entire network benefits from how well these guys operate every day. I can't tell you how confident I am in the future of the operation and the company with these two working as one while expanding their responsibilities and pushing the team to be better every day.

Thank you Tracy thanks for the kind words.

Before I jump into the quarter.

Wanted to take a minute to talk about these two guys Derek.

I've really gotten to know them over the past year and they are among the finest operators I've ever had the pleasure to work.

<unk> got to see a bit of a third grade demonstrating relationship back in may at the Investor day, and how they work together.

Network benefits for them, how well these guys operate every day.

I can't tell you how confident I am in the future.

The operation and the company is to work in this one while expanding their responsibilities and pushing the team to be better every day.

Ed Harris: In fact, this quarter has been a great example of how well they work together because it was a tough operating out there in Q3. We started out by dealing with a 2-week port strike on the West Coast and then faced constant disruptions from forest fires and flooding until September. Running to a plan makes all the difference. For instance, we had a 2-day outage on our main line east of Edmonton in the quarter. In the past, it would have taken us up to a week or more to get operations back in sync. This one took 2 days. The team really took it up a notch in September, though, with improvements in car velocity, train speed, through dwell, and origin and destination train performance. We told you how we decided not to furlough train crews earlier in the year.

In fact this quarter has been a great example of how will they work together.

It was a tough it was tough operating out there in quarter three we started out by dealing with a two week port strike on the West coast.

And then thanks, Costa disruptions from forest fires and flooding.

Joel September.

Turning to our planned mix of all the different for instance.

We have a two day outage on our mainline and use the best in the quarter in the past that would have taken us up to a week or more to get operations back and say this one.

Days.

Team really took it up a notch in September with improvements in car velocity trends through.

<unk> well in origin and destination trading performance.

We told you how we decided not to furlough train crews earlier in the year now with grain coming on strong.

Ed Harris: Now, with grain coming on strong, we're seeing the benefit of that decision. All in all, we're set up well for a strong Q4. I'm very proud of the whole operating team this quarter, and especially the leadership provided by Pat and Derek. How did the quarter shape up? Car velocity averaged 209 miles per day, which was down 1% compared to last year. Some of the other metrics we look at every day, like train speed and train length, were also down slightly. When I think about the disruptions this quarter, I don't think we went a single week in July or August without a major network disruption. Stats that good tell you a lot about the quality of the people operating the network and the resiliency of running to a plan.

We're seeing the benefit of that decision all in all we're set up well for a strong fourth quarter.

Very proud of the whole operating team this quarter and especially the leadership provided by patent.

So how did the quarter shape.

Car velocity averaged 209 miles per day, which was down 1% compared to last year.

Some of the other metrics, we look at every day like train speed and train lengths were also down slightly.

But when I think about the disruptions this quarter I don't think we went to a single week in July.

August without a major network disruption stats that good tell you a lot about the quality of the people operating the network in a resiliency running through our plan.

Ed Harris: As well as the network ran this quarter, our yards were in even better shape. Our origin train departure improved to 89% in Q3, which is right in the sweet spot that we targeted. This is one of the keys to delivering for our customers. As Tracy's already covered, our great local performance. Finally, on safety, we had 6 more reportable injuries and 2 more reportable FRA accidents than Q3 of last year, which put some pressure on our quarterly metrics. Our year-to-date injury frequency ratio is still 11% better than 2022, our best ever Q3 year-to-date performance. Our year-to-date accident ratio is also on track at 16% better than last year. Now, Tracy said it, this will be my last call as Chief Operating Officer.

And as well as the network ran this quarter are you guys running even better shape or form.

Origin train departure improved to 89% in quarter, three which is right in the sweet spot that we target. This was one of the keys to delivering for our customers and as Tracy has already covered our great local performance.

Finally on safety, we had six more reportable injuries and two more reportable FRE accidents.

In the third quarter of last year, which put some pressure on our quarterly metrics.

But our year to date injury frequency frequency ratio is still 11% better than 2022, our best ever quarter three year to date performance and our year to date accident ratio is also on track at 16% better than last year.

<unk> as you said.

This will be my last call as Chief operating officer, I'm going to hang around for the winter to give the team some support through the transition.

Ed Harris: I'm going to hang around for the winter to give the team some support through the transition. I officially hand over the reins to Derek and Pat on December. This team, and like I said before, I have complete confidence in these guys and in this team. Tracy gave me two priorities when I came out of retirement last year. Get this place running well again, coach and mentor the next generation of operating talent. As I head off to my fifth retirement, I'll sleep well at night knowing we knocked it out of the park on both counts. This place is running as well as I've ever seen it run, and the next generation is ready.

I officially hand over the reins to Derek and Pat on November 15.

And like I said before I have complete confidence in these guys and and his team.

Tracey gave me two priorities when I came out of retirement last year get this place running well again coach and mentor. The next generation of operating talent.

As I head off to my fifth retirement, I'll sleep well at night, knowing we've knocked it out of the park on both counts.

This place is running as well as I've ever seen that run and then next generation is ready.

Ed Harris: Finally, on a personal note to the team around the table here today, it's been an honor and pleasure to come back to where I started and finish a career that I started over 50 years ago. It certainly has been my honor to be able to make that happen. Thank you. Now it's Doug's turn to talk about top line performance and market outlook.

And finally on a personal note to the team around the table here today, it's been an honor and pleasure.

Come back to where I started and finished your career that I started over 50 years ago.

It certainly has been my honor.

To be able to.

Thank you now, let's does turn talked about top line performance and market outlook.

Doug MacDonald: Thanks, Ed. All the best on your well-deserved retirement. Also, congratulations to Pat and Derek. I look forward to working even closer with you as we deliver for our customers together. We said it on the Q2 call that our commitment to our customers is to provide industry leading service, and we continue to deliver on our promise. As for volumes, we believe the worst is behind us. They hit the bottom in July. We saw improvement in August and September. Through the rest of the year, we expect this trend to continue, and I'll give some more details in a moment. We continue to deliver core pricing ahead of CN inflation. The pricing environment remains robust and our service levels are facilitating pricing conversations with our customers. We started the quarter in a bit of a hole with the port strike on the West Coast.

Thanks, Ed and all the best on your well deserved retirement also congratulations to patent there I look forward to working even closer with you as we deliver for our customers together.

We said it on the Q2 call that our commitment to our customers is to provide industry, leading service and we continue to deliver on our promise.

As for volumes, we believe the worst is behind us.

They hit the bottom in July we saw improvement in August and September.

Through the rest of the year, we expect this trend to continue and I'll give some more details in a moment.

We continue to deliver core pricing ahead of inflation.

The pricing environment remains robust and our service levels are facilitating pricing conversations with our customers.

We started the quarter and a bit of a hole with the port strike on the West coast.

Doug MacDonald: This impacted international Intermodal more than any other business segment, and as Tracy mentioned, we continue to see a hangover effect from cargo diversions to US gateways. We ended the quarter with UAW strikes starting at the Detroit Big Three. Fortunately, this only had a limited impact on our volumes in Q3. Turning to slide nine now. Q3 revenues were nearly $4 billion, down 12% versus last year on lower fuel surcharge rates, lower volumes, but partially offset by solid pricing. RTMs were down 5%, but excluding overseas, we're up 1% for the quarter as we see a continuing recovery across the other business lines. For Merchandise, Metals, and Minerals finished with the best quarter so far this year, supported by increased drilling programs in Western Canada, driving strong sands shipments. Demand for Forest Products remains below pre-COVID levels due to a challenging macro environment.

This impacted international intermodal more than any other business segment and as Tracy mentioned, we continue to see a hangover effect from cargo diversions to U S gateways.

We ended the quarter with UAW strike starting at the Detroit victory.

Fortunately this only had a limited impact on our volumes in Q3.

Turning to slide nine now.

Third quarter revenues were nearly $4 billion.

Down 12% versus last year on lower fuel surcharge rates lower volumes, but partially offset by solid pricing.

Rpms were down 5%.

Excluding overseas were up 1% for the quarter as we see a continuing recovery across the other business lines.

For our merchandize metals and minerals finished with the best quarter. So far this year.

Supported by increased drilling programs in Western Canada, driving strong SaaS shipments.

Demand for forest products remains below pre COVID-19 levels due to a challenging macro environment.

Doug MacDonald: Lower petroleum volumes in the quarter were mostly due to spot crude unit trains that we moved last year. We should lap that tougher comp in Q4. Plastics and chemicals sequentially strengthened in the quarter, which is a leading indicator of industrial production. Automotive continued to benefit from strong pent-up demand with limited strike impact. Turning to intermodal, I will remind you that storage revenues were normalized this year following last year's supply chain issues, which represents an impact of about CAD 100 million in the quarter. In domestic intermodal, we saw the monthly year-over-year numbers turn positive in Q3, in part because of our Falcon service between Canada, Detroit, and Mexico. International intermodal continues to be weak, but we were impacted by the West Coast port strike.

Lower petroleum volumes in the quarter were mostly due to spot crude trains unit trains that we moved last year.

We should lap that tougher comp in the fourth quarter.

Plastics <unk> chemicals sequentially strengthened in the quarter, which is a leading indicator of industrial production.

Automotive continued to benefit from strong pent up demand with limited strike impact.

Turning to intermodal I will remind you that storage revenues were normalized this year following last year's supply chain issues, which represents an impact of about $100 million in the quarter.

In domestic intermodal, we saw the monthly year over year numbers turn positive in Q3 in part because of our Falcon service between Canada, Detroit and Mexico.

International intermodal continues to be weak, but we were impacted and were impacted by the west coast Port strike.

Doug MacDonald: We continue to see lighter US discharge at Rupert and Vancouver, and we're working hard with our customers to get that volume back. Our bulk business has been outperforming since the start of the year. Starting with grain, we saw a strong weekly ramp up in Canadian grain in September with the crops coming off the field about three weeks earlier than last year. Building on our strong service from the last crop year, grain is now rolling and we expect strong volumes until at least next spring. We handled record potash volumes in Q3 to export markets and the US market. The operating team is providing outstanding service to our customers for this incremental volume, but we are being careful not to oversell the network.

We continue to see lighter U S discharge at Rupert and Vancouver, and we're working hard with our customers to get that volume back.

Our bulk business has been outperforming since the start of the year Star.

Starting with grain we saw a strong weekly wrap up in Canadian grain in September with the crops coming off the field about three weeks earlier than last year.

Building on our strong service from the last crop year grain is now rolling and we expect strong volumes until at least next spring.

We handled record potash volumes in the third quarter to export markets and the U S market.

The operating team is providing outstanding service to our customers for this incremental volume, but we are being careful not to oversell the network.

Doug MacDonald: Finally, the West Coast strike and subsequent terminal outage had a minor impact on met coal in the quarter, but commodity prices are still supportive of ongoing export volumes. Looking ahead to the balance of the year on slide 10, we're seeing lots of momentum across almost all of our markets. With bulk leading the charge, Canadian grain is running full out. US grain will also be strong and similar to 2022, benefiting from record low water levels on the Mississippi and limited barge capacity, but tempered by demand in China. We expect solid potash demand in line with the Q3 run rate, and there could be additional upside with a robust export market. Canadian met coal should be strong for the rest of the year, and we have set an annual export record already with one of our largest customers.

Finally, the West Coast strike and subsequent terminal outage had a minor impact on met coal in the quarter, but commodity prices are still supportive of ongoing export volumes.

Looking ahead to the balance of the year on slide 10, we're seeing lots of good momentum across almost all of our markets.

With bulk leading the charge Canadian grain is running full out.

U S grain will also be strong and similar to 2022.

Heading for a record low water levels on the Mississippi and limited barge capacity, but tempered by demand in China.

We expect solid potash demand in line with the Q3 run rate.

And there could be additional upside with a robust robust export market.

Canadian met coal should be strong for the rest of the year and we have set an annual export record already with one of our largest customers.

Doug MacDonald: For overseas intermodal, we are seeing clear indicators of positive trends. Destocking appears to be nearing an end, but wholesale inventory to sales ratios remain elevated. We are forecasting a gradual improvement throughout 2024. On the domestic side, both retail and wholesale are tracking favorably over last year. As Tracy said, domestic is also helped by some growth initiatives. Rounding out with Merchandise, we have a strong outlook for drilling with frac sand demand, aided by our network capacity enhancement in Northern BC. We expect Automotive to outperform with continuing pent-up demand contingent on how long the UAW strike goes on. We expect a continued positive trend in chemicals, plastics, and metals, and stable forest products. October is off to a good start and in line with how we have been modeling the quarter.

For overseas intermodal, we're seeing clear indicators of positive trends.

Destocking appears to be nearing an end.

But wholesale inventory to sales ratios remain elevated we are forecasting a gradual improvement throughout 2024.

On the domestic side, both retail and wholesale are tracking favorably over last year as.

As Tracy said domestic is also helped by some growth initiatives.

Rounding out with merchandise, we have a strong outlook for drilling with Frac sand demand.

Aided by our network capacity enhancement in northern BC.

We expect automotive to outperform with continued pent up demand contingent on how long the UAW strike goes on.

And we expect a continued positive trend in chemicals, plastics and metals and stable forest products.

October is off to a good start and in line with how we have been modeling the quarter.

Doug MacDonald: Before I hand it over to Ghislain, I want to review on some of the unique growth initiatives we laid out at Investor Day. We announced our new long-term agreement with AltaGas yesterday, which will drive an increase in LPG export carloads through Prince Rupert and Ferndale, Washington. CN, along with our customers and supply chain partners, continue to invest and develop the Rupert Gateway, which we highlighted at our May Investor Day. On the Falcon product, we've been building up this service since its launch in May. It's now a solid and consistent product. In line with truck transits, we saw our first loads with STG Logistics a couple of weeks ago, and we continue to actively pursue opportunities to build density to and from Mexico as major RFPs come up for bid.

Before I hand, it over to just lay I want to review on some of the unique growth initiatives, we laid out at Investor day.

We announced our new long term agreement with all the gas yesterday, which will drive an increase in LPG export carloads through Prince Rupert and Ferndale, Washington.

<unk>, along with our customers and supply chain partners continue to invest and develop the Rupert gateway, which we highlighted at our May Investor day.

On the Falcon product, we've been building up this service since its launch in May it's now a solid and consistent product in line with truck transits.

We saw our first loads with FPGA logistics, a couple of weeks ago, and we continue to actively pursue opportunities to build density to and from Mexico as major rfps come up for bid.

Doug MacDonald: CN's Eastern fuel strategy is progressing with the new distribution terminal in Toronto ready to start receiving cars in December. In line with what we projected at Investor Day, we expect volumes to build over 2024. We continue to work with our customers on building up the electric vehicle supply chain. We now have five announced projects on our network in Eastern Canada. It's going to take a few years to fully develop this opportunity, but we're pleased to already see the first shipments of raw lithium moving on CN for export at Quebec City. Our Northern BC strategy is also progressing as we finish the first capacity project in the area this month. This will allow CN to add additional frac sand and propane shipments to the network.

GFS Eastern fuel strategy is progressing with the new distribution terminal in Toronto ready to start receiving cars in December in line with what we projected at Investor Day, we expect volumes to build over 2024.

We continue to work with our customers on building up the electric vehicle supply chain.

We now have five announced projects on our network in Eastern Canada, It's going to take a few years to fully develop this opportunity, but we're pleased to already see the first shipments of raw Lithia moving on CN for export at Quebec City.

Our northern BC strategy is also progressing as we finished the first capacity projects in the area. This month. This will allow us to add additional frac sand and propane shipments to the network.

Doug MacDonald: To finish, I'm really excited about the next year, and I'll have more to report on these opportunities in January. Over to you, Ghislain.

The finished I'm really excited about for next year and I'll have more to report on these opportunities in January over to users.

Ghislain Houle: Merci beaucoup, Doug MacDonald. Before I do that, I wanna thank Ed Harris for everything he has done this past year. I've known Ed Harris a long time, and I'd like to wish him and his family a long, healthy retirement. Frankly, now I hope he stays in retirement. Then to Derek Taylor and Pat Whitehead on their appointments. Now I will start to slide 12 of the presentation, which will provide more visibility on our Q3 performance. Volumes in terms of RTMs were lower by 5% on a year-over-year basis, including the impact of the external disruptions that Ed Harris talked about earlier. We delivered operating income of around CAD 1.5 billion, 21% lower than last year.

Merci Beaucoup, Doug as you to visit the deliberate new visual touched wasn't Tms, but before I do that I want to thank Ed for everything. He has done this past year I've known add a long time and I would like to wish him and his family a long healthy retirement.

And frankly now I hope he stays in retirement.

And the growth of the stats to.

Derek and Pat under appointments.

Now I will talk to slide 12 of the presentation, which will provide more visibility on our third quarter performance.

Volumes in terms of rpms were lower by 5% on a year over year basis.

Including the impact of the external disruptions that Ed talked about earlier.

