Q1 2024 Canadian National Railway Co Earnings Call
Good afternoon, My name is Julian and I will be your operator today.
All participants are now in a listen only mode.
At this time I would like to turn the call over to Tracy Robinson <unk>.
President and Chief Executive Officer, Ladies and gentlemen, Ms Robinson. Thank.
Thank you Juliet and good afternoon, everyone.
We're here in Memphis today, we've had our board meetings over the past few days and I've had an opportunity to spend some time visiting our local facilities.
Unknown Executive: We did a pre-recording of our prepared remarks over the weekend, but before we play those remarks, we received some very sad news today about the loss of one of our engineering employees. Early this morning, there was a motor vehicle accident in British Columbia; a semi-truck collided with a CN engineering vehicle with two employees on board. We are deeply saddened that one of our CN families, Juver Balmores, suffered fatal injuries as a result of the accident and died at the scene.
Now we did a pre recording of our prepared remarks over the weekend.
Before we play those remarks, we received some very sad news today about the loss of one of our engineering employees.
Early this morning, there was a motor vehicle accident in British Columbia.
A semi truck collided with the C N engineering vehicle with two employees on board.
We are deeply saddened that one of our <unk> family <unk>.
<unk> suffered fatal injuries as a result of the accident and died scene.
Unknown Executive: The other employee traveling in the truck was taken to the hospital with critical injuries. I understand he's now in a critical but stable condition. Our prayers are with him and his family. A second group of CN employees traveling behind the first vehicle or the first on the scene to respond. They showed tremendous courage and compassion in a critical situation. This is a very tragic and painful loss for all of us at CN, and our hearts go out to Juver's family.
The other employee traveling in the truck was taken to the hospital with critical injuries.
Understand he's now in critical but stable condition.
Our prayers are with him and his family.
The second group of CN employees.
Travelling behind the first vehicles, whereas the first on the scene to respond.
Should a tremendous courage and compassion in a critical situation.
So very tragic and painful loss for all of us at CN and our Hearts go out to Juniors family.
Unknown Executive: Before we move on to the business today, I want to remind all CN employees and everyone listening in today to take care of yourself and those around you. Stay safe. Operator, could you please start the pre-recording with Stacy Alderson, our head of investor relations?
Speaker Change: Before we move on to the business today, I want to remind all seeing employees and everyone listening in today to take care of yourselves and those around you stay safe.
Speaker Change: So operator could you. Please start the pre recording with Stacy Alderson, our head of Investor Relations.
Stacy Alderson: [inaudible] Good afternoon, everyone, and thank you for joining us on CN's first quarter 2024 Financial and Operating 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.-Canadian Securities Law. 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 most 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 would ask that you please limit yourself to one question.
Speaker Change: Yeah.
Stacy Alderson: Oh sure to assume you'll see the huge land or not our paths comparable so as I said, Todd onshore to assume you'll see the huge wound or not to a panel Casas <unk> the premier Commerce.
Stacy Alderson: Do remember that cat <unk>.
Stacy Alderson: Good afternoon, everyone and thank you for joining us on Cn's first quarter 2024 financial and operating results conference call.
Speaker Change: 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.
Speaker Change: As a reminder, today's conference call contains certain projections and other forward looking statements within the meaning of the U S. Canadian Securities laws.
Speaker Change: These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied in these statements.
Speaker Change: There are more fully described in our cautionary statement regarding forward looking statements in our presentation.
Speaker Change: After the prepared remarks, we will conduct a Q&A session.
Speaker Change: I would ask that you please limit yourself to one question.
Stacy Alderson: The IR team will be available after the call for any follow-up questions. Now joining us on the call today are Tracy Robinson, our President and CEO, Pat Whitehead, our Chief Network Operations Officer, Derek Taylor, Chief Field Operations Officer, Doug MacDonald, Chief Marketing Officer, Ghislain Houle, Chief Financial Officer, and it is now my pleasure to turn the call over to CN's President and Chief Executive Officer, Tracy Robinson.
Speaker Change: IR team will be available after the call for any follow up questions.
Speaker Change: Joining us on the call today are Tracy Robinson, our president and CEO, Pat Whitehead, our Chief Network operations Officer.
Speaker Change: Derek Taylor, our Chief Field operations Officer.
Speaker Change: Doug Macdonald, our Chief marketing Officer.