We delivered operating income of around $1 5 billion, 21% lower than last year.

Ghislain Houle: Our operating ratio came in at 62%, up 480 basis points versus the operating ratio for the same period last year, but is only slightly higher year-to-date on a year-over-year basis. EPS for the quarter finished at $1.69, 21% lower than last year. The estimated impact of external disruptions on our network this quarter was unfavorable to EPS by $0.10 and dilutive to the OR by 130 basis points. In terms of expenses, labor was essentially flat versus last year, driven by 6% higher average headcount and general wage increases, offset by the US wage accrual true-up related to new labor agreements in 2022 and lower incentive compensation this year. We have slowed, and in certain cases, stopped the pace of new hires through the quarter.

Our operating ratio came in at 62% up 480 basis point versus the operating ratio for the same period last year, but is only slightly higher year to date on a year over year basis.

EPS for the quarter finished at $1 69, 21% lower than last year.

The estimated impact of external disruptions on our network. This quarter was unfavorable to EPS by <unk> 10.

And diluted to the or by 130 basis points.

In terms of expenses labor was essentially flat versus last year, driven by 6% higher average head count and general wage increases offset by the U S wage accrual true up related to due to new labor agreements in 2022 and lower incentive compensation this year.

We are slow and in certain cases stopped the pace of new hires through the quarter.

Ghislain Houle: Fuel expense was more than $175 million lower than in the same period last year, mostly due to a 20% decrease in price and a 6% lower workload in terms of GTMs. With rising fuel prices, we had an unfavorable fuel surcharge lag, which had a $0.10 impact on EPS in the quarter, or $0.20 of EPS on a year-over-year basis. We generated close to $2.3 billion of free cash flow to the end of September. We are investing in our rail car fleet and continue to invest steadily in track maintenance as well as capacity expansions with a view to capital efficiency so we can be ready for the rebound. Moving to slide 13, let me provide some visibility to the full year.

Fuel expense was more than $175 million lower than in the same period last year, mostly due to a 20% decrease in price and a 6% lower workload in terms of GTS.

With rising fuel prices, we had an unfavorable fuel surcharge lag, which had a <unk> <unk> impact on EPS in the quarter or <unk> 20 of EPS on a year over year basis.

We generated close to $2 $3 billion of free cash flow to the end of September.

We are investing in our railcar fleet and continue to invest steadily in track maintenance as well as capacity expansions with a view to capital efficiency. So we can be ready for the rebound.

Moving to slide 13, let me provide some visibility to the full year.

Ghislain Houle: Despite uncertainty in sectors related to consumer consumption, most other areas are demonstrating signs of strength. The bulk segment of our business continues to perform very well. We believe the worst is behind us, and you should expect operating leverage to improve as volumes come back. We are still calling for a gradual recovery in consumer-related freight demand in 2024. With this in mind, we are reaffirming our full year guidance of flat to slightly negative EPS growth in 2023 versus 2022. We assume that for the balance of the year, foreign exchange will be in the range of 0.70 to 0.75, and WTI in the range of $80 to $90 per barrel. However, full year assumptions continue to be 0.75 for foreign exchange and WTI at $80 per barrel.

Despite uncertainty in sectors related to consumer consumption. Most other areas are demonstrating signs of strength.

The bulk segment of our business continues to perform very well.

We believe the worst is behind US and you should expect operating leverage to improve as volumes come back.

We are still calling for a gradual recovery in consumer related freight demand in 2024.

With this in mind, we are reaffirming our full year guidance of flat to slightly negative EPS growth in 2023 versus 2022.

We assume that for the balance of the year foreign exchange will be in the range of 70 to 75.

Julianne: Good afternoon, my name is Julianne, and I will be your operator today. Welcome to CN's third quarter, 2023's Financial and Operating Results Conference call. All participants are now in a listen-only mode.

Julianne: Good afternoon, my name is Julianne, and I will be your operator today.

And double UTI in the range of 80 to $90 per barrel.

Julianne: Welcome to CN's third quarter, 2023's Financial and Operating Results Conference call. All participants are now in a listen-only mode.

However, full year assumptions continue to be 75 for foreign exchange and WT 80 U S dollars per barrel.

Julianne: After the speakers remarks, there will be a question and answer session, during which we ask that you kindly limit yourself to one question. I would now like to turn the call over to Stacy Alderson, Assistant Vice President and Investor Relations.

Julianne: After the speakers remarks, there will be a question and answer session, during which we ask that you kindly limit yourself to one question.

Ghislain Houle: We remain committed to shareholder distributions. We are confident in our long-term growth story and have increased the budget of our current share repurchase program, which runs through January 31, 2024, to approximately $4.5 billion, up from the previous budget of approximately $4 billion. Under this program, we have repurchased nearly 20 million shares for just over $3 billion through the end of September. In conclusion, let me reiterate a few points. The team is committed to the scheduled railroad model, which provides reliable service for our customers. Apart from international intermodal, we are seeing strength in many segments, and volumes continue to sequentially improve. With this in mind, we are reaffirming our full-year 2023 guidance. We have a strong balance sheet that provides us financial flexibility, and we will allocate our capital in a manner that drives long-term value for our shareholders.

We remain committed to shareholder distributions, we are confident in our long term growth story and have increased the budget of our current share repurchase program, which runs through January 31, 2024 to approximately $4 5 billion up from the previous budget of approximately $4 billion.

Stacy Alderson: I would now like to turn the call over to Stacy Alderson, Assistant Vice President and Investor Relations. Ladies and gentlemen, Ms. Alderson. Thank you, operator.

Stacy Alderson: Ladies and gentlemen, Ms. Alderson. Thank you, operator. Good afternoon, everyone, and thank you for joining us for CN's third quarter, 2023 Financial Results Conference call.

Under this program, we have repurchased nearly 20 million shares for just over $3 billion through the end of September.

Stacy Alderson: Good afternoon, everyone, and thank you for joining us for CN's third quarter, 2023 Financial Results Conference call. Before we begin, I'd like to draw your attention to the forward-looking statements and additional legal information available at the beginning of the presentation. As a reminder, today's conference call contains certain projections and other forward-looking statements within the meeting of the U.S, and Canadian securities laws. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied in these statements. There are more fully described in our cautionary statement regarding forward-looking statements in our presentation.

In conclusion, let me reiterate a few points.

The team is committed to the scheduled railroad model, which provides reliable service for our customers.

Stacy Alderson: Before we begin, I'd like to draw your attention to the forward-looking statements and additional legal information available at the beginning of the presentation. As a reminder, today's conference call contains certain projections and other forward-looking statements within the meeting of the U.S, and Canadian securities laws. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied in these statements. There are more fully described in our cautionary statement regarding forward-looking statements in our presentation.

Apart from international Intermodal, we are seeing strength in many segments and volumes continued to sequentially improve.

With this in mind, we are reaffirming our full year 2023 guidance.

We have a strong balance sheet that provides us financial flexibility and we will allocate our capital in a manner that drives long term value for our shareholders.

Ghislain Houle: Let me pass it back to Tracy.

Let me pass it back to Tracy.

Tracy Robinson: Thanks, Ghislain. Operator, I think we're ready to take some questions.

Thanks Chip operator, I think we are ready to take some questions.

Speaker 1: Thank you. We will now begin the question and answer session. As previously mentioned, we ask that you kindly limit yourself to one question. Our first question comes from Walter Spracklin from RBC Capital Markets. Please go ahead. Your line is open.

Operator: Thank you. We will now begin the question and answer session. As previously mentioned, we ask that you kindly limit yourself to one question. Our first question comes from Walter Spracklin from RBC Capital Markets. Please go ahead. Your line is open.

Thank you we will now begin the question and answer session. As previously mentioned, we ask that you kindly limit yourself to one question.

Stacy Alderson: After the prepared remarks, we will conduct a Q&A session. I do want to remind you to please limit yourself to one question. As usual, the IR team will be available after the call for any follow-up questions.

Our first question comes from Walter <unk> from RBC Capital markets. Please go ahead. Your line is open.

Speaker 10: Hey, this is James McGarragle. I'm on for Walter this morning. Thanks for taking my question. We've been tracking some TEU trends out of Prince Rupert, and some of the weakness that occurred as a result of the port strike in July, you know, looks to be extended into August and more recently, September. I guess my question relates to the extent this might be structural versus temporary. I know you addressed this in your opening comments, but can you speak more specifically to some of the service and cost benefits you have versus US alternatives and the confidence you have in that volume coming back? Any update on your conversations with the shipping lines and how quickly you think we could see that come back? Thank you.

James McGarragle: Hey, this is James McGarragle. I'm on for Walter this morning. Thanks for taking my question. We've been tracking some TEU trends out of Prince Rupert, and some of the weakness that occurred as a result of the port strike in July, you know, looks to be extended into August and more recently, September. I guess my question relates to the extent this might be structural versus temporary. I know you addressed this in your opening comments, but can you speak more specifically to some of the service and cost benefits you have versus US alternatives and the confidence you have in that volume coming back? Any update on your conversations with the shipping lines and how quickly you think we could see that come back? Thank you.

Hey, this is James Mcgarrigle I'm on for.

Stacy Alderson: Joining us on the call today are Tracy Robinson, our President and CEO, Doug McDonald, our Chief Marketing Officer, Jisla Kool, our Chief Financial Officer, and Ed Harris, our Chief Operating Officer.

Walter This morning, Thanks for taking my question.

We've been tracking some teu trends out of Prince Rupert and some of the weakness that occurred as a result of the port strike and July looks to be extended into August and more recently in September and I guess my question relates to the extent.

Tracy Robinson: It is now my pleasure to turn the call over to CM's President and Chief Executive Officer, Tracy Robinson. Nancy Stacey, a B.M. Vanula Tuesday.

Stacy Alderson: It is now my pleasure to turn the call over to CM's President and Chief Executive Officer, Tracy Robinson. Nancy Stacey, a B.M. Vanula Tuesday.

This might be structural versus temporary and I know you addressed this in your opening comments, but can you speak more specifically to some of the servicing cost benefits you have versus the U S alternatives and the confidence you have now volume coming back and any update on how your conversations with the shipping lines and how quickly you think we could see that come back. Thank you.

Tracy Robinson: I want to start today by saying a few words about the evolution of our operations structure. We were very pleased last week to announce the appointment of Derek Taylor to Executive Vice President and Chief Field Operating Officer and Pat Whitehead to Executive Vice President and Chief Network Operating Officer. You have all met both Pat and Derek. They are both accomplished and experienced operating officers and they will both play prominent roles in CM's future and our success.

Tracy Robinson: Good afternoon, James. Yeah, as we said earlier, we think this is a temporary issue. There are some real structural advantages to Prince Rupert in particular, both, as you noted, economic and service. We have set Prince Rupert up with a premium kind of container service into the US markets. That kind of strategy has been working. As you noted, when the strike occurred, it's that business that started to move to the US ports. That structural advantage continues. We're two days faster from China in Chicago than the other alternatives. There are some economic advantages based partly on the currency, the Canadian currency and other that we think, you know, they stand even as we look into the future.

Good afternoon, James Yes, as we said earlier, we think this is a temporary issue there are some real structural advantages to Rupert in particular, both as you noted economic and service. So we have set Prince Rupert.

With a premium kind of container service into the U S and a market in that in that kind of strategy has been working and as you noted when the strike occurred it's that business, that's starting to move to the U S ports, but that structural advantage continues and we're two days faster from China in Chicago than the other alternatives and there are some economic advantages based.

Tracy Robinson: This isn't splitting as role into two. We are making this bigger and we will be focusing on work that we haven't done before. The structure we are creating will strengthen the competencies that are core to our future of driving profitable growth. It recognizes the equal importance and the distinct nature of competencies around building the plan and running the plan. The Derek and his field team will focus on continuing to improve the daily execution of our scheduled operating plan across our three operating regions and our intermodal terminals.

Partly on the currency the Canadian currency and other debt we think.

They stand even as even as we look into the future. So we think this business is going to come back you are working with our customers on it.

Tracy Robinson: We think this business is gonna come back, or we're working with our customers on it. You know, our call is that it'll come back, you know, gradually. We've lost a little confidence in the West Coast ports. It'll come back gradually unless the volume really starts to pick up, and then it'll come back more quickly. You know, in the meantime, up at Rupert, you know, we're continuing to lean into, you know, an increasing structural advantage. If you think about the import transload, it's now under construction. The port announced a Ridley Island export logistics park that's been approved, and it's going forward. All of that, I think, is very supportive on the container side. Even outside of containers, Doug mentioned our AltaGas deal. We very much appreciate the business and the partnership of AltaGas.

Our call is that it will come back gradually.

Tracy Robinson: They will drive on-time performance along with continued improvement in dwell and in first mile last mile delivery to our customers. Pat and his network team own the plan and their focus will be on- Plan, continuing to refine the plan to optimize to our volumes and to improve velocity, and to drive a more focused, longer term plan, including resourcing and the development and execution of the capital plan to both maintain our network on a lower cost per unit basis and expand it for growth where necessary in a more cost effective manner.

With leftover confidence in the West coast Port that will come back gradually unless the volume really starts to pick up and then I'll come back to more quickly.

In the meantime update Rupert.

<unk> to lean into.

An increasing structural advantage if you think about the import trans load is now under construction.

Import announced are really out of an export logistics park. That's been improved in this going forward. So all of that I think is very supportive on the container side and even outside of containers.

Doug mentioned, our Alta gas deal.

We very much appreciate the business and the partnership with multi asset, but that a new agreement is going to drive considerable growth in that that corner. So we are actually.

Tracy Robinson: That new agreement is gonna drive considerable growth in that corridor. We are actually, if you think about the growth that we laid out for you at Investor Day on the Rupert Corridor, we are ahead of that plan. We're feeling pretty good about it, and very strong about, you know, the structural advantage of Rupert.

Tracy Robinson: Now this structure splits the critical day-to-day focus of running the operation. [inaudible] And he's here and he's mic'd up and ready to go. You'll be hearing from him shortly, but before he gets to speak, let me just say how much ed I have appreciated your willingness to step back in. I've appreciated your partnership in creating our path forward and your leadership in ensuring that we've got the right winning conditions in place with our operations team for this transition. You've made a real difference. And I know that's exactly what you wanted to do.

You think about the growth that we laid out for you at Investor day on the Rupert corridor. We are ahead of that plan.

We're feeling pretty good about it and very strong about.

The structural advantage of Rupert.

Speaker 10: Yeah, I appreciate it. Just a quick one on Bill C-47 and interswitching. You know, I've seen some of the companies post about this on LinkedIn, but have you seen any customer uptick on interswitching and any early commentary you can provide on the matter? I'll turn it over. Thank you.

James McGarragle: Yeah, I appreciate it. Just a quick one on Bill C-47 and interswitching. You know, I've seen some of the companies post about this on LinkedIn, but have you seen any customer uptick on interswitching and any early commentary you can provide on the matter? I'll turn it over. Thank you.

I appreciate it and just a quick one on Bill C 47, and inter switching.

Seen some of the companies post about this on Linkedin, but have you seen any customer uptick on inter switching.

Any early commentary you can provide on the matter and I will turn it over thank you.

Tracy Robinson: Yeah. I would say that, you know, what we are focused on is driving the highest performance out of our supply chains in the country and in the continent. You know, we are prepared to continue to invest in capacity and that performance. You know, the interswitching provisions and the concept of it is not at all supportive of supply chains that perform at high level. It slows cars down, it slows service down, and it is not supportive of continued investment. We, you know, on that basis, we've objected to this. Having said that, we haven't seen a significant impact as of yet, but it's early days.

Yeah, I would say that.

What we are focused on is driving the highest performance out of our supply chain in the country and in the continent.

And we are prepared to continue to invest in capacity in that performance.

No.

The inter switching provisions in the concept of it is not at all supportive of supply chain that perform at high level.

<unk>.

Tracy Robinson: Now before I hand it over to you, though, I have some comments on the business and on the quarters. Our railroad continues to run very well. It is the test of our operating plan that we can maintain our fluidity, our velocity, and our customer service loads through different and challenging conditions. We've demonstrated that over these past few quarters. Now through the fourth fire season, this spring and summer, which was the worst in Canada's history, the flood conditions in the east and west.

Cars down slow service down and it is not supportive of continued investment and so.

On that basis, we have objected to this having said that we haven't seen a significant impact as of yet, but it's early days.

Speaker 1: Our next question comes from Brandon Oglenski from Barclays. Please go ahead. Your line is open.

Operator: Our next question comes from Brandon Oglenski from Barclays. Please go ahead. Your line is open.

Our next question comes from Brandon <unk> from Barclays. Please go ahead. Your line is open.

Ghislain Houle: Hey, good afternoon, and thanks for taking my question. Sorry if this is a little bit near-term focused, but just, Ghislain Houle, can you just walk us through some of the moving pieces on your implied Q4 guide? 'Cause I think it suggests that OR, you know, should improve sequentially, and obviously you had some issues in Q3. Can you talk through the moving pieces here on how to get to the full year guide from where you are?

Brandon Oglenski: Hey, good afternoon, and thanks for taking my question. Sorry if this is a little bit near-term focused, but just, Ghislain Houle, can you just walk us through some of the moving pieces on your implied Q4 guide? 'Cause I think it suggests that OR, you know, should improve sequentially, and obviously you had some issues in Q3. Can you talk through the moving pieces here on how to get to the full year guide from where you are?

Hey, good afternoon, and thanks for taking my question and sorry, if this is a little bit near term focus, but just when can you just walk us through some of the moving pieces on your implied <unk> guide because I think it suggests that or should improve sequentially and obviously you had some issues in the third quarter, but can you talk through the moving pieces here on how to get to the full year guide from where you are.

Tracy Robinson: And the west coast port strikes are operational performance remains strong and consistent. And we've demonstrated the ability to recover quickly. Our on trying train performance and our velocity of remain steady. Now, this is exactly what we're looking for in our last month services improved. We've been consistently over 90% for the last two quarters versus above 80% last year. This is the performance and the resiliency that we're looking for as a foundation of our growth plan moving forward.

Tracy Robinson: Thanks, Brandon. Well, I think as we said in our opening remarks, I think we see definitely improvement in volumes on a sequential basis. I mean, just when you look at our volumes sequentially in October versus September, we're up 7%. You can expect volumes to improve sequentially. As volumes come in, I think that we are very comfortable that we will deliver some operating leverage. Maybe I'll pass it on to Tracy. Do you wanna add anything, Tracy? Sure. I think the other way to think about it, we are seeing the strength in volumes that Ghislain Houle is talking about. Our pricing is coming in exactly into the mandate that we gave Doug.

Thanks, Brendan what I think as we've said.

In our opening remarks, I think there is we see definitely improvement in volumes on a sequential basis. I mean, just when you look at our volumes sequentially in October versus September were up.

We're up to 7% so I think.

Tracy Robinson: Now in volumes, we have a tale of different market segments. You'll hear from Doug a little more on this. Our bulk business, they'll think grain, coal, potash, fractions. It's been strong all year. Our merchandise business is continuing to farm up. For instance, we've seen an inflection in chemicals and plastics starting in August. Our consumer related business, particularly the intermodal business, continues to be murky. Our domestic intermodal volumes are holding up relatively well thanks to initiatives like the MP and the Falcon service.

You can expect volumes to improve sequentially.

And as volumes come in I think that we are very comfortable that we will deliver some operating leverage and maybe I'll pass it onto Tracy when do you want to add anything tracing sure I think the other way to think about it and we are seeing the strength in volumes that Jim is talking about.

Our pricing is coming in exactly instant mandate that we gave Doug and I am really pleased with the margins at this system is providing and this team is providing I think we've had the best margins and the.

Tracy Robinson: However, the international intermodal has been affected by two things, destocking lower overall consumer consumption, which has impacted poor volumes across the continent for everyone, and then the west coast port strikes. Now, coming out of the port strikes, our Canadian deaths and volumes have returned. Conference. Our U.S. Destiny volumes moved to U.S, ports during the strike and have not come back fully as yet. And now, this is a temporary situation. We're confident in the value proposition that the Canadian ports offer in both both service and cost. And we continue to work to get those volumes back to the Northern Gateways.

Tracy Robinson: I am really pleased with the margins that this system is providing and this team is providing. I think we've had the best margins in the industry for the past, what? 5, 6 quarters. We know that there's leverage there, particularly in the manifest business. On the merchandise side, as the volume starts to lift again, we're eager for that to happen, and it looks like it's starting to happen now.

Industry for the past six quarters.

We've got we know that there is leverage there, particularly in the manifest business on the merchandise side as the volume start to lift again.

We're eager for that to happen and it looks like it's starting to happen now.

Doug MacDonald: Thanks for the question, Brandon.

Thanks for that thank you Brenda.

Ed Harris: Thank you.

Brandon Oglenski: Thank you.

Speaker 1: Our next question comes from Cherilyn Radbourne from TD Cowen. Please go ahead. Your line is open.

Operator: Our next question comes from Cherilyn Radbourne from TD Cowen. Please go ahead. Your line is open.

Our next question comes from Cherilyn Radbourne from TD Cowen. Please go ahead. Your line is open.

Speaker 11: Thanks very much. Good afternoon. I wanted to pick up on some of the new interchange relationships that you've negotiated with your rail peers. What do you think needs to happen to make these partnerships work better than they have in the past? Do you think that the willingness to cooperate will extend to include trickier situations where perhaps one of the key carriers has to accept a shorter length of haul?

Cherilyn Radbourne: Thanks very much. Good afternoon. I wanted to pick up on some of the new interchange relationships that you've negotiated with your rail peers. What do you think needs to happen to make these partnerships work better than they have in the past? Do you think that the willingness to cooperate will extend to include trickier situations where perhaps one of the key carriers has to accept a shorter length of haul?

Thanks, very much good afternoon.

I'd like to pick up on some of the new interchange relationships that you've negotiated with your rail peers.

Do you think needs to happen to make these partnerships work better than they have in the past and do you think that the willingness to cooperate will extend to include trickier situations, where perhaps one of the key carriers have to accept a shorter length of haul.

Tracy Robinson: Now, I believe we've seen the bottom one volumes. We've started a controlled ramp up. We've seen the growth of the operation to support growth. The growth plan we laid out earlier this year is continuing to progress. It's a mix of growth tied to economic strength and growth tied to specific customer initiatives. Now, the volume growth tied to the economy will come into the economy less. The benefits of our customer specific initiatives are unfolding pretty much on plan.

Tracy Robinson: Yeah. Cherilyn, thanks for that question. It is, I think it is a change that we're seeing in the industry, right, for various reasons. As we have our discussion, I would tell you that we are open for business and, very eager to, work with our partners, and the other carriers to provide and design and provide the services that make sense for our customers. The ones that you've seen, at least us step into most recently, are really targeting, getting truck traffic off the road and things like the Falcon service. You know, Doug's working as well on our new service with the NS. These are working with Ferromex in the case of Falcon and UP. We have a product in place now that's consistently delivering at very truck-like transits, and that's pretty remarkable.

Yes, cherilyn. Thanks for that question. It is I think it is the change that we're seeing in the industry alright for various reasons as we have our discussion I would tell you that we are open for business and very eager to work with our partners and the other carriers to provide and designed to provide the services that makes sense for our customers.

And the one thing <unk> seen at least a step into most recently are are really targeting getting truck traffic off the road and things like the Falcon service.

Tracy Robinson: In both cases, we will see considerable margin leverage as volumes increase. I'm a big believer in the resiliency of the North American economy. This team has managed extremely well to the softer volumes. And what we can control continues to go very well, faster and better than plan in fact. And we're ready as the volumes turn up. I've got a lot of confidence in this team, in this network and in this plan.

Doug is working as well on our new service with DNS. These are.

Working with FX in the case of Falcon and <unk>.

We have a product in place now that is consistently delivering at very truck like transit and that's pretty remarkable.

Tracy Robinson: I think you're gonna see more of this, and I would say that the nature of the dialogues that we've had so far, with all of the carriers, is that we'll conduct ourselves in a way as though we were a single carrier, right? That may mean, in some cases, it's advantageous to one, and in other cases, it's advantageous to the other. That's a principle that I think needs to underscore these relationships as we go forward. Doug, do you have anything to add to that?

I think youre going to see more of this and I would say that the nature of the dialogues that we've had so far.

Tracy Robinson: Now, turning to our third quarter results, I'll keep it to just a few highlights. A third quarter EPS was 21% lower than last year. And our operating ratio at 62% was higher than last year, but remains at or near best in the industry. I am extremely proud that our customer service and operational efficiency have been top tier for six quarters now. The team will take you through the details in the quarter.

With all of the carriers is that we'll conduct ourselves in a way as though we were a single carrier alright, and that May mean in some cases, it's advantageous to one and in other cases, an advantageous to the other but that's a principle that I think needs to underscore.

These relationships as we go forward, Doug do you have anything to add to that the only thing I'll add in Charlotte is that it's all about service. So this quickest transit times to compete against truck is really what the operating teams between the railways are really focused on.

Doug MacDonald: The only thing I'll add in, Cherilyn, is that it's all about service. This quickest transit times to compete against truck is really what the operating teams between the railways are really focused on. We don't really care how long the haul is, right? It's all about we need to get it there as fast as truck. All the teams have been greatly focused on that. They've come up with some great products where we think we are truck competitive in all these corridors and their major truck lanes. I assume that we're gonna take our time. We're gonna start to build this as we build momentum. It's gonna take a while to pull trucks off the road, but we're pretty happy with the product so far, and we think we'll be successful.

Tracy Robinson: I'll turn it over to them now starting with that.

Ed Harris: Now, as I said a few nice things earlier, but I need now to mention that this is your last quarterly call with CN. Thank you. And let's make it a good one. Thank you, Tracy. Thanks for the time, words I think.

Tracy Robinson: Now, as I said a few nice things earlier, but I need now to mention that this is your last quarterly call with CN. Thank you. And let's make it a good one.

We don't really care, how long the hall is right. It's all about we need to get out there as fastest truck. All the teams are have been greatly focused on that they've come up with some great products, where we think we are truck competitive and all these corridors and their major truck plants. So I assume that we're going to take our time were going to start to build this as we build momentum it's going to take a while to pull.

Ed Harris: Thank you, Tracy.

Ed Harris: Thanks for the time, words I think.

Ed Harris: Before I jump into the quarter, I just want to take a minute to talk about these two guys, Derek and Pat. I've really gotten to know them over the past year and they are among the finest operators I have ever had the pleasure to work with. Investors got to see a bit of their great chemistry and relationship back in May and investor day and how they work together. The entire network benefits from how well these guys operate every day. I can't tell you how confident I am in the future of the operation and the company with these two working as one. While expanding their responsibilities and pushing the team to be better every day.

Trucks off the road, but we're pretty happy with the product so far and we think we'll be successful.

Speaker 11: Thank you.

Cherilyn Radbourne: Thank you.

Thank you.

Speaker 1: Our next question comes from Ravi Shanker from Morgan Stanley. Please go ahead. Your line is open.

Operator: Our next question comes from Ravi Shanker from Morgan Stanley. Please go ahead. Your line is open.

Our next question comes from Ravi Shanker from Morgan Stanley. Please go ahead. Your line is open.

Ravi Shanker: Good afternoon, everybody. Ed, congratulations and good luck with your retirement and congrats to the new incoming team as well. Maybe one kind of parting question for you kind of as you join the team. Like, was this transition kind of timing what you had planned when you joined, or is it something that you brought forward, just given some of the traction that you've had with implementing the plan?

Great.

And congratulations and good luck with your retirement and congrats on the new incoming theme as well maybe one kind of part of your question for you kind of as you joined.

Ed Harris: I can't tell you how confident I am in the future of the operation and the company with these two working as one. While expanding their responsibilities and pushing the team to be better every day. In fact, this quarter has been a great example of how well they work together because it was a tough operating out there in quarter three. We started out by dealing with a two week porch strike on the west coast and then faced constant disruptions from forest fires and flooding until until September.

The team.

Like was this transition kind of timing what you had planned when you joined or is this something that you brought forward just given some of the traction that you've had with implementing plant.

Ed Harris: In fact, this quarter has been a great example of how well they work together because it was a tough operating out there in quarter three. We started out by dealing with a two week porch strike on the west coast and then faced constant disruptions from forest fires and flooding until until September. Running to a plan makes all a difference. For instance, we have a two day outage on our main line east of Edmonton in the quarter in the past that would have taken us up to a week or more to get operations back in sync.

Okay.

Ed Harris: When I came on board, don't forget, I consulted here for quite a few months before I came on board. You know, our evaluation of both Derek and Pat was almost immediate. Tracy and I were in agreement and in a lockstep with what the future of this operating department was gonna look like. Both of these individuals have stepped up to the plate. Quite frankly, they've been running the show for the last couple months just getting ready. I'm extremely proud of what they've been able to do. You know, if there's a testament to their prowess, our Q3 was tough, as I said in my speech. I mean, it was rough operating out there, and our metrics were only off a small percentage in car velocity, train speed, and cycles.

We.

When I came onboard don't forget I consulted here for.

Quite a few months before I came on board in.

Our evaluation of both Eric and pad was almost immediate Tracey and I are in agreement and in lockstep with what the future of this operating department was going to look like.

Ed Harris: Running to a plan makes all a difference. For instance, we have a two day outage on our main line east of Edmonton in the quarter in the past that would have taken us up to a week or more to get operations back in sync. This one took two days. The team really took it up a notch in September, though, with improvements in car velocity, train speed, through dwell, and origin and destination trains.

Both of these individuals has stepped up to the plate quite frankly, they've been running the show for the last couple of months just getting ready.

Ed Harris: This one took two days. The team really took it up a notch in September, though, with improvements in car velocity, train speed, through dwell, and origin and destination trains. Performance. We told you how we decided not to furlough train crews earlier in the year, and now, with grain coming on strong, we're seeing the benefit of that decision.

I am extremely extremely proud of what they've been able to do.

If there is a testament to their proud us.

Our third quarter was tough as I said in my speech I mean, it was rough operating out there and our metrics were only off a small percentage of car velocity train speed cycles. I mean, we were doing everything right and just to add onto what Doug just talked about between the carriers just think of what this industry can do if we take a day.

Ed Harris: Performance. We told you how we decided not to furlough train crews earlier in the year, and now, with grain coming on strong, we're seeing the benefit of that decision. All in all, we're set up well for a strong fourth quarter. I'm very proud of the whole operating team this quarter, and especially the leadership provided by Pat and Eric.

Ed Harris: I mean, we were doing everything right. Just to add on to what Doug just talked about between the carriers, just think of what this industry can do if we take a day out of the cycle, all carriers do that. We get the traffic off trucks, and that's what it's about. Thanks for the nice comments. I appreciate it. I'll miss all of you, maybe. It's been a lot of fun for me, and I've enjoyed every minute of it, Ravi. Thanks.

Ed Harris: All in all, we're set up well for a strong fourth quarter. I'm very proud of the whole operating team this quarter, and especially the leadership provided by Pat and Eric.

Out of the cycle all carriers do that we get the traffic off the trucks and that's what it's about so.

Ed Harris: So how did the quarter shape up? Carve loss of the average 209 miles per day, which was down 1% compared to last year. Some of the other metrics we look at every day, like train speed and tram length, were also down slightly. But when I think about the disruptions this quarter, I don't think we went a single week in July or August without a major network disruption. Stats that good tell you a lot about the quality of the people operating the network and the resiliency of running to a plan.

Thanks for the nice comments I appreciate it I'll Miss all of you.

Navy.

Yes.

It's been a lot of fun for me and I have enjoyed every minute of Ravi. Thanks, I don't know who Lps.

Doug MacDonald: I don't know who I'll tease, Ed, going forward.

Okay.

Ravi Shanker: Great. Thanks for that. Maybe as a follow-up, Tracy, can you share what the initial success has been like selling your Falcon service to your customers? Obviously, your peer has a bit of a speed advantage still, but kind of what are your customers telling you in terms of their preference for speed versus value or kind of what they're looking for from that intermodal service?

Yes.

Great. Thanks for that and then maybe as a follow up.

Tracy can you share what the initial success has been like selling your file can service. Your customers. Obviously your peer has a bit of a speed advantage still but kind of what are your customers telling you in terms of.

Ed Harris: And as well as the network ran this quarter, our yards were in even better shape. Our origin train departure improved to 89% in quarter three, which is right in the sweet spot that we targeted. This is one of the keys to delivering for our customers, and this Tracy's already covered our great local performance. Finally, on safety, we had six more reportable injuries and two more reportable FRA accidents than the third quarter of last year, which put some pressure on our quarterly metrics. But our year-to-day injury frequency ratio is still 11% better than 2022, our best ever quarter three year-to-day performance. And our year-to-day accident ratio is also on track at 16% better than last year.

Their preference where speed versus value or kind of what they're looking for from that intermodal service.

Tracy Robinson: Well, I would tell you that, whether it's that intermodal service or any service, table stakes is the consistency of the service that we provide. In the case of going after the truck traffic like the Falcon service does, we know that means we also have to be fast. I'm really impressed with the way the three organizations are working together to create a service and continually challenge it to where we can get time out. You've seen that happen. Then to, you know, that's one thing, but to deliver it consistently every day is another thing completely. We're doing that. As Doug said, this is a proof of concept, a model that we've got to prove to our customers, and it's gonna grow over time.

Well I would tell you that whether it's that intermodal service or any service are table Stakes.

Is is the consistency of the service that we provide in the case of going after the truck traffic like the tuck in service day, we know that means we also have to be fast and I'm really impressed with the way. The three organizations are working together to create a servicing continually challenge it to where we can get time out and you've seen that happen and.