Speaker Change: And just not rule, our chief Financial Officer. It is now my pleasure to turn the call over to <unk>, President and Chief Executive Officer Tracy Robinson.
Tracy A. Robinson: Merci, Stacy, et bienvenue à tous. Thank you, everyone, for joining our call today. Q1 was a solid quarter. It played out as we expected, and it set us up well for the growth that we see ahead of us. I'd like to start today with a few words related to last week's press release on Remy and Doug's transition. And first, I want to thank Doug, not only for his many years of service to CN but especially for his leadership and his wisdom over the last two years.
Mr <unk>.
Tracy A. Robinson: And thanks to everyone for joining our call today.
Tracy A. Robinson: Q1 was a solid quarter.
Tracy A. Robinson: It played out as we expected and has set us up well for the growth that we see ahead of us.
Tracy A. Robinson: I'd like to start today with a few words related to last week's press release on Remy It does transition and firstly I want to thank Doug not only for his many years of service to CN, but especially for his leadership and his wisdom over the last few years.
Tracy A. Robinson: You've done a great job, Doug, in the recasting of our book of business as we move back to the Scheduled Operating Model and setting the commercial team up for continued success, and I want to personally wish you health and happiness in your retirement. Now, we've been intentional about Remy's transition, starting with some pretty intense field exposure since he joined in January, followed by a deep dive into the commercial organization. He's a great fit with our team, and he's going to bring a new perspective to his chief commercial officer role, especially having been in a customer's shoes. He's in the room with us today, but he's not mic'd up.
Tracy A. Robinson: You've done a great job Gov, and the re crafting of our book of business as we move back to schedule. The operating model of setting the commercial team up for continued success.
Tracy A. Robinson: Personally wish you health and happiness in your retirement.
Tracy A. Robinson: And we've been intentional about rems transition starting with some pretty intense field exposure since he joined in January followed by a deep dive into the commercial organization. He is a great fit with our team and he is going to bring a new perspective to chief commercial officer role, especially having been in a customer shoes. He's in the room with us today, but he.
Tracy A. Robinson: He'll be in the seat next quarter and spending some time with the investment community in the coming months. Now, before we get into the details of the quarter, I know the TCRC negotiations in Canada have been on the minds of our customers and our employees and some other stakeholders, and I want to provide a little context to what's happening. Now, it's important to us that we have an agreement that assures the availability of our crews to run trains on time in support of our customer service commitments and to support the growth of the industries we serve.
Tracy A. Robinson: Not like that will be in the seat next quarter and spending some time with the investment community in the coming months.
Speaker Change: Now before we get into the details of the quarter I know the TCR seen negotiations in Canada have been on the minds of our customers and our employees and some other stakeholders and I want to provide a little context for what's happening.
Speaker Change: Now it's important to us that we have an agreement that assures the availability of our crews to run trains on time and supportive of our customer service commitments and to support the growth of the industries we serve.
Tracy A. Robinson: It's also important that we can offer our employees a predictable schedule with guaranteed days off that supports safe operations and allows them to plan and live their lives, and that improves the attractiveness of our work as we engage the next generation of conductors and engineers. Now, the introduction of the new Canadian duty and rest rules last year, stacked on top of the provisions already in our collective agreements, has had a negative impact both on the availability of crews to run trains and on scheduling for our people.
Speaker Change: It's also important that we can offer to our employees at predictable schedule with guaranteed days off that supports safe operations and allows them to plan and to live their lives.
Speaker Change: And that improves the attractiveness of our work as we engage the next generation of conductors and engineers.
Speaker Change: So the introduction of the new Canadian duty and rest rules last year stacked on top of the provisions already and our collective agreement has had a negative impact both on the availability of crews to run trains and on scheduling for our people.
Tracy A. Robinson: So in this round of bargaining, we're endeavoring to improve the predictability of when our train crews will work and when they'll be off. It's an important part of improving safety. Providing more predictability to employees on when they'll work, giving them a better work-life balance, and improving crew availability to support a consistent service for our customers and supporting the growth of the Canadian economy. We have this kind of agreement in the U.S., so we know how effective it is.
Speaker Change: So in this round of bargaining, we're endeavoring to improve the predictability of when our train crews will work and when they'll be off its important part of improving safety.
Providing more predictability to employees on when they will work given them better work life balance and improving crew availability to support a consistent service for our customers and supporting the growth of the Canadian economy.