Ed Harris: Finally, on safety, we had six more reportable injuries and two more reportable FRA accidents than the third quarter of last year, which put some pressure on our quarterly metrics. But our year-to-day injury frequency ratio is still 11% better than 2022, our best ever quarter three year-to-day performance. And our year-to-day accident ratio is also on track at 16% better than last year.

Then two that's one thing but to deliberate consistently every day is another thing completely and we're doing that and so as Doug said. This is a proof of concept the model that we've got to prove to our customers and it's going to grow over time, and we expect it to start small, which it is and it will grow over time and Doug I.

Tracy Robinson: We expect it to start small, which it is, and it'll grow over time. Doug, I think we've said that, we think this is a train a day both ways ultimately. Is that-

Ed Harris: Now Tracy said that this will be my last call as chief operating officer. I'm going to hang around for the winner to give the team some support through the transition, but I officially hand over the reins to Derek and Pat on November 15. And like I said before, I have complete confidence in these guys, and in this team. Tracy gave me two priorities when I came out of retirement last year. Get this place running well again, coach, and mentor the next generation of operating talent.

I think we've said that we think this is a train a day both ways ultimately now.

Doug MacDonald: No, Tracy, that's it. That's the market share that we see out there, and it's gonna take a while to get there, and we're gonna make some progress. Like I said in my remarks, we are lucky enough to see STG join up on the service, and they started shipping their first loads a couple weeks ago. That's our first real new, I'll say, third party person that's come on, and that's great. We're looking forward to more.

That's the that's the market share that we see out there and it's going to take a while to get there and we're going to make some progress like I said in my remarks, we are lucky enough to see STG joining up on the service and they started shipping their first of all it's a couple of weeks ago. That's our first real new I'll say third party a person that's come on and Thats, great. We're looking forward to more.

Ed Harris: Tracy gave me two priorities when I came out of retirement last year. Get this place running well again, coach, and mentor the next generation of operating talent. As I head off to my fifth retirement, I'll sleep well at night knowing we knocked it out of the park on both counts. This place is running as well as I've ever seen it run, and the next generation is ready.

Ravi Shanker: Very helpful. Thank you.

Very helpful. Thank you.

Speaker 1: As a reminder, we ask that you kindly limit yourself to one question. Thank you. Our next question comes from Scott Group from Wolfe Research. Please go ahead. Your line is open.

Operator: As a reminder, we ask that you kindly limit yourself to one question. Thank you. Our next question comes from Scott Group from Wolfe Research. Please go ahead. Your line is open.

As a reminder, we ask that you kindly limit yourself to one question. Thank you. Our next question comes from Scott Group from Wolfe Research. Please go ahead. Your line is open.

Ed Harris: As I head off to my fifth retirement, I'll sleep well at night knowing we knocked it out of the park on both counts. This place is running as well as I've ever seen it run, and the next generation is ready.

Scott Group: Hey, thanks. Afternoon, guys, and best of luck to you, Ed. Just laying the CAD 0.20 of headwinds in Q3 from fuel and external disruptions, should we just assume that those entirely go away, and that's basically the bridge to your full year guide? As I think about next year, where you stand today, do you think the long-term guide of 10% to 15% earnings growth is achievable next year?

Hey, Thanks afternoon guys.

And best of luck to yet so.

<unk> 20 of headwinds in Q3 from fuel and external disruptions should we just assume that that those entirely go away and Thats basically the bridge.

Ed Harris: And finally on a personal note to the team around the table here today, it's been an honor and pleasure to come back to where I started and finish a career that I started over 50 years ago. It certainly has been my honor to be able to make that happen.

So your full year guide and then as I think about next year, where do you stand today do you think the long term guide of 10% to 15% earnings growth is achievable next year.

Ed Harris: But thank you.

Doug McDonald: Now it's a good turn. Talk about top-line performance in market outlook.

Unknown Executive: Now it's a good turn.

Doug Macdonald: Talk about top-line performance in market outlook. Thanks Ed.

Ghislain Houle: Yeah. Thanks, Scott. I can answer the first part of your question, and then I'll turn it over to Tracy for the second part. You're right. When you look at the fuel surcharge headwind that we had in the quarter, it's CAD 0.20 year over year. It's CAD 0.10 this year. If you remember, Scott, last year, we had a favorable fuel surcharge of CAD 0.10. Year over year is CAD 0.20. Then there's another CAD 0.10 of year over year disruptions that we quantified for you. That's what we had to go through, you know, in the quarter. Despite all of this, we delivered a 62 OR, which we're quite proud and pleased about it. Then I'll turn it over to you, Tracy, for next year.

Thanks, Scott I can answer the first part of your question and then I'll turn it over to Tracy for the second part so youre right. So when you look at the fuel surcharge headwind that we had in the quarter. Its 20 <unk> year over year. It's 10 cents. This year and if you remember Scott last year, we had a favorable.

Doug McDonald: Thanks Ed.

Doug McDonald: And all the best on your well-deserved retirement. Also, congratulations to Pat and Derek. I look forward to working even closer with you as we deliver four customers together. We set it on the Q2 call that our commitment to our customers is to provide industry-leading service, and we continue to deliver on our promise. Democrats, As for volumes, we believe the worst is behind us. They hit the bottom in July. We saw improvement in August and September.

Doug Macdonald: And all the best on your well-deserved retirement. Also, congratulations to Pat and Derek. I look forward to working even closer with you as we deliver four customers together. We set it on the Q2 call that our commitment to our customers is to provide industry-leading service, and we continue to deliver on our promise. Democrats, As for volumes, we believe the worst is behind us. They hit the bottom in July. We saw improvement in August and September.

Fuel surcharge of Tencent, so year over years 'twenty.

And then there is another 10.

The year over year disruptions that we quantified for you.

So that's that's what we have to go through.

In the quarter and despite all of this we delivered a 62 or which we're quite proud and pleased about it and then I'll turn it over to you Tracy for next year sure.

Doug McDonald: Through the rest of the year, we expect this trend to continue and I'll give some more details in a moment. We continue to deliver core pricing ahead of CNN inflation. The pricing environment remains robust and our service levels are facilitating pricing conversations with our customers. We started the quarter in a bit of a hole with the porch strike on the west coast. This impacted international intermodal more than any other business segment.

Doug Macdonald: Through the rest of the year, we expect this trend to continue and I'll give some more details in a moment. We continue to deliver core pricing ahead of CNN inflation. The pricing environment remains robust and our service levels are facilitating pricing conversations with our customers. We started the quarter in a bit of a hole with the porch strike on the west coast. This impacted international intermodal more than any other business segment.

Tracy Robinson: Sure. You know, as far as the guidance that we gave at Investor Day on the CAGR of 10% to 15% EPS, we are sticking to that. We see that, without a doubt, this railroad is running very well, continues to do so through all the shocks that it's gone through this year. Testament to the team. I'm impressed every day. We laid out a growth plan for you. Now, that was based on kind of this presumption of what Ghislain called the supportive economy. We haven't seen that much this year, but we are starting to feel it come back. That growth plan was a combination of two things. It was a piece of growth that is, we're gonna capitalize on, coming from the strength of the economy.

Far as the guidance that we gave at Investor day on the CAGR of 10% to 15% EPS. We are sticking to that we see that till without a doubt this railroad.

He is running very well continue to do so throughout shocks that has gone through this year.

Testament to the team.

I am impressed every day.

We laid out a growth plan for you now that was based on kind of this possession of what she's done causes supportive of economy, we haven't seen that much. This year, but we are starting to feel it come back in that growth plan was a combination of two things. It was a piece of growth that is if we're going to capitalize on.

Doug McDonald: And as Tracy mentioned, we continue to see a hangover effect from cargo diversions to US gateways. We ended the quarter with UAW strikes starting at the Detroit Big Three. Fortunately, this only had a limited impact on our volumes in Q3.

Doug Macdonald: And as Tracy mentioned, we continue to see a hangover effect from cargo diversions to US gateways. We ended the quarter with UAW strikes starting at the Detroit Big Three. Fortunately, this only had a limited impact on our volumes in Q3. Turning to slide nine now, third quarter revenues were nearly $4 billion down 12% versus last year on lower fuel surcharge rates, lower volumes, but partially offset by solid pricing. RTMs were down 5%, but excluding overseas, we're up 1% for the quarter as we see a continuing recovery across the other business lines.

The economy is now coming from the strength of the economy and then there are some very specific customer initiatives.

Doug McDonald: Turning to slide nine now, third quarter revenues were nearly $4 billion down 12% versus last year on lower fuel surcharge rates, lower volumes, but partially offset by solid pricing. RTMs were down 5%, but excluding overseas, we're up 1% for the quarter as we see a continuing recovery across the other business lines. For merchandise, metals, and minerals, finished with the best quarter so far this year. Supported by increased drilling programs in Western Canada, driving strong sand shipments.

Tracy Robinson: There's some very specific customer initiatives that we're working through, that list is growing, you know, we're progressing. They're not tied to the strength of the economy. Those are coming on, you know, on plan or in some cases, Doug is bringing them in ahead of plan, as is the case for the Prince Rupert Corridor. You know, we think that you know this plan stands, you know, the risk to it would be that underlying strength in the economy, but we're feeling pretty good about it as we sit here today.

But we're working through that.

That list is growing that we're progressing without.

Tied to the strength of the economy and those are coming on.

On plan or in some cases Douglas bringing them in ahead of plan as is the case for the Prince Rupert corridor. So.

We think that.

With this planned stance and the risk to it would be that underlying strength in the economy, but we're feeling pretty good about it as we sit here today.

Doug Macdonald: For merchandise, metals, and minerals, finished with the best quarter so far this year. Supported by increased drilling programs in Western Canada, driving strong sand shipments. Demand for forest products remains below pre-COVID levels due to a challenging macro environment. Lower petroleum volumes in the quarter were mostly due to spot crude trade unit trains that we moved last year. We should lap that tougher comp in the fourth quarter. Plastics and chemicals sequentially strengthened in the quarter, which is a leading indicator of industrial production.

Scott Group: Thank you.

Speaker 1: Our next question comes from David Vernon from Bernstein. Please go ahead. Your line is open.

Thank you our next question.

Operator: Our next question comes from David Vernon from Bernstein. Please go ahead. Your line is open.

Our next question comes from David Vernon from Bernstein. Please go ahead. Your line is open.

Speaker 4: Hey, guys. Thanks. Tracy, I just wanna push on that a little bit. I mean, obviously, we're coming in a little bit weaker than we might have thought for 2023. As you think about that three-year envelope of 10 to 15, with some of the growth initiatives starting to pay off, should we maybe be doing a little bit better than the lower end of the range? Or how should we be thinking about the contouring of that 10 to 15 over the three years? Is it more back-end loaded, middle loaded, front-loaded?

David Vernon: Hey, guys. Thanks. Tracy, I just wanna push on that a little bit. I mean, obviously, we're coming in a little bit weaker than we might have thought for 2023. As you think about that three-year envelope of 10 to 15, with some of the growth initiatives starting to pay off, should we maybe be doing a little bit better than the lower end of the range? Or how should we be thinking about the contouring of that 10 to 15 over the three years? Is it more back-end loaded, middle loaded, front-loaded?

Doug McDonald: Demand for forest products remains below pre-COVID levels due to a challenging macro environment. Lower petroleum volumes in the quarter were mostly due to spot crude trade unit trains that we moved last year. We should lap that tougher comp in the fourth quarter. Plastics and chemicals sequentially strengthened in the quarter, which is a leading indicator of industrial production. Automotive continued to benefit from strong pent up demand with limited strike impact. Turning into mold, I will remind you that storage revenues were normalized this year following last year supply chain issues, which represents an impact of about $100 million in the quarter.

Hey, guys. Thanks, So Tracy I, just want to push on that a little bit I mean, obviously, we're coming in a little bit weaker than we might have a thought for.

2023.

When you think about that three year envelope of 10% to 15.

Some of the growth initiatives starting to pay off should we may be doing a little bit better than the lower end of the range or how should we be thinking about the the contrary of that 10 to 15 over the three years is it more backend loaded mid alluded frontloaded.

Doug Macdonald: Automotive continued to benefit from strong pent up demand with limited strike impact. Turning into mold, I will remind you that storage revenues were normalized this year following last year supply chain issues, which represents an impact of about $100 million in the quarter. In domestic intermodal, we saw the monthly year over year numbers turn positive in Q3 in part because of our Falcon service between Canada, Detroit, and Mexico. International intermodal continues to be weak, but we were impacted and we were impacted by the West Coast Port Strike.

Tracy Robinson: You know, I think it is gonna shift as far as in its timing. We're feeling pretty positive about the specific customer initiatives. You know, what remains to be seen is exactly what the pace of the strength of the economy returning. We'll give you a little bit more color of that in January, exactly what we're seeing. Right now, we're feeling good about our guidance.

Thank you and I think it is going to shift as far as and its timing and we're pretty soon.

Feeling pretty positive about the specific customer initiatives.

To be seen is exactly what the pace of the strength of the economy returning so.

So we will give you a little bit more color of that in January exactly what we're seeing but right now we're feeling good about our guidance.

Doug McDonald: In domestic intermodal, we saw the monthly year over year numbers turn positive in Q3 in part because of our Falcon service between Canada, Detroit, and Mexico. International intermodal continues to be weak, but we were impacted and we were impacted by the West Coast Port Strike. We continue to see lighter US discharge at Rupert and Vancouver, and we're working hard with our customers to get that volume back. Our bulk business has been outperforming since the start of the year.

Speaker 4: Then, Ghislain, maybe just real quickly, the CapEx side of that. You know, there was a lot of concern, I think, when you had your Investor Day around the level of spend. Are you thinking about regulating that spend still in line with the volume anticipation?

David Vernon: Then, Ghislain, maybe just real quickly, the CapEx side of that. You know, there was a lot of concern, I think, when you had your Investor Day around the level of spend. Are you thinking about regulating that spend still in line with the volume anticipation?

And then just on maybe just real quickly the capex side of that.

There's a lot of concern I think when you had your investor day around the level of spend.

Are you are you thinking about regulating that spend is still in line with the volume anticipation.

Ghislain Houle: Thanks, David. Yeah, I mean, you know, we have these customer initiatives. If these customer initiatives, some of them fall off the table or some of them happen later, then obviously we will regulate our CapEx accordingly. I mean, the capital envelope is a living thing. It's a dynamic thing. We look at it on a regular basis. Obviously, absolutely, we will look at our CapEx in light of those opportunities coming on board.

Doug Macdonald: We continue to see lighter US discharge at Rupert and Vancouver, and we're working hard with our customers to get that volume back. Our bulk business has been outperforming since the start of the year. Starting with grain, we saw a strong weekly ramp up in Canadian grain in September with the crops coming off the field about three weeks earlier than last year. Building on our strong service from the last crop year, grain is now rolling and we expect strong volumes until at least next spring.

Thanks.

We have these customer initiatives at these customer initiatives.

Some of them fall off the table or some of them happened. Later, then obviously, we will regulate our capex accordingly.

Doug McDonald: Starting with grain, we saw a strong weekly ramp up in Canadian grain in September with the crops coming off the field about three weeks earlier than last year. Building on our strong service from the last crop year, grain is now rolling and we expect strong volumes until at least next spring. We handled record pot ash volumes in the third quarter to export markets and the US market. The operating team is providing outstanding service to our customers for this incremental volume, but we are being careful not to oversell the network. Finally, the West Coast strike and subsequent terminal outage had a minor impact on Met Cole in the quarter, but commodity prices are still supportive of ongoing export volumes.

The capital envelope is a living thing it's a dynamic thing that we look at it on a regular basis.

So obviously, absolutely we will look at our Capex in.

In light of those opportunities coming on board.

Speaker 4: All right. Thank you.

David Vernon: All right. Thank you.

Alright, thank you.

Speaker 1: Our next question comes from Konark Gupta from Scotiabank. Please go ahead. Your line is open.

Operator: Our next question comes from Konark Gupta from Scotiabank. Please go ahead. Your line is open.

Our next question comes from <unk> Gupta from Scotiabank. Please go ahead. Your line is open.

Doug Macdonald: We handled record pot ash volumes in the third quarter to export markets and the US market. The operating team is providing outstanding service to our customers for this incremental volume, but we are being careful not to oversell the network. Finally, the West Coast strike and subsequent terminal outage had a minor impact on Met Cole in the quarter, but commodity prices are still supportive of ongoing export volumes. Looking ahead to the bounce of the year on slide 10, we're seeing lots of momentum across almost all of our markets.

Konark Gupta: Thanks for taking my question. Echo congratulations to Ed, Patrick, and Derek. Perhaps on international intermodal side, I wanna figure out what's your visibility on timing for when the container traffic fully returns back to Canada from the US? As a follow-up on domestic intermodal, can you talk about the RFPs you are expecting in terms of size or nature for Falcon Premium? Thanks.

Thanks for taking my question.

Congratulations.

Patrick and direct.

Perhaps on the international intermodal side.

Figure out whats your visibility on timing for when the container traffic when it returns back to Canada from the U S. And then as a follow up on domestic intermodal can you talk about the rfps, you're expecting in terms of size of nature for Cellcom premium. Thanks.

Doug McDonald: Looking ahead to the bounce of the year on slide 10, we're seeing lots of momentum across almost all of our markets. With bulk leading the charge, Canadian grain is running full out. US grain will also be strong and similar to 2022, but benefiting from record low water levels on the Mississippi and limited barge capacity, but tempered by demand in China. We expect solid products demand in line with the Q3 run rate, and there could be additional upside with a robust export market.

Doug MacDonald: Okay. Thanks, Konark. On the international side, our customers are telling us they see a gradual ramp up over the next year or so. We're expecting that. That's what's in our forecast and our outlook moving forward. That's the best visibility we have in the market. We're depending upon them, and we think it's right. On the domestic Canadian side, things are going very well. We're actually seeing increases there year-over-year, which is fantastic. That market is coming back nicely. We see some green shoots there. On the Falcon, we're seeing RFPs on a regular basis. Now, the customers have to be able to trust us and do it. We're out there getting trials with them and things like that.

Okay. Thanks corner, so on the international side, our customers are telling us they see a gradual ramp up over the next year or so so we're expecting that that's what we're that's what's in our forecast and our outlook moving forward.

Doug Macdonald: With bulk leading the charge, Canadian grain is running full out. US grain will also be strong and similar to 2022, but benefiting from record low water levels on the Mississippi and limited barge capacity, but tempered by demand in China. We expect solid products demand in line with the Q3 run rate, and there could be additional upside with a robust export market. Canadian Met Cole should be strong for the rest of the year, and we have said an annual export record already with one of our largest customers.

That's the best visibility we have in the market so.

We're depending upon them and we think it's right on the domestic side outside of so on the domestic Canadian side things are going very well, we're actually seeing increases there year over year, which is fantastic. So that market has come back but coming back nicely. We see some green shoots there on the Falcon, we're seeing rfps on a regular basis.

Doug McDonald: Canadian Met Cole should be strong for the rest of the year, and we have said an annual export record already with one of our largest customers. For overseas intermodal, we are seeing clear indicators of positive trends. De-stocking appears to be nearing an end, but wholesale inventory to sales ratios remain elevated. We are forecasting a gradual improvement throughout 2024. On the domestic side, both retail and wholesale are tracking favorably over last year.

Now the customers have to be able to trust us and do it. So we're good at which we're out there getting trials with them and things like that it's going to take a while to build this off the road at the same time, you know we don't cap rates in the U S have been depressed over the last year and we're competing against those as we move forward. We do have a great product and we know we're going to witness climate was awesome.

Doug MacDonald: It's gonna take a while to build this off the road. At the same time, you know, we know truck rates in the US have been depressed over the last year, and we're competing against those as we move forward. We do have a great product, and we know we're gonna win as time moves on.

Doug Macdonald: For overseas intermodal, we are seeing clear indicators of positive trends. De-stocking appears to be nearing an end, but wholesale inventory to sales ratios remain elevated. We are forecasting a gradual improvement throughout 2024. On the domestic side, both retail and wholesale are tracking favorably over last year. As Tracy said, domestic is also held by some growth initiatives. Rounding out with merchandise, we have a strong outlook for drilling with fraction demand, aided by our network capacity enhancements in northern BC.

Konark Gupta: Thank you.

Thank you.

Speaker 1: Our next question comes from Fadi Chamoun from BMO. Please go ahead. Your line is open.

Operator: Our next question comes from Fadi Chamoun from BMO. Please go ahead. Your line is open.

Our next question comes from Betty Chen from BMO. Please go ahead. Your line is open.

Speaker 15: Thank you. Ed, Pat, and Derek, congrats on your roles. Ed, if this is truly your last retirement, all the best and thanks for all the advice over the years.

Fadi Chamoun: Thank you. Ed, Pat, and Derek, congrats on your roles. Ed, if this is truly your last retirement, all the best and thanks for all the advice over the years.

Thank you.

Doug McDonald: As Tracy said, domestic is also held by some growth initiatives. Rounding out with merchandise, we have a strong outlook for drilling with fraction demand, aided by our network capacity enhancements in northern BC. We expect automotive to outperform with continued pent up demand, contingent on how long the UAW strike goes on, and we expect a continued positive trending chemicals, plastics and metals, and stable forest products. October is off to a good start, and in line with how we have been modeling the quarter.

Ed.

And.

And Derrick congrats on Roland.

This is truly a Alaska retirement, all the best.

Thanks for all the advice over the years.

Ghislain Houle: Just don't let me come back.

Joseph.

Just to come back.

Sure.

Doug Macdonald: We expect automotive to outperform with continued pent up demand, contingent on how long the UAW strike goes on, and we expect a continued positive trending chemicals, plastics and metals, and stable forest products. October is off to a good start, and in line with how we have been modeling the quarter. Before I hand it over to you, I want to review on some of the unique growth initiatives we laid out at Investor Day.

Fadi Chamoun: You know, maybe Doug MacDonald, on the Q4, if you can give us what are you assuming for volume in the Q4 in terms of growth year on year or sequentially, just to kind of help us track your progress on that front? My question on the cost per headcount per employee, like how should we think about this sequentially into Q4? I know you have some labor negotiations coming up here and how do you think about kind of the best way for us to think about that cost per headcount in 2024?

Okay.

And maybe Doug on the fourth quarter. If you can give us what are you assuming for volume.

In the fourth quarter in terms of growth year on year or sequentially just to kind of help us track your progress on that front and my question on the.

The cost per head count.

Doug McDonald: Before I hand it over to you, I want to review on some of the unique growth initiatives we laid out at Investor Day. We announced our new long-term agreement with Altigastra yesterday, which will drive an increase in LPG export carloads through Prince Rupert and Ferndale, Washington. CN, along with our customers and supply chain partners, continue to invest and develop the Rupert Gateway, which we highlighted at our May Investor Day. On the Falcon product, we have been building up this service that has launched in May.

Okay.

Per per employee how should we think about the sequentially into Q4, and I know you have some labor negotiations coming up here and how do you think about kind of the best way for us to think about the cost per head count in 2024.

Doug Macdonald: We announced our new long-term agreement with Altigastra yesterday, which will drive an increase in LPG export carloads through Prince Rupert and Ferndale, Washington. CN, along with our customers and supply chain partners, continue to invest and develop the Rupert Gateway, which we highlighted at our May Investor Day. On the Falcon product, we have been building up this service that has launched in May. It is now a solid and consistent product. In line with truck transit, we saw our first loads with STG logistics a couple of weeks ago, and we continue to actively pursue opportunities to build density to and from Mexico as major RFPs come up for bid.

Tracy Robinson: This is Patty. I'm gonna take the first one, and I'll hand it off to Ji the second one. As we're looking at volumes, kind of week over week and month over month, we're seeing that sequential strength. Right now, we're looking at sequential growth in all but kind of the international. Well, even in the international volumes sequentially. That we've seen real strength coming from most, if not all, of our business lines as you look at it sequentially over time. We've mapped that out. Doug's pretty close to his customers and what they're planning, you know, over the course of this year. It's on that basis that our confidence remains on our guidance.

Oh listen Patti I'm going to take the first one I'll hand, it off to just the second one so as we're looking at some volumes kind of week over week and month over month, we're seeing that sequential strength and right now we're looking at.

It is now a solid and consistent product. In line with truck transit, we saw our first loads with STG logistics a couple of weeks ago, and we continue to actively pursue opportunities to build density to and from Mexico as major RFPs come up for bid. CN's Eastern fuel strategy is progressing with the new distribution terminal in Toronto, ready to start receiving cars in December. In line with what we projected at Investor Day, we expect volumes to build over 2024.

Sequential growth in all but kind of be international even and then even in the international volumes sequentially.

We've seen real strength coming from most if not all of our business lines as you look at it sequentially over current so we've mapped that out that's pretty close to these customers and what they're planning.

Doug Macdonald: CN's Eastern fuel strategy is progressing with the new distribution terminal in Toronto, ready to start receiving cars in December. In line with what we projected at Investor Day, we expect volumes to build over 2024. We continue to work with our customers on building up the electric vehicle supply chain. We now have five announced projects on our network in eastern Canada. It's going to take a few years to fully develop this opportunity, but we're pleased to already see the first shipments of raw lithium moving on CN for export at Quebec. University. Our Northern BC strategy is also progressing as we finish the first capacity project in the area this month. This will allow CN to add additional fracks and and propane shipments to the network.

Over the over the course of this year so on that basis.

Debt.

That our confidence remains on our guidance and if you look at industrial production as well. We had said that we were going to do better than industrial production industrial production is strengthening and I think that.

Tracy Robinson: If you look at industrial production as well, we've said that we were gonna do better than industrial production. Industrial production is strengthening, and I think that, Doug, what do you think you'll see us do that on everything maybe except the international lines? Would that be the case?

Doug what do you think youll see us do that on everything maybe except the international lines would that be the case now I agree with that 100 centers.

Ghislain Houle: No, I agree with that 100%, Tracy.

Tracy Robinson: Okay. Thank you. Ghislain.

Okay. Thank you.

Ghislain Houle: Yeah. Tracy Robinson, on the average comp per employee, when you look at it sequentially, it's up 2% in Q3 versus Q2, and that's mostly due to a 4% wage increase on our US employees that started in July 2023. You know, for next year, I mean, again, I would continue to assume regular wage increases. You know, we're just replacing employees for attrition, and that's about it. That's the answer to that question.

Yes so.

On the average comp per employee when you look at it sequentially.

Yes.

Up.

2% in Q3 versus Q2, and Thats, mostly due to a 4% wage increase on our U S employees that started in July 2023, and for next year I mean again I.

Doug Macdonald: To finish, I'm really excited about the next year, and I'll have more to report on these opportunities in January. Overuse is like. Thank you, Doug, for the pleasure that I did, and the result was in three months. But before I do that, I want to thank Ed for everything he has done this past year. I've known Ed a long time, and I'd like to wish him and his family a long, healthy retirement.

We continue to assume regular wage increases.

And we're just we're just replacing employees for attrition and that's about it so.

<unk>.

That's that's the answer to that question.

Fadi Chamoun: Thank you.

Tracy Robinson: Okay.

Okay. Thank you.

Ghislain Houle: Thank you.

Speaker 1: Our next question comes from Ken Hoexter from Bank of America. Please go ahead. Your line is open.

Operator: Our next question comes from Ken Hoexter from Bank of America. Please go ahead. Your line is open.

Our next question comes from Ken <unk> from Bank of America. Please go ahead. Your line is open.

Doug Macdonald: And frankly, now I hope he stays in retirement. And the gross satisfaction to Derek and Pat on their appointments. Now I will talk to slide 12 of the presentation, which will provide more visibility on our third quarter performance volumes in terms of our TM's were lower by 5% on a year over your basis, including the impact of the external disruptions that Ed talked about earlier. We delivered offering income of around $1.5 billion, 21% lower than last year.

Speaker 17: Great. Good afternoon, Ed. You know, I'll stick to it. Congrats on your last call and your attempt on the fifth retirement and congrats to Derek and Pat, which is great. As Tracy said, they have no mic, so Tracy, you can really talk about them now.

Ken Hoexter: Great. Good afternoon, Ed. You know, I'll stick to it. Congrats on your last call and your attempt on the fifth retirement and congrats to Derek and Pat, which is great. As Tracy said, they have no mic, so Tracy, you can really talk about them now.

Great. Good afternoon, Ed I'll stick to it congrats on your last call and Youre attempt on the fifth retirement and.

And congrats to Derek and Pat which is greatest Tracy said they have no Mike. So so Tracy you can really talk about them now.

Tracy Robinson: That's right, Ken, I can.

That's right Kevin again.

Speaker 17: I guess just a numbers question real quick and then a long-term one. The casualty costs, they ramped up in the quarter. I just wanna understand, is that sticky or is that just because I think it was mentioned there were a couple extra accidents in the quarter. Long term, my question would be just on. I know you've talked a little bit about the 10% to 15%. I know that's not linear. How should we think about that as you start to, you know, rebound? Maybe give us upside downside. Is it just the volume? 'Cause Doug sounds like he's got a lot of confidence that we've passed the bottom. Is that just moving past the storms and the US grain crop bouncing up? Maybe talk about the upside downside on that range for next year.

Ken Hoexter: I guess just a numbers question real quick and then a long-term one. The casualty costs, they ramped up in the quarter. I just wanna understand, is that sticky or is that just because I think it was mentioned there were a couple extra accidents in the quarter. Long term, my question would be just on. I know you've talked a little bit about the 10% to 15%. I know that's not linear. How should we think about that as you start to, you know, rebound? Maybe give us upside downside. Is it just the volume? 'Cause Doug sounds like he's got a lot of confidence that we've passed the bottom. Is that just moving past the storms and the US grain crop bouncing up? Maybe talk about the upside downside on that range for next year.

I guess just a numbers question real quick and then a long term one the casualty costs. They ramped up in the quarter I just want to understand is that sticky or is that just because I think it was mentioned there were a couple of extra accidents in the quarter, but long term. My question would be just on the I know you've talked a little bit about the 10% to 15% I know that's not linear but how should we think about that as you start.

Doug Macdonald: Our operating ratio came in at 62%. Up 480 basis point versus the operating ratio for the same period last year, but is only slightly higher year to date on a year over your basis. EPS for the quarter finished at $1.69, 21% lower than last year. The estimated impact of external disruptions on our network, this quarter was unfavorable to EPS by 10 cents, and diluted to the OR by 130 basis point. In terms of expenses, labor was essentially flat versus last year driven by 6% higher average headcount and general wage increases offset by the US wage accrual crew up related to new labor agreements in 2022 and lower incentive compensation this year.

To rebound as it may be give us upside downside is it just the volume because Doug it sounds like you've got a lot of confidence that we passed the bottom. So is that just moving past the storms in the U S grain crop bouncing out maybe talk about the the upside downside on that range for next year.

Ghislain Houle: Yeah, Ken, maybe your first question on the casualty cost. I mean, I'm looking at my notes here. I mean, C&O, Casualty and Other, is mostly flat on a year-over-year basis in the quarter. I'm not sure what number you're looking at.

Yes, Ken maybe the first your first question on the casualty costs I mean, I'm looking at my notes here I mean.

Casualty and other is mostly flat on a year over year basis in the quarter.

I'm not sure what number Youre looking at.

Speaker 17: I just looked at it. It was just up sequentially, right? I know year over year. Is that just it's seasonal in terms of the accidents at random?

Ken Hoexter: I just looked at it. It was just up sequentially, right? I know year over year. Is that just it's seasonal in terms of the accidents at random?

I just looked at it it was just up sequentially right. So I know year over year is that just is that it's seasonal in terms of the accident that ramped up.

Ghislain Houle: Yeah.

Tracy Robinson: Okay.

Ghislain Houle: Okay. On sequentially, it's just up about 6-7%, and it's really lower horsepower, high horsepower income. This is tough to say for a French guy. It's just low, mostly lower high horsepower income in Q3 versus Q2.

Okay. Okay.

Sequentially it's.

Doug Macdonald: We have slow and in certain cases stop the pace of new hires through the quarter. Fuel expense was more than $175 million lower than in the same period last year, mostly due to a 20% decrease in price and a 6% lower workload in terms of GTMs. With rising fuel prices, we had an unfavorable fuel surcharge lag which had a 10 cents impact on EPS in the quarter or 20 cents of EPS on a year over your basis.

It's again, it's it's just it's just up about six 7% and its really lower.

Horsepower or high horsepower income this is stuff the Safeway French guy. So it's just low mostly lower high horsepower income in Q3 versus Q2.

Speaker 17: Okay. Yeah. If it's not a trend, that's fine. I just wanna make sure if that was-

Ken Hoexter: Okay. Yeah. If it's not a trend, that's fine. I just wanna make sure if that was-

Yes, if it's not a trend that's fine I just want to make sure. If that was nothing that was sticky, but we true up with you I'll start we true up on our horsepower every quarter. So you'll have some ups and down depending on how we interchange or trains with other roads and so on and so forth okay perfect.

Ghislain Houle: No, it's not.

Speaker 17: -something that was sticky based on-

Ken Hoexter: -something that was sticky based on-

Ghislain Houle: We true up on our

Speaker 17: a few accidents.

Ken Hoexter: a few accidents.

Ghislain Houle: We true up on our horsepower every quarter. You have some ups and down depending on how we interchange our trains with other roads and so on and so forth.