Speaker Change: We have this kind of agreement in the U S. So we know how effective it is.
Tracy A. Robinson: We are continuing our constructive discussions with the TCRC leadership, and we remain focused on reaching a negotiated agreement. Now, economically, there'll be benefits for both of us, and I hope that gives you a good sense of where we are. Turning now to The Quarter. As I said, it has come in as we expected. Safety continues to be an area of intense focus.
Speaker Change: We're continuing our constructive discussions with the <unk> leadership, and we remain focused on reaching a negotiated agreement.
Now economically there'll be benefits for both of us and I hope that gives you a good sense of where we're at.
Speaker Change: Turning now to the quarter.
As I said it has come in as we expected.
Speaker Change: Safety continues to be an area of intense focus perhaps going to speak to our performance in the quarter here, we are committed to improving our safety performance and advancing towards our goal of zero harm.
Tracy A. Robinson: Pat's going to speak to our performance on the corridor here. We are committed to improving our safety performance and advancing towards our goal of zero harm. On operations, velocity and speed were solid this quarter, despite some colder temperatures in western Canada this year, some congestion in Vancouver, and a dip in crew availability related to the new Canadian regulations.
On the operations velocity and speed were solid this quarter. Despite some colder temperatures in western Canada. This year, some congestion in Vancouver, and a dip in crew availability related to the new Canadian regulations.
Tracy A. Robinson: I can tell you I'm proud of how we've performed and how we've adapted to the plan to align with what's coming at us. Customer service remains a top priority, and I want to call out our local service commitment performance. Now, this is a key customer-facing metric, and at 92%, it improved 6% versus last year. Volumes are firming up. I've seen momentum building. Doug will speak to end-market performance and the outlook for the balance of the year, including updates on our CN-specific initiatives.
Speaker Change: I can tell you I am proud of how we've performed and how we've adapted to the plan to align with what's coming at us.
Speaker Change: Customer service remains a top priority and I want to call out local service commitment performance. Now this is a key customer facing metric and at 92% improved 6% versus last year.
Volumes are firming up we're seeing momentum building.
Speaker Change: Doug will speak to end market performance and the outlook for the balance of the year, including updates on our CN specific initiatives.
Tracy A. Robinson: These projects are lining up quite nicely, giving us increasing confidence in our volume outlook. And, as we knew, we're up against a very strong performance last year, which included 10 cents of favorable fuel surcharge. So I'm pleased with our solid EPS of $1.72. This is right where we thought we'd be after three months. I'll leave it to Shiznan to walk us through the first quarter financial highlights in just a few minutes.
Speaker Change: These projects are lining up quite nicely, giving us increasing confidence in our volume outlook.
Speaker Change: And as we know we're up against the very strong performance last year, which included 10 sensitive favorable fuel surcharge like so I'm pleased with our solid EPS of about 72. This is right, where we thought we'd be after three months I'll leave it tissues land to walk us through the first quarter financial highlights in just a few minutes.
Tracy A. Robinson: We are right where we want to be. The team is gelling, the operation is performing, and volumes are on the upswing. Putting it all together, I'm very happy with the direction we're headed and want to reaffirm the guidance we issued in January. I'll now hand it over to the team. Pat, you're up.
Speaker Change: We are right, where we want to be.
The team is gelling the operation is performing and volumes are on the upswing.
Speaker Change: Putting it all together I'm very happy with the direction, we're headed and want to reaffirm the guidance we issued in January.
Speaker Change: I'll now hand, it over to the team Pat Europe.
Speaker Change: Okay.
Patrick Timothy Whitehead: Merci, Tracy, et bienvenue à tous. Injury and accident rates increased in Q1. Despite our best efforts, intense winter weather poses increased safety exposures. We have seen improvement in April and are now tracking in line year-to-date with CN's lowest ever frequency ratio in 2020. One area I want to highlight in our safety performance is slips, trips, and falls, which increased during the course. So what are we doing?
Patrick Timothy Whitehead: Yes, Hey, Tracy <unk> two's Andrew.
Patrick Timothy Whitehead: Injury and accident rates increased in Q1.
Patrick Timothy Whitehead: Despite our best efforts intense winter weather poses increased safety exposures, we have seen improvement in April and are now tracking in line year to date with <unk> lowest ever frequency ratio in 2023.