Doug Macdonald: We generated close to $2.3 billion of free cash flow to the end of September. We are investing in our rail car fleet and continue to invest steadily in track maintenance as well as capacity expansions with the view to capital efficiency so we can be ready for the rebound. Moving to slide 13, let me provide some visibility to the full year. Despite uncertainty and sectors related to consumer consumption, most other areas are demonstrating signs of strength.

Speaker 17: Okay. Perfect.

Ken Hoexter: Okay. Perfect.

Tracy Robinson: On the volume question. You're right. We don't see this as being linear. What we did put together was kind of a 10-year view on what our growth would look like. What we put in front of you guys earlier this year was the 3-year view on that. A good chunk of that, as we've said, are a number of customer initiatives that Doug is working, and that's not a static, you know, list. It moves around a lot. I'm excited about some of the new ones that are coming onto that list. What remains uncertain is the other part of it, which is the volume growth that's gonna come with our customers and our partners on just the economic strength.

And then on the volume question, So you're right, we don't see this as being linear.

And while we did put together was kind of last year was kind of a 10 year view on what our growth would look at what we put in front of you guys. In earlier. This year was the three year view on that and so a good chunk of that as we've said are.

Number of customer initiatives that Doug is working and that's not a static list. It's it moves around a lot.

And I'm excited about some of the new ones are coming out of that list. What remains uncertain is the other part of it which is the volume growth that is going to come with our customers and our partners on just the economic strength and so we're modeling in kind of what we what we've talked to you about next year, we will give you a little bit.

Doug Macdonald: The bulk segment of our business continues to perform very well. We believe the worst is behind us and you should expect operating leverage to improve as volumes come back. We are still calling for a gradual recovery in consumer-related freight demand in 2024. With this in mind, we are reaffirming our full-year guidance of flat to slightly negative EPS growth in 2023 versus 2022. We assume that for the balance of the year, foreign exchange will be in the range of 70 to 75 cents and WTI in the range of 80 to 90 US dollars per barrel.

Tracy Robinson: We're modeling in kind of what we've talked to you about, next year, and we'll give you a little bit, you know, kind of related to industrial production. We'll give you a little bit more color on that in January when we talk to you next. But I would say that would be the biggest risk for next year.

Related to industrial production, we will give you a little bit more color on that in January when we talk to you next but I would say that that would be the biggest risk for next year.

Speaker 17: Is the volume side?

Ken Hoexter: Is the volume side?

Is the volume side.

Tracy Robinson: Yes.

Yes, Okay Army Army Army economic that volume, which is tied to economic strength as opposed to the specific customer initiatives that we're working.

Speaker 17: Okay.

Ken Hoexter: Okay.

Tracy Robinson: That volume, which is tied to economic strength as opposed to the specific customer initiatives that we're working.

Doug Macdonald: However, full-year assumptions continue to be 75 cents per foreign exchange and WTI at 80 US dollars per barrel. We remain committed to shareholder distributions. We are confident in our long-term growth story and have increased the budget of our current share repurchase program which runs through January 31st, 2024 to approximately $4.5 billion up from the previous budget of approximately $4 billion. Under this program, we have repurchased nearly 20 million shares but just over $3 billion through the end of September.

Speaker 17: Okay.

Ken Hoexter: Okay.

Tracy Robinson: Thanks for your question.

Okay.

Speaker 17: Thank you. Thanks.

Ken Hoexter: Thank you. Thanks.

Thanks for your question. Thank you.

Yes.

Speaker 1: Question comes from Benoit Poirier, from Desjardins. Please go ahead. Your line is open.

Operator: Question comes from Benoit Poirier, from Desjardins. Please go ahead. Your line is open.

Question comes from Ben <unk> from Deutsche Bank. Please go ahead. Your line is open.

Benoit Poirier: Yeah. Bonjour à tous, and happy retirement, Ed, and congrats to Pat and Derek for their new roles.

Yes, both of our tools and IP retirement, and congrats to pattern direct for their new roles.

Benoit Poirier: If we move to eastern ports, there's a labor agreement up for renewal with the dock workers at the Port of Montreal, and there's also the potential strikes with the St. Lawrence Seaway. Just wondering if you have seen any cargo diversion so far and kind of the actions that are taken so far to mitigate the potential impact of those labor agreements.

If we move to eastern ports, there is a labor agreements up for renewal with the dock workers at the Port of Montreal, and Theres also the potential strikes with the St. Lawrence Seaway. So just wondering if you have seen any cargo diversion, so far and kind of the actions that are taken so far.

Doug Macdonald: In conclusion, let me reiterate a few points. The team is committed to the scheduled railroad model which provides reliable service for our customers. Apart from international intermodal, we are seeing strength in many segments and volumes continue to sequentially improve. With this in mind, we are reaffirming our full-year 2023 guidance.

To mitigate the potential impact of those labor agreements.

Doug MacDonald: Okay. Thanks, Benoit. I'll take that. It's Doug. On the St. Lawrence, obviously it's brand new. The products that move on the St. Lawrence that really, I'll say are complementary to the rail is really grain, the main one. Right now there's enough elevator capacity in Thunder Bay for this week and probably most of next week. If the strike lasts past that, then we have offered a train package to our customers to be able to move product into the east from Western Canada. It would be, you know, we'd start to look at some business there. You also have the iron ore that tends to move export via Quebec City from the Minnesota area.

Okay. Thanks, Bill I'll take that it's Doug so on the St. Lawrence So obviously, it's brand new.

The products that move on the St. Lawrence that really I'll say are complementary to the rail really grain is the main one so right now theres enough elevation capacity in vendor Bay for this week and probably most of next week and strike glass post that then we have offered a train package to our customers to be able to move product to the east.

Doug Macdonald: We have a strong balance sheet that provides us financial flexibility and we will allocate our capital in a manner that drives long-term value for our shareholders.

Tracy Robinson: Let me pass it back to Tracy. Thanks, Chiz. Operator, I think we're ready to take some questions. Thank you. We will now begin the question and answer session.

Unknown Executive: As previously mentioned, we ask that you kindly limit yourself to one question.

From Western Canada. So it would be we would start to look at some business there.

Walter Spracklin: Our first question comes from Walter Spracklin from RBC Capital Market. Please go ahead. Your line is open. Hey, this is James McGaragall. I'm on for also this morning. Thanks for taking my question. We've been tracking some TAU trends at a Prince Rupert and some of the weakness that it occurred as a result of the port strike in July. It looks to be extended into August and more recently September.

Also have the iron ore that tends to move export by our Quebec City from us from the Minnesota area. So we may there may be some opportunities there as well, but most of that should just move to the dock like normal. So I don't see a lot of changes for us overall as this moves forward. When you look at the port of Montreal, We.

Doug MacDonald: There may be some opportunities there as well, but most of that should just move to the dock like normal. I don't see a lot of changes for us overall as this moves forward. When you look at the Port of Montreal, we have prepared for that. We've put a package together to actually move a lot of our customers freight over the Port of Halifax. We're only in the process now of going out to the market with that so that they know what's available, and we're just starting that planning now. We do have the operational plan already in place.

Have prepared for that were put a package together to actually move a lot of our customers freight over the port of Halifax, We're only in the process now of going out to the market with that so that they know what's available and we're just starting that planning now, but we do have the operational plan already in place.

Tracy Robinson: I guess my question relates to the extent this might be structural versus temporary. I know you address this in your opening comments, but can you speak more specifically to some of the service and cost benefits you have versus U.S, alternatives than the confidence you have in that volume coming back and any update on your conversations with the shipping lines and how quickly you think we can see that that come back. Thank you.

Benoit Poirier: Okay. Just to follow up on Contrecœur, we've seen a great announcement over the last few weeks. What would be the next milestone to monitor, Doug?

Okay, and just to follow up on coal we've seen a great announcement over the last few weeks what would be the next milestone to monitor Doug.

Tracy Robinson: Good afternoon, James. As we said earlier, we think this is a temporary issue. There are some real structural advantages to Rupert in particular, both as you noted, economic and service. So we have set Prince Rupert up with a premium kind of container service into the U.S, markets and that kind of strategy has been working. And as you noted, when the strike occurred, it's that business that started to move to the U.S, ports, but that structural advantage continues.

Tracy Robinson: Contrecoeur.

Doug MacDonald: Contrecœur, the next one will be, really, I think you'll see a new RFP for a port operator. That will be the next big milestone from what they're telling us. They're gonna start work on the dock as it is today, or the waterfront as they call it. That's where that money is going, Benoit. They're gonna start there without a port operator being named, and then the port operator will be the next big milestone. We're looking forward to that as well.

That's correct.

So koch occur. The next one will be really I think youll see a new RFP for a port operator that will be the next big milestone for what they are telling us.

They're going to start work on the dock as it is today or the waterfront as they call. It. So that's where that money is going <unk>. So they are going to start there without a port operator being named and then the port operator will be the next big milestone. So we're looking forward to that as well.

Tracy Robinson: And we're two days faster from China in Chicago than the other alternatives and there are some economic advantages based partly on the currency to Canadian currency and other that we think they stand even as we look into the future. So we think this business is going to come back or we're working with our customers on it. Our call is that it'll come back gradually. It's less a little confidence in the West Coast ports.

Benoit Poirier: Thank you very much for the time.

Thank you very much for that time.

Doug MacDonald: See you, Benoit.

Sudan.

Tracy Robinson: Our next question comes from Chris Wetherbee from Citigroup. Please go ahead. Your line is open.

Operator: Our next question comes from Chris Wetherbee from Citigroup. Please go ahead. Your line is open.

Our next question comes from Chris Wetherbee from Citigroup. Please go ahead. Your line is open.

Speaker 20: Yeah. Hey, thanks. Good afternoon, guys. I guess I wanted to ask about headcount and resources maybe in general, as you think about kind of re-accelerating the growth and this line of sight that you have to volume growth as we move forward into 2024. Where do you think you are in resources? I guess maybe asked another way, do you think that there's a certain amount of volume growth that you can absorb with the headcount and sort of the overall resource base that you have today? Or do you think you'll need to be adding incrementally as we move forward?

Chris Wetherbee: Yeah. Hey, thanks. Good afternoon, guys. I guess I wanted to ask about headcount and resources maybe in general, as you think about kind of re-accelerating the growth and this line of sight that you have to volume growth as we move forward into 2024. Where do you think you are in resources? I guess maybe asked another way, do you think that there's a certain amount of volume growth that you can absorb with the headcount and sort of the overall resource base that you have today? Or do you think you'll need to be adding incrementally as we move forward?

Hey, Thanks, good afternoon guys.

I guess I wanted to ask you about head count and resources, maybe in general as you think about kind of re accelerating growth in this line of sight do you have the volume growth as we move forward into 2024, where do you think you are in resources I guess, maybe asked another way do you think that theres, a certain amount of volume growth that you can absorb with the head count and sort of the overall resource base that you have today or do you think you'll need to be adding inc.

Tracy Robinson: It'll come back gradually unless the volume really starts to pick up and then it'll come back more quickly. In the meantime, up at Rupert, we're continuing to lean into an increasing structural advantage. If you think about the import transload is now under construction, the ports announced to really have an export logistics park that's been approved and it's going forward. So all of that I think is very supportive on the container side and even outside of containers, some Doug mentioned are all the gas deal.

Tracy Robinson: We very much appreciate the business and the partnership of all the gas, but that a new agreement is going to drive considerable growth in that corridor. So we are actually, if you think about the growth that we laid out for you at investor day on the Rupert corridor, we are ahead of that plan. So we're feeling pretty good about it and very strong about the structural advantage of Rupert.

<unk> as we move forward.

Tracy Robinson: Thanks for that question, Chris. Think about it this way. You know, we are resourced right now to move the volume that we have, but the resourcing decisions that we make are based on six or nine months from now. We're planning now for what we need out then. As we think about it, think about the Bulk business. That business is moving now. As that grows, that's new incremental train starts; we'll need tons of resources for that. If you think about the Merchandise business, however, that has some quite significant room. If you think about even in this quarter, our volumes were down, for example, 5%. Our train starts are down 2%.

Thanks for that question Craig.

Let's think about it this way.

We are resource right now to move the volume that we have the resourcing decisions that we make are based on six or nine months from now. So we're planning now for what we need out there and then as we think about it think about the bulk business that business is moving now.

That if and as that grows thats new incremental train starts we'll meet kind of the resources to them do you think about the merchandise business, However, and that has some quite significant room.

If you think about even in this quarter our volumes were down for example, 5%. Our train starts are down 2%. So in running the scheduled operation, while maintaining the integrity and the discipline that schedule, which means that our trains are running a little short so the first lift in volumes, particularly merchandise is going to go on to the end of those existing trains and Theres a tremendous amount.

Tracy Robinson: In running the scheduled operation, we're maintaining the integrity and the discipline of that schedule, which means that our trains are running a little short. The first lift in volume, particularly merchandise, is gonna go on to the end of those existing trains, and there's a tremendous amount of leverage there. Of course, that's done with the existing crew base. On the international side, you know, as that starts to ramp up, that also will be incremental, kinda train starts. We're doing this planning now for next year and, you know, we've got some hard to hire locations that we're still working on. Other than that, I think we're in great shape.

Tracy Robinson: I appreciate it and just a quick one on Bill C-47 and inter-switching. I've seen some of the companies post about this on LinkedIn, but have you seen any customer optic on inter-switching in any early commentary you can provide on the matter and I'll turn it over. Thank you. Yeah, I would say that what we are focused on is driving the highest performance out of supply chains in the country and in the continent and we are prepared to continue to invest in capacity in that performance.

Leverage there and of course, that's done with the with the existing crew base on the international side.

As that starts to ramp up that also will be incremental kind of train starts. So we're doing this planning now for next year and we've got some hard to hire locations that were still working on but other than that I think we're in we're in great shape.

Speaker 20: Okay. Q4 should be roughly flatish or slightly higher than where we are from a head perspective?

Chris Wetherbee: Okay. Q4 should be roughly flatish or slightly higher than where we are from a head perspective?

Okay, and <unk> should be roughly flattish or slightly higher than where we are from a hedge perspective.

Tracy Robinson: The inter-switching provisions and the concept of it is not at all supportive of supply chains that perform at high level, it slows down, slows service down, and it is not supportive of continuous investment. On that basis, we've objected to this, having said that we haven't, we've seen a significant impact as of yet but it certainly did.

Tracy Robinson: I think that's pretty much baked right now, so yes, it should be about what we are now.

I think that's pretty much baked right now so yes, it should be about what we are now.

Speaker 20: Thanks for the time.

Chris Wetherbee: Thanks for the time.

Tracy Robinson: Thanks for the question, Chris. Our next question comes from Steve Hansen from Raymond James. Please go ahead. Your line is open.

Operator: Thanks for the question, Chris. Our next question comes from Steve Hansen from Raymond James. Please go ahead. Your line is open.

Thanks for your time, thanks for the question Chris.

Our next question comes from Steve Hansen from Raymond James. Please go ahead. Your line is open.

Speaker 21: Yes. Thank you for the time. I'll stick to one question as instructed. It seems like everyone on this call doesn't understand what that means. In any case, question for Doug or Tracy. Grain has been one of your biggest tailwinds year to date, piggybacking off last year's harvest. At this juncture, I think it's fairly well known that this year's harvest was anything but superior. You know, I understand you've got a couple of weeks of tailwinds from an early harvest, but I'm surprised your comments on the outlook weren't more balanced or cautious. You suggest it was quite bullish, and I'm just trying to square the two, given the harvest backdrop. Thanks.

Steve Hansen: Yes. Thank you for the time. I'll stick to one question as instructed. It seems like everyone on this call doesn't understand what that means. In any case, question for Doug or Tracy. Grain has been one of your biggest tailwinds year to date, piggybacking off last year's harvest. At this juncture, I think it's fairly well known that this year's harvest was anything but superior. You know, I understand you've got a couple of weeks of tailwinds from an early harvest, but I'm surprised your comments on the outlook weren't more balanced or cautious. You suggest it was quite bullish, and I'm just trying to square the two, given the harvest backdrop. Thanks.

Yes. Thank you for the time I'll stick to one question and constructive it seems like everyone. On this call doesn't understand what that means but in any case question for Doug or Tracy.

Green has been one of your biggest tailwind year to date piggybacking off last year's harvest at this juncture I think it's fairly well known that this year's harvest was anything but.

Brandon Oglenski: Our next question comes from Brandon Oglensky from Barclays. Please go ahead. Your line is open.

Brandon Oglenski: Hey, good afternoon and thanks for taking my question and sorry if this is a little bit near-term focus, but just like can you just walk us through some of the moving pieces on your implied 4Q guide because I think it suggests that OR you know should improve sequentially and obviously you have some issues in the third quarter but he talked through the moving pieces here on how to get for the 4-year guide from where you are. Thanks, Brandon.

<unk>.

I understand you've got a couple of weeks of tailwind from an early harvest, but I'm surprised you're comments on the outlook work more balanced or cautious.

Yes, it was quite bullish and I'm just trying to square the two given the harvest backdrop. Thanks.

Tracy Robinson: Yeah. Listen, the grain crop this year wasn't a bad crop, I can tell you, but it was smaller without a doubt than last year. Our lines in the north and the drought was a little bit, you know, we didn't have the same kind of drought conditions. We're moving a lot of grain right now. What it does mean, as Doug has said in the past, is that we can run out of grain to move a little bit earlier in the year, next year. That, you know, may be an issue in Q2, I guess, Doug.

So listen.

The green crop this year it wasn't a bad crop I can tell you, but it was smaller we set it up last year our lines in the north and the drought was a little bit.

Brandon Oglenski: Well, I think as we said in our opening remarks, I think there's, we see definitely improvement in volumes on a sequential basis. I mean, just when you look at our volumes sequentially in October versus September, we're up we're up 7%. So I think you know you can expect volumes to improve sequentially and as volumes come in, I think that we are very comfortable that we will deliver some operating leverage and maybe I'll pass it on to Tracy when you want to add anything.

We didn't have the same kind of drought conditions.

And we're moving a lot of green right now what it does mean as Doug has said in the past is that it can we can run out agreeing to move a little bit earlier in the year next year.

And that may be an issue in Q2, I guess Doug.

Tracy Robinson: We've got on the offsetting, we've got a number of customer initiatives that are starting to produce volume now that we think is going to be a good offset to that. Doug, anything else?

But we've got on the on the offsetting we've got a number of customer initiatives that are going to they're starting to produce volume now that we think is going to be give us a it's going to be a good offset to that.

Doug anything else no you covered the Canadian grain really well and on the U S. Grand we're seeing it also have a strong volumes right now because of the Mississippi being so low but a lot of that is going to be tempered by overall demand with China and other countries. So we're moving good volumes right now the team is doing a great job at that or really sold out in the U S market, we're going to see how the rest of the year.

Doug MacDonald: No, you covered the Canadian grain really well. On the US grain, we're seeing, you know, some strong volumes right now because of the Mississippi being so low. A lot of that's gonna be tempered by overall demand with China and other countries. We're moving good volumes right now. The team's doing a great job at that. We're really sold out in the US market. We're gonna see how the rest of the year plays out here.

Tracy Robinson: Sure, I think there's the other way to think about it. We are seeing the strength in volumes that she's talking about. Our pricing is coming in exactly to the mandate that we gave Doug and I am really pleased with the margins that this system is providing and this team is providing. I think we've had the best margins in the industry for the past what five, six quarters and we've got we know that there's leverage there particularly in the manifest business on the merchandise side as the volumes start to lift again. We're eager for that to happen and it looks like it's starting to happen now. Thanks for the thank you.

Lays out here.

Speaker 21: Appreciate the time.

Steve Hansen: Appreciate the time.

I appreciate it.

Tracy Robinson: Thanks for the one question. Our next

Thanks to the one question.

Speaker 1: Our next question comes from Justin Long from Stephens. Please go ahead. Your line is open.

Operator: Our next question comes from Justin Long from Stephens. Please go ahead. Your line is open.

Our next question comes from Jeff <unk> from Simmons. Please go ahead. Your line is open.

Justin Long: Thanks and good afternoon. I was wondering if you could comment on your expectation for the sequential progression of yields on a cents per RTM basis as we move into Q4, and maybe along with that, give a little bit more color on the core pricing trends you're seeing. I heard you say that they remain above inflation, but I'm curious if pricing is getting better, worse, or about the same on a year-over-year basis.

Thanks, and good afternoon I was wondering if you could comment on your expectation for the sequential progression of yields on a cents per <unk> basis, as we move into the fourth quarter and maybe along with that.

Cherilyn Radbourne: Our next question comes from Sherylyn Radborne from a PD Cowan. Please go ahead. Your line is open. Thanks very much. Good afternoon. I wanted to pick up on some of the new interchange relationships that you've negotiated with your rail peers.

Give a little bit more color on our core pricing trends, you're seeing I heard you say that they remain above inflation, but im curious if pricing is getting better worse or about the same on a year over year basis.

Tracy Robinson: What do you think needs to happen to make these partnerships work better than they have in the past and do you think that the willingness to cooperate will extend to include trickier situations where perhaps one of the two carriers has to accept the shoulder length of haul? Yeah, Sherylyn. Thanks for that question. It is. I think it is a change that we're seeing in the industry right for various reasons. As we have our discussion I will tell you that we are open for business and very eager to work with our partners and the other carriers to provide and design and provide the services that make sense for our customers.

Tracy Robinson: Yeah, let me start with that one, and then I'll hand it over to Ghislain. I would say that pricing can be difficult to see based on the revenue line. The revenue line includes a bit of noise around storage fees that were higher last year than this year. There's some fuel surcharge noise in there. There's currency noise in there, and it's hard to see the pricing through it. I can tell you this, we've given Doug MacDonald a mandate on the backs of the service that the guys have been able to provide for our customers to come in above our inflation level. He's consistently doing that on the contract renewals, and we have mechanisms in the multi-year contracts that are providing that for us as well.

Yes, let me start with that one and then I'll hand, it over to Jim, but I would say that pricing can be difficult to see based on the revenue line. So the revenue line includes a bit of noise around.

George fees that were higher last year than this year theres some fuel surcharge noise in there there is currency noise in there and there is so there is that it's hard to see the pricing to it but I can tell you. This we've given Doug a mandate on the back to the service that you guys have been able to provide for our customers to come in above our inflation level and.

<unk> consistently doing that on the contract renewal and we have mechanisms in the multiyear contracts that are that are providing that for us as well. So the underlying pricing is doing well and I don't remember the first question, but you.

Tracy Robinson: The one that you've seen at least us step into most recently are really targeting getting truck traffic off the road and things like the Falcon Service, you know, Doug's working as well on our new service with the NS. These are working with FXC in the case of Falcon and the UP. We have a product in place now that's consistently delivering at a very truck like transit and that's pretty remarkable. I think you're going to see more of this and I would say that the nature of the dialogues that we've had so far with all of the carriers is that we'll conduct ourselves in a way as though we were a single carrier. And that may mean, in some cases, it's advantageant to one, and in other cases, it's advantageant to the other.

Tracy Robinson: The underlying pricing is doing well. I just don't remember the first question, but whatever it was.

Ghislain Houle: You covered it. This, when you look at either cents per RTM or revenue per RTM. As we've always told you guys not to look at this as a proxy for yield because it's a lot of moving parts. You know, there's FX in there. There's the accessorial charges that you talked about, Tracy. There's also the fuel surcharge. I know that you're trying to find metrics for yield, but this has got a lot of noise. We're very confident, and Doug made the point that, you know, our pricing is above our rail inflation.

You covered it is when you look at either cents per RPM revenue per RPM.

We've always told you guys not not to look at this.

As a proxy for yield because it's a lot of moving parts. There is FX in there. There is the accelerated charges that you talked about Tracy Theres also the fuel surcharge, so and I know that youre looking youre trying to find a metrics for yield but this has got a lot of noise, but.

Very confident and Doug make the point that you know what.

Pricing is above.

<unk> inflation.

Tracy Robinson: Thank you for the question. I think, one more question and then, we're out of time.

Doug Macdonald: But that's a principle that I think needs to underscore these relationships as we go forward. Do you have anything to add to that? The only thing I'll add in, Charlotte, is that it's all about the service. So this quickest transit times to compete against truck is really what the operating teams between the railways are really focused on. And we don't really care how long the hall is. It's all about, we need to get it there as fast as truck.

For the question I think one more question and then we're out of time.

Speaker 1: Certainly. The last question comes from the line of Kevin Chiang from CIBC. Please go ahead. Your line is open.

Operator: Certainly. The last question comes from the line of Kevin Chiang from CIBC. Please go ahead. Your line is open.

Certainly the last question comes from the line of Kevin Chiang from CIBC. Please go ahead. Your line is open.

Kevin Chiang: Thanks for squeezing me in here and congrats, Ed, Patrick, and Derek. Maybe just turning to automotive. You know, when I think back to your Investor Day, you know, you laid out a number of opportunities related to the EV supply chain. It does feel like that we might be slowing down here in terms of EV adoption, at least that's what we're hearing from the OEMs. Just wondering any changes to your long-term potential growth opportunity there, you know, the volume capture opportunity, just given what some of the OEMs are doing, you know, as they adjust production around their EV portfolio.

Okay. Thanks, Thanks for squeezing me in here and congrats.

Patrick and Derek maybe just turning to automotive.

Back to your Investor day.

Laid out a number of opportunities related to the EV supply chain.

Doug Macdonald: All the teams have been greatly focused on that. It come up with some great products where we think we are truck competitive in all these quarters, and their major truck lanes. So I assume that we're going to take our time. We're going to start to build this as we build momentum. It's going to take a while to pull trucks off the road, but we're pretty happy with the product so far. And we think we'll be successful. Thank you.

It does feel like that we might be slowing down here in terms of EV adoption at least that's what we're hearing from the Oems.

Wondering on any changes to your long term potential growth opportunity there the volume capture opportunity just given some of the Oems are doing.

Is it just production around the EV portfolio.

Doug MacDonald: Thanks, Kevin. That's a great question. EV, you know, it starts really back at the battery, so all the minerals that go into it. We've started moving some of the raw lithium. Listen, on our network, we're now up to. Well, it was 5, but it's just got to 6 plants located on our network, really all in Eastern Canada, for construction, either of the batteries themselves or for some of the parts that go into the batteries or for the refining of the raw lithium and other metals. We're starting to build that supply chain up. We knew it wasn't gonna be right away. These plants take a while to get built. In the interim, we're still seeing the EV production schedules moving forward at most of the Big Three.

Thanks, Kevin that's a great question so.

Ravi Shanker: Our next question comes from Robbie Shanker from Morgan Stanley. Please go ahead. Your line is open. Great to everybody.

It starts really back at the at the battery. So all the minerals that go into it. So we've started moving some of the Royal lithium listened in on our network were now up to what it was five but it's just got to six plants located on our network really all in eastern Canada for construction either.

Ed Harris: Ed, congratulations, and good luck with the retirement, and congratulations on you and coming team as well. Maybe one kind of parting question for you, as you joined the team. Was this transition kind of timing what you had planned when you joined or something that you brought forward just given some of the traction that you've had with implementing plan? When I came on board, don't forget I consulted here for quite a few months before I came on board.

The batteries themselves or for some of the parts that go into the batteries or for their refining of the royal lithium and other metals. So we're starting to build that supply chain up and what we knew it wasn't going to be right away. These plants take awhile to get built in the interim we're still seeing the EV production schedules moving forward at most of the Big three now we know GM just came and push there.

Doug MacDonald: Now, we know GM just came and pushed theirs back by about a year, but that's okay, right? There's still lots of other products to move in the automotive side, and that'll give us time to actually have all these plants constructed in Eastern Canada where we can actually haul those batteries down and the other parts to them. So it's moving along quite well.

Ed Harris: And you know, our evaluation of both Derek and Pat was almost immediate. Tracy and I were in agreement, and then a lockstep with what the future of this operating department was going to look like. And both of these individuals have stepped up to the plate. Quite frankly, they've been running the show for the last couple of months just getting ready. And I'm extremely, extremely proud of what they've been able to do.

Backed by about a year, but that's okay, but there is still lots of other products that move in the automotive side.

That will give us time to actually have all these plants constructed in eastern Canada, where we can actually haul those batteries down in the other parts though.

It's moving along quite well.

Kevin Chiang: Perfect. Great, great color. Thank you.

Perfect Great great color. Thank you.

Tracy Robinson: Okay.

Okay.

Ed Harris: And you know, if there's a testament to their prowiness, our third quarter was tough, as I said in my speech. I mean, it was rough operating out there. And our metrics were only off a small percentage and caramelized. So they trained speed cycles. I mean, we were doing everything right and just to add on to what Doug just talked about between the carriers. Just think of what this industry can do. If we take a day out of the cycle, all carriers do that.

Speaker 1: This-

Operator: This-

Tracy Robinson: Go ahead, operator.

Go ahead operator.

Speaker 1: This concludes the question and answer session. I would like to turn the call back over to Tracy Robinson.

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

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

Tracy Robinson: Thank you. I jumped the gun a little there. Listen, I just wanna echo Ed's comments on the call today. Thank you for what you've done here and for ending the long, very impressive run with us. It's a privilege, and it's been a lot of fun working with you and watching you. They're not mic'd up, but let me say this about the guys at the end of the table here, Derek and Pat. You know, very much looking forward to working with you, but the truth is, as we all know, this plan was implemented a number of months ago, and so you have this place running really, really well. We're excited about where we're headed. This is all about executing our plan and the plan we laid out at Investor Day.

Thank you I jumped the gun and all of that.

Listen I just wanted to Echo Ed.

Comments on the call today, Thank you for.

What you've done here and.

Before ending the long very impressive run.

With us it's a privilege and it's been a lot of fun working with you and watching them and Theyre not my cat, but let me say this about the.

Ed Harris: We get the traffic off trucks. And that's what it's about. So thanks for the nice comments. I appreciate it. I'll miss all of you. Maybe it's been a lot of fun for me and I've enjoyed every minute. I don't know who else is. Great. Thanks for that. Maybe as a follow-up.

Hey, guys at the end of the table here Derek can Pat.

Very much looking forward to working with you but in truth.

As we all know this plan was implemented a number of months ago and so you have this place running really really well.

We're excited about where we're headed we this is all about executing our plan and the plan we laid out at Investor day. The pieces are all in place. The core engine is performing well and we're ready and really eager for that rebound. So thanks for joining us today and then we'll talk to you while early in the year. Thank you.

Tracy Robinson: Tracy, can you share what the initial success has been like selling your Falcon service to your customers? Obviously, your pure has a bit of a speed advantage still. But can a warrior customer selling you in terms of their preference for speed versus value or kind of what they're looking for from that intermodal service? Well, I would tell you that, whether it's that intermodal service or any service, table stakes is the consistency of the service that we provide.

Tracy Robinson: The pieces are all in place. The core engine's performing well, and we're ready and really eager for that rebound. Thanks for joining us today, and we'll talk to you all early in the year. Thank you.

Speaker 1: The conference call has now ended. Thank you for your participation. You may now disconnect your line.

Operator: The conference call has now ended. Thank you for your participation. You may now disconnect your line.

The conference call has now ended thank you for your participation you may now disconnect.

Yes.

Tracy Robinson: In the case of going after the truck traffic like the Falcon service does, we know that means we also have to be fast and really impressed with the way the three organizations are working together to create a service and continually. We challenge it to where we can get time out. And you've seen that happen. And then to, you know, that's one thing. But to deliver it consistently every day is another thing completely.

Okay.

Tracy Robinson: And we're doing that. And so as Doug said, this is a proof of concept, a model that we've got approved to our customers. And it's going to grow over time. And we expect it to start small, which it is. And it'll grow over time and Doug, I think we've said that we think this is a train of day both ways ultimately. No trace that's it. That's the market share that we see out there and it's going to take a while to get there and we're going to make some progress.

Okay.

[music].

Tracy Robinson: Like I said, my remarks, we're lucky enough to see STG join up on the service and they started shipping their first loads a couple of weeks ago. That's our first real new, I'll say a third party person that's come on and that's great. We're looking forward to more.

Doug Macdonald: Very awful. Thank you.

Yes.

Unknown Executive: As a reminder, we ask that you kindly limit yourself to one question. Thank you.

Scott Group: Our next question comes from Scott Group from Wolf Research. Please go ahead. Your line is open. Hey, thanks afternoon, guys. And best of luck, yet.

Okay.

Yes.

Scott Group: So that just laying that the 20 cents of headwinds in Q3 from fuel and external disruptions, should we just assume that those entirely go away and that's being basically the bridge to your full year guide. And then as I think about next year, where you stand today, do you think the long-term guide of 10 to 15% earnings growth is achievable next year? Yeah. Thanks, Scott. I can answer the first part of your question and then I'll turn it over to Tracy for the second part.

Yes.

Scott Group: So you're right. So when you look at the fuel, search, our headwind that we had in the quarter, it's 20 cents a year over a year. It's 10 cents this year. And if you remember, Scott, last year we had a very favorable fuel search charge of 10 cents. So you over years 20 cents. And then there's another 10 cents of a year over a year, disruptions that we quantified for you. So that's what we had to go through in the quarter.

Scott Group: And despite all of this, we delivered a 62 OR, which we're quite proud and pleased about. And then I'll turn it over to you, Tracy, for next year. Sure. You know, as far as the guidance that we gave, that investor day on the Kager of 10 to 15% EPS, we are sticking to that. We see that. So without a doubt, this railroad is running very well. Continues to do so through all the shocks that has gone through this year.

Scott Group: Test meant to the team. I'm impressed every day. We laid out a growth plan for you. Now that was based on kind of this presumption of what's is on called the support of economy. We haven't seen that much this year, but we are starting to feel a comeback. And that growth plan was a combination. Two things. It was a piece of growth. That is, we're going to capitalize on as the economy is coming from the strength of the economy.