One area I want to highlight our safety performance as slips trips and falls, which increased in the quarter.
Speaker Change: So what are we doing about it.
Patrick Timothy Whitehead: We're addressing slips, trips, and falls with several actions. The first I'll cover is our recently deployed walking simulators at our training centers. We've seen 30% fewer walking injuries with employees who have been trained with this tool.
Speaker Change: We're addressing slips trips and falls with several actions. The first I'll cover is our recently deployed walking simulators at our training centers, we've seen 30% fewer walking injuries with employees, who have been trained with this tool.
Patrick Timothy Whitehead: We're going to be deploying a mobile version of this simulator out to our workforce in the field. We've also rolled out our Enable On Go app to the entire workforce, which is our hazard and near-miss reporting. We've received and corrected over 3,300 hazards utilizing this system since its deployment in 2023. Now, before I discuss the network, I want to address some of the comments that have been made recently regarding CN removing safety-critical rests in our current negotiations with TCR. This is just not true.
Speaker Change: We're going to be deploying a mobile version of this simulator out to our workforce in the field.
Speaker Change: We've also rolled out our enabling ago app to the entire workforce, which is our hazard and near Misreporting system.
Speaker Change: We have received and corrected over 3300 hazards utilizing this system since its deployment in 2023.
Speaker Change: Now before I discuss the network I want to address some of the comments that have been made recently regarding CN, removing safety critical risks and our current negotiations with <unk>. This is just not true to be very clear, we successfully implemented the duty and rest period rules that were mandated in Canada in may of 2023.
Patrick Timothy Whitehead: To be very clear, we successfully implemented the duty and rest period rules that were mandated in Canada in May of 2023 and have been in full compliance with these rules. We have managed operations accordingly. What we are doing is working to simplify the complexity of the stacking effect we experienced beginning in 2023 with the additional paid sick and personal leave days under the Canada Labour Code, the duty and rest period rules, and the unavailable time provided by the Legacy Collective Bargaining Agreement.
It had been in full compliance with these rules.
Speaker Change: Managed operations Accordingly.
Speaker Change: What we are doing is working to simplify the complexity of the stacking effect, we experienced beginning in 2023 of the additional paid sick and personal leave days under the Canada Labour code the duty and rest period rules and the unavailable time provided by the legacy collective bargaining agreement.
Patrick Timothy Whitehead: We are fully committed to providing sufficient rest for our employees, and we will continue to work with our union partners to find solutions that benefit our employees and our customers. Now turning to the network, we remained largely fluid this quarter despite more impactful winter weather this year. While our scheduled operation gives us improved resiliency, we were challenged in certain pockets as the newly mandated work rest rules impacted labor availability. As for volume, we are currently seeing what we believe is a sustained increase in demand for intermodal volumes on the West Coast, which has increased existing train size to the point that we have added a combined additional eight trains per week out of Vancouver and Prince Rupert in April.
Speaker Change: We are fully committed to providing sufficient risk for our employees and we will continue to work with our union partners to find solutions that benefit our employees and our customers.
Speaker Change: Now turning to the network, we remained largely fluid this quarter, despite more impactful winter weather this year.
Speaker Change: While our scheduled operation gives us improved resiliency, we were challenged in certain pockets as the newly mandated work rest rules impacted labor labor availability.
Speaker Change: As for volume. We're currently seeing what we believe is a sustained increase in demand for intermodal volumes on the West coast, which has increased existing train size to the point that we have added a combined additional eight trains per week out of Vancouver, and Prince Rupert in April.
Patrick Timothy Whitehead: To support the growth we see coming our way, we will continue to invest in network capacity in key corridors, what we call no-regret capital. In 2024, we are on track to complete additional double track along our Vancouver to Chicago corridor, and we will finish a siding extension project west of Kamloops, British Columbia. This will increase our capacity in this busy corridor and help alleviate some of the congestion we see from time to time in and out of Vancouver. I'll now ask Derek to speak about field execution in
Speaker Change: To support the growth, we see coming our way we will continue to invest in network capacity in key corridors, what we call no regret capital.
Speaker Change: In 2024, we are on track to complete additional double track, along our Vancouver to Chicago corridor, and we will finish a siding extension project West of Kamloops British Columbia.
Speaker Change: This will increase our capacity in this busy corridor and help alleviate some of the congestion we see from time to time in and out of Vancouver.
I'll now ask Derek to speak about field execution in the first quarter.
Derek Taylor: Thanks, Pat, and good afternoon, everyone. Time and again, we've seen that our make-the-plan, run-the-plan, sell-the-plan model is the right one for our network. As you heard from Pat.
Speaker Change: Thanks, Pat and good afternoon, everyone.
Speaker Change: Time, and again, we've seen that our makes the plan run the plan. So all the planned model is the right one for our network.
Speaker Change: As you heard from Pat.
Derek Taylor: Q1 had a number of ups and downs. January brought an extended cold snap in Western Canada that we recovered from in short order. Interestingly, in February, we had some ideal operating conditions, and demand started to pick up. Then, in March, Mother Nature reminded us that winter wasn't over yet on the northern part of our network. During that March time period, we also had a combination of continued strengthening demand, along with the beginning of the work block season, particularly in the Edmonton to Vancouver corridor.
Q1 had a number of ups and downs.
Derek Taylor: <unk> brought an extended cold snap in Western Canada that we recovered from in short order.
Derek Taylor: Interestingly in February we had some ideal operating conditions and demand started to pick up.
Then in March mother nature reminded us that winter wasn't over yet on the northern part of our network.
Derek Taylor: During that March time period, we also had a combination of continued strengthening demand along with the beginning of wharf block season, particularly in the Edmonton Vancouver corridor.
Derek Taylor: In fact, daily train counts in that corridor are now approaching our 2018-2019 high water mark. These work blocks are critical for us to comply with and complete as they will support growth and fluidity going forward. However, they did cause some additional pressure in and out of the Vancouver Gateway.
In fact daily train counts in that corridor are now approaching our 2018 2019 high watermark years.
Derek Taylor: These <unk> are critical for us to comply with and complete.
Derek Taylor: As they will support growth and fluidity going forward.
Derek Taylor: However, it did cause some additional pressure in and out of the Vancouver Gateway.
Derek Taylor: Importantly, we've kept our yards fluid, which has enabled us to maintain a high level of service for our customers. In fact, our Local Service Commitment Performance, or LSCP, improved 6% versus last year to 92% for the quarter. Running the plan is the team's focus, and I'm really pleased that a few weeks into April, speed and velocity are back in line where we need them to be. We've got good operational momentum, so as volumes continue to ramp up through the year, we expect to deliver incremental operating leverage. Particularly in terms of our manifest trains, which have room for growth at low incremental costs.
Derek Taylor: Importantly, we kept our yards fluid, which has enabled us to maintain a high level of service for our customers.
Derek Taylor: In fact, our local service commitment performance or LSE P improved 6% versus last year to 92% for the quarter.
Derek Taylor: Running the plan is the team's focus and I'm really pleased that a few weeks in April speed and velocity are back in line, where we need them to be.
Derek Taylor: We've got good operational momentum so as volumes continue to ramp up through the year, we expect to deliver incremental operating leverage, particularly in terms of our manifest trains, which have room for growth at low incremental cost.
Derek Taylor: To wrap it up, I'm convinced that continued strong alignment between the operations, marketing, and finance teams is key for us to grow profitably. This is a team effort. We're making sure there's tight coordination across the entire organization so that we have the capacity and service in place to keep delivering for our customers. Now, I will turn it over to Doug. Thanks, Derek. And thanks, Tracy, for the kind words.
Derek Taylor: To wrap it up I am convinced that continued strong alignment between the operations marketing and finance teams is key for us to grow profitable.
This is a team effort.
Derek Taylor: We're making sure theres tight coordination across the entire organization.
Derek Taylor: We have the capacity and service in place to keep delivering for our customers.
Derek Taylor: Now I will turn it over to Doug.
Doug Macdonald: Thanks, Derek. And thanks, Tracy, for the kind words.
Derek Taylor: Okay.
Doug Macdonald: Thanks, Derek and thanks, Tracy for the kind words I've been fortunate to spend my entire career.
Doug Macdonald: I've been fortunate to spend my entire career at CN, and it's been a gratifying 35-year journey. I am thankful to all of you around the table, as well as the many others in and outside of CN for their support and help. I leave knowing that the team is well set up for the future. Looking at slide 11, first quarter revenues were down 1% versus last year due to a lower applicable fuel surcharge.
Doug Macdonald: And it's been a gratifying 35 year journey.
Doug Macdonald: I am thankful for all of you around the table as well as the many others in and outside of CN for their support and help.
Doug Macdonald: I leave knowing that the team is well set up for the future.
Doug Macdonald: Looking at Slide 11, first quarter revenues were down 1% versus last year due to a lower applicable fuel surcharge.
Doug Macdonald: We had solid pricing ahead of CM's cost of inflation. RTMs, our standard measure of volume, were flat in the quarter as higher shipments of potash, refined petroleum products, track stands, international intermodal, and natural gas liquids were offset by lower shipments of coal, grain, forest products, and crude oil. Petroleum and Chemicals led the way in Q1 at 6% RTM growth, with record volumes in refined products and natural gas liquids. Q1 crude volumes were down year over year, but we expect them to move higher sequentially for the rest of 2024 due to new business to the Gulf Coast.
Doug Macdonald: We had solid pricing ahead of <unk> cost of inflation.
Doug Macdonald: Rpms are standard measure of volume were flat in the quarter as higher shipments of potash refined petroleum products Frac sand international intermodal and natural gas liquids were offset by lower shipments of coal grain forest products and crude oil.
Doug Macdonald: Petroleum <unk> chemicals led the way in Q1 at 6% RPM growth with record volumes in refined products and natural gas liquids.
Doug Macdonald: Q1 crude volumes were down year over year, but we expect them to move higher sequentially for the rest of 2024 from new business to the Gulf Coast.
Doug Macdonald: Our strategic investments in Northeast BC are paying off with stronger frac sound volumes, which drove a 4% increase in metals and minerals RTMs in Q1. Aluminum volumes also increased in the quarter due to market share gains from truck given our consistent car supply and service. We also had new raw lithium interline shipments with the UP to Texas for battery production. Forest Products RTMs decreased 5% in the quarter, but center beam orders for lumber have increased sequentially since Q4 last year.
Our strategic investments in northeast BC are paying off with stronger frac sand volumes, which drove a 4% increase in metals <unk> minerals rpms in Q1.
Doug Macdonald: Aluminum volumes also increased in the quarter due to market share gains from truck given our consistent car supply and service.
Doug Macdonald: We also had new raw lithium interline shipments with the UPC to taxes for battery production.
Doug Macdonald: Forest products Rpms decreased 5% in the quarter, but center beam orders for lumber have increased sequentially since Q4 last year.
Doug Macdonald: Our boxcar fleet remains nearly sold out, indicating solid demand in multiple segments. In the bulk sector, Canadian coal was down 20% from production problems at several mines, while U.S. coal was down 23% from softer export demand for thermal coal. Grain and Fertilizer RTMs were flat overall as strong potash growth in Q1 fully offset softer grain volume.
Doug Macdonald: Our boxcar fleet remains nearly sold out indicating solid demand in multiple segments.
Doug Macdonald: In the bulk sector Canadian coal is down 20% from production problems at several mines, while U S call was down 23% from softer export demand for thermal coal.
Doug Macdonald: Grain and fertilizer Rpms were flat overall as strong potash growth in Q1 fully offset softer grain volumes.
Doug Macdonald: Canadian grain demand was strong all quarter. We moved record grain tonnage in February, and there's pent-up demand heading into Q2. U.S. corn volumes decreased versus last year due to muted domestic and export demand.
Doug Macdonald: Canadian grain demand was strong all quarter, we moved record grain tonnage in February and there is pent up demand heading into Q2.
Doug Macdonald: U S corn volumes decreased versus last year due to muted domestic and export demand.
Doug Macdonald: Automotive RTMs were up 6% on stronger Vancouver imports despite a slow start in Q1 from delayed new product launches. However, all plans are running normally now. Turning to Intermodal, International was up 5% for the quarter, continuing the steady upward trend we've seen since Q4. Import RTMs by the ports of Vancouver and Prince Rupert are up 12% as U.S.-destined traffic returned after last summer's West Coast Canada strike. Port of Halifax volume was down due to the Red Sea impact.
Doug Macdonald: Automotive rpms were up 6% on stronger Vancouver imports. Despite a slow start in Q1 from delayed new product launches.
Doug Macdonald: All plants are running normally now.
Doug Macdonald: Turning to intermodal international was up 5% for the quarter continuing the steady upward trend we've seen since Q4.
Doug Macdonald: The import rpm's via the ports of Vancouver