Scott Group: And then there's some very specific customer initiatives that we're working through. That that list is growing that, you know, we're progressing without. They're not tied to the strength of the economy. And those are coming on, you know, on plan or in some cases, that is bringing them in ahead of plan as is the case for the Prince of the corridor. So, you know, we think. We said, you know, this plan stands and, you know, the risk to it would be that underlying strength in the economy, but we're feeling pretty good about it as we sit here today.

Tracy Robinson: Thank you.

David Vernon: Our next question comes from David Vernon from Bernstein. Please go ahead. Your line is open. Hey, guys, thanks. So Tracy, I just want to push on a little bit. I mean, obviously we're coming in a little bit weaker than we might have thought for 2023. As you think about that three year envelope of 10 to 15, with some of the growth initiative starting to pay off, should we maybe be doing a little bit better than the lower end of the range?

David Vernon: Or how should we think about the, the, the contouring of that 10 to 15 over the three years? Is it more back and loaded, middle loaded, front loaded. You know, I think, yeah, I think it is going to shift as far as in its timing. We're pretty, feeling pretty positive about the specific customer initiatives. You know, what remains to be seen is exactly what the pace of the strength of the economy returning.

Tracy Robinson: So we'll give you a little bit more color of that in January, exactly what we're seeing. But right now, we're feeling good about our guys, and then just maybe just real quickly, the CapEx side of that, you know, there's a lot of concern, I think when you had your investor day around the level of spend, are you thinking about regulating that spend still in line with the volume anticipation? We, I mean, thanks to the, yeah, I mean, you know, we have these customer initiatives, if these customer initiatives, some of them fall out the table or some of them happen later, then obviously we will regulate our CapEx accordingly.

Tracy Robinson: I mean, the capital envelope is a living thing, it's a dynamic thing, we look at it on a regular basis. So obviously, absolutely, we will look at our CapEx in line of those opportunities coming on board.

Konark Gupta: Thank you.

Konark Gupta: Our next question comes from Konak Gupta from Scotia Bank, please go ahead and line is open. Thanks for taking my question.

Konark Gupta: I go to congratulations to Patrick and Derek. Perhaps on international into models side, I want to figure out what's your visibility on timing for when the container traffic fully returns back to Canada from the US, and then as follow up on domestic into model. Can you talk about the RFPs you're expecting in terms of size and nature for for our continued thanks. Okay, thanks Konak. So on the international side, our customers are telling us they see a gradual ramp up over the next year or so. So we're expecting that. That's what we're, that's what's in our forecast and our outlook moving forward. And that's the best visibility we have in the market.

Doug Macdonald: So, so we're, we're depending upon them and we think it's right on the domestic side outside of so on the domestic Canadian side, things are going very well. We're actually seeing increases there year over year, which is fantastic. So that market has come back coming back nicely. We see some green shoots there on the Falcon. We're seeing RFPs on a regular basis. Now customers have to be able to trust us and do it.

Doug Macdonald: So we're getting, we're out there getting trials with them and things like that. It's going to take a while to build us off the road. At the same time, you know, we know Trump rates in the US have been depressed over the last year. And we're competing against those as we move forward. We do have a great product. And we know we're going to win as time moves on.

Fadi Chamoun: Thank you.

Saddi Chamoun: Our next question comes from Saddi Chamoon from BMO. Please go ahead. Your line is open. Thank you. Ed Biden and, and, and, and Derek congrats on, on roll the net. It's this is truly a last retirement. All the best. Thanks. Thanks for all the advice over the years. There's a couple of come back.

Doug Macdonald: You know, maybe Doug on the fourth quarter is can give us what, what are you assuming for volume in the fourth quarter in terms of gross year on year or sequentially just to kind of help us track your progress on that front. And my question on the cost per headcount per, per, per employee, like how should we think about this sequentially into q4. And I know you have some labor negotiations coming up here and how, how do you think about kind of the best way for us to think about that cost per headcount in 2024.

Doug Macdonald: Oh, this is that I'm going to take the first one. I'll hand it off to you for the second one. So as we're looking at volumes kind of week over week and month over month. We're seeing that sequential strength. And right now we're looking at sequential growth in all but kind of the international, even in the, even in the international volumes. That we've seen real strength coming from most if not all of our business lines as you look at it sequentially over time.

Doug Macdonald: So we've mapped out those preclusters customers and what they're planning over the, over the course of this year. So it's on that basis that, you know, that we're that are confidence remains on a guidance. And if you look at industrial production as well, we've said that we were going to do better than industrial production, industrial production is strengthening. And I think that Doug, what do you think you'll see us do that on everything, maybe accept the international lines?

Doug Macdonald: Would that be the case? Okay, thank you. Yeah, so Fadi, on the average Comfor employee, when you look at it sequentially, it's up 2% in Q3 versus Q2. And that's mostly due to a 4% wage increase on our US employees that started in July 2023. And you know, for next year, I mean, I again, I would continue to assume regular wage increases. And you know, we're just, we're just replacing employees for tuition and that's about it. So that's, that's, that's the answer to that question.

Doug Macdonald: Thank you.

Ken Hexter: And our next question comes from Ken Hexter from Bank of America. Please go ahead and line is open. Great. Good afternoon, Ed. You know, I'll stick to it. Congrats on your last call and your attempt on the fifth retirement and, and congrats to Derek and Pat, which is great. As Tracy said, they have no Mike. So, so Tracy, you can really talk about them now. That's right. And I can. The, I guess just a numbers question real quick and then a long term one, the casualty costs, they ramped up in the quarter.

Ken Hexter: I just want to understand, is that sticky or is that just because I think it was mentioned, there were a couple extra actions in the quarter, but long term. My question would be just on, I know you've talked a little bit about the 10 to 15%. I know that's not linear. But how should we think about that as you start to, you know, rebound is maybe give us upside down side. Is it just the volume because Doug sounds like he's got a lot of confidence that we passed the bottom.

Ken Hexter: So is that just moving past the storms and the US grain crop bouncing out maybe talk about the upside downside on that range for next year. Yeah, can maybe the first, your first question on the casualty costs. I mean, I'm, I'm looking at my notes here. I mean, see an old casualty and other is mostly flat on a year of your basis in the quarter. So I'm not sure what number you're looking at.

Ken Hexter: I just looked at it was just up sequentially, right? So I, I know year over year, is that just, is that it's seasonal in terms of the accent of random. Okay. On the, on sequentially, it's, it's, again, it's, it's, it's, it's just, it's just up about six, seven percent, and it's really lower horsepower or high horsepower income. This is stuff to say for French guy. So it's just low, mostly lower high horsepower income into three versus Q2.

Ken Hexter: Okay. Yeah. If it's not a trend, that's fine. I just want to make sure that was nothing that was sticky. We threw up, we threw up on our horse power every quarter. So you have some ups and downs depending on how we interchange our trains with other roads and so on and so forth. Okay. Perfect. Then on the volume question. So I, you're right. We don't see this as being linear. And what we did put together was kind of last year was kind of a 10 year view on what our growth would look at what we put in front of you guys in earlier this year was the three year view on that.

Ken Hexter: And so a good chunk of that, as we've said, are a number of customer niches that does working and that's not a static, you know, the list that moves around a lot. And excited about some of the new ones that are coming out of that list. What remains uncertain is the other part of it, which is the volume growth. It's going to come with our customers and our partners on just the economic strengths.

Ken Hexter: And so we're modeling in kind of what we've talked to you about next year. We'll give you a little bit, you know, kind of related to industrial production. We'll give you a little bit more color on that in January when we talk to you next. But I would say that that would be the biggest risk for next year. Thank you. It is the volume side. Yes. On the economic, that volume, which is tied to economic strength as opposed to the specific customer initiatives that we're working. Okay. Thank you question. Thank you. Thanks.

Benoit Poirier: Question comes from Benoit Poirier from Daychef Lane. Please go ahead. The line is open. Yeah.

Doug Macdonald: Bonjour à tous and happy retirement and congrats to Pat and Direct for their new roles. If we move to Eastern ports, there is a labor agreement up for renewal with the dock workers at the port of Montreal. And there's also the potential strikes with the same Lauren C way. So just wondering if you have seen any cargo diversion so far and kind of the actions that are taken so far to mitigate the potential impact of those labor agreements.

Doug Macdonald: Okay. Thanks, Benoit. I'll take that. It's Doug. So on the St. Lawrence. So obviously it's brand new. The products that move on the St. Lawrence that really I'll say are complimentary to do rail or really grain is the main one. So right now there's enough elevation capacity in Thunder Bay for this week and probably most of next week. And the strike last post that then we have offered a train package to our customers be able to move product into the east from western Canada.

Doug Macdonald: So it would be, you know, we'd start to look at some business there. You also have the iron ore that tends to move export by a Quebec city from from the Minnesota area. So we made there may be some opportunities there as well, but most of that should just move to the dock like normal. So I don't see a lot of changes for us overall as this moves forward. When you look at the port of Montreal, we have prepared for that.

Doug Macdonald: We're put a package together to actually move a lot of our customers freight over the port of Halifax. We're only in the process now. We're going out to the market with that so that they know what's available. And we're just starting that planning now, but we do have the operational plan already in place.

Doug Macdonald: Okay, and just to follow up on Comtzeca, we've seen a great announcement over the last few weeks. What would be the next milestone to monitor the. Oh, for contact. Oh, so contact occur the next one will be really, I think you will see a new RFP for a port operator that will be the next big milestone for what they're telling us. They're they're going to start work on the dock as it is today or the waterfront as they call it.

Doug Macdonald: So that's where that money is going, Benoit. So they're going to start there without a port operator being named. And then the port operator will be the next big milestone. So we're looking forward to that as well. Thank you very much for the time.

Chris Letherby: Our next question comes from Chris Letherby from city group. Please go ahead. Your line is open. Hey, hey, thanks for that. I guess I wanted to ask about headcount and resources maybe in general, as you think about. Kind of reaccelerating the growth in this line of sight that you have to volume growth as we move forward into 224. What do you think you are in resources? I guess maybe ask another way.

Chris Letherby: Do you think that there's a certain amount of volume growth that you can absorb with the headcount and sort of the overall resource base that you have. Today here, do you think you'll need to be adding incrementally as we move forward? Board. Thanks for that question, Chris.

Tracy Robinson: So, let's think about it this way. You know, we are resourced right now to move the bond that we have, but the resourcing decisions that we make are based on six or nine months from now. So, we're planning now for what we need out then, and as we think about it, think about the bulk business, that business is moving now, is that, if and if that grows, that new incremental train starts will need kind of resources for that.

Tracy Robinson: You think about the merchandise business, however, that has some quite significant room. You think about even in this quarter of volumes, we're down, for example, 5% or train starts are down 2%. So, in running the schedule operation, we're maintaining the integrity and the discipline of that schedule, which means that our trains are running a little short. So, the first lift in volumes, particularly in merchandise, is going to go on to the end of those existing trains, and there's a tremendous amount of leverage there, and of course, that's done with the existing crew base.

Tracy Robinson: On the international side, you know, as that starts to ramp up, that also will be incremental kind of train starts. So, we're doing this planning now for next year, and you know, we've got some hard to hire locations that we're still working on, but other than that, I think we're in great shape. Okay, and 4Q should be roughly flatish, or slightly higher than where we are from ahead perspective? I think that's pretty much baked right now, so yes, it should be about what we are now.

Tracy Robinson: Thanks for the job. Thanks for the question, Chris. Next question comes from Steve Hansen from Raymond James. Please go ahead, your line is open. Yes, thank you for the time. I'll stick to one question as instructed. It seems like everyone on this call doesn't understand what that means, but in any case, question for Doug or Tracy. Green has been one of your biggest tailwinds here to date piggybacking off last year's harvest.

Tracy Robinson: At this juncture, I think it's fairly well known that this year's harvest was anything but superior. You know, I understand you've got a couple of weeks of tailwinds from an early harvest, but I'm surprised your comments on the outlook were more balanced or cautious. You suggested it was quite bullish, and I'm just trying to square the two given the harvest backdrop. Thanks. Yeah, so listen, the green crop this year wasn't a bad crop, I can tell you, but it was smaller without a doubt last year.

Tracy Robinson: Our lines in the North and the drought was a little bit, you know, we didn't have the same kind of drought conditions, and we're moving a lot of grain right now. What it does mean is Doug is set in the past is that it can move. We can run out of grain to move a little bit earlier in the year next year. And that, you know, maybe an issue in Q2, I guess Doug.

Tracy Robinson: But we've got on the, on the offsetting, we've got a number of customer initiatives that are going to, that are starting to produce volume now that we think is going to be, give us a, it's going to be a good offset to that. Doug, anything else? No, you covered the Canadian grain really well, and on the US grain, we're seeing, you know, some strong volumes right now because of the Mississippi being solo, but a lot of that's going to be tempered by overall demand with China and other countries.

Tracy Robinson: So we're moving good volumes right now, the team's doing a great job at that, and we're really sold out in the US market. We're going to see how the rest of the year plays out here. Appreciate the time. Thanks for the one question.

Dustin Long: All right, next question comes from Dustin Long from Finns. Please go ahead, your line. Thanks and good afternoon. I was wondering if you could comment on your expectation for the sequential progression of yields on a sense per RPM basis as we move into the fourth quarter, and maybe along with that, give a little bit more color on the core pricing trends you're seeing. I heard you say that they remain above inflation, but I'm curious that pricing is getting better, worse, or about the same on a year-over-year basis.

Doug Macdonald: Let me start with that one and I'll hand it over to you just but I would say that pricing can be difficult to see based on the revenue line. So the revenue line includes a bit of noise around storage fees that were higher last year than this year. There's some fuel surcharge noise in there. There's currency noise in there and there's so there's a it's hard to see the pricing through it but I can tell you this.

Doug Macdonald: We've given Doug a mandate on the backs of the service that the guys have been able to provide for our customers to come in above our inflation level. And he's consistently doing that on the contract renewal and we have mechanisms in the multi or contracts that are that are providing that for us as well. So the underlying pricing is doing well and just I don't remember the first question but whatever you covered it is when you look at either sense for RTM or revenue for RTM as we've always told you guys not not to look at this as as a proxy for yield because it's a lot of moving parts you know there's effects in there.

Doug Macdonald: There's the action. And I know that you're looking you're trying to find metrics for yield but this has got a lot of noise but we're very confident and Doug make the point that you know our pricing is above our real inflation.

Unknown Executive: Thank you for the question and I think one more question and then we're out of time.

Kevin Kang: Certainly the last question comes from the line of Kevin Kang from CIBC please go ahead your line is open.

Kevin Kang: Thank thanks just using me in here and congrats Patrick and Derek maybe maybe just turn it automotive you know when I think back to your your investor day you laid out a number of opportunities related to the EV supply chain.

Tracy Robinson: It does feel like that we might be slowing down here in terms of EV adoption at least as we're hearing from the OEM just wondering any changes to your long term potential growth opportunity there the volume capture opportunity just given what some of the OEMs are doing. You know as they just production around their EV portfolio. Thanks Kevin so it's a great question so EV you know it starts really back at the battery so all the minerals that go into it so we've started moving some of the raw lithium listen on our network we're now up to well it was five but it's just got to six plants located on our network really all in eastern Canada.

Tracy Robinson: Or construction either of the batteries themselves or for some of the parts that go into the batteries or for the refining of the raw lithium and other metals. So we're starting to build that supply chain up and what we knew it wasn't going to be right away these plants take a while to get built in the interim we're still seeing the EV production schedules moving forward at most of the big three now we know GM just came and pushed theirs back by about a year but that's that's okay right there's still lots of other products to move in the automotive side. And but and that would give us time to actually have all these plants constructed in eastern Canada where we can actually all those batteries down in the other parts though so it's moving along quite well.

Unknown Executive: Perfect great great caller thank you. Okay I'm going to go ahead.

Tracy Robinson: This concludes the question and answer session I would like to turn the call back over to Tracy Robinson. Thank you I jumped a little bit listen I just want to echo add the comments on the call today thank you for. Works, what you've done here, and for ending, the long, very impressive run with us. It's a privilege, and it's been a lot of fun working with you and watching you. And they're not mic'd up, but let me say this about the guys at the end of the table here, Derek and Pat, you know, very much looking forward to working with you, but in truth is, as we all know, this plan was implemented a number of months ago.

Tracy Robinson: And so you have this place running really, really well. We're excited about where we're headed. This is all about executing our plan and the plan we laid out at Investor Day. The pieces are all in place. The core engine is performing well, and we're ready and really eager for that rebound.

Unknown Executive: So thanks for joining us today, and we'll talk to you all early in the year. Thank you. The conference call has not ended. Thank you for your participation.

Unknown Executive: You may now disconnect your line.

Q3 2023 Canadian National Railway Co Earnings Call

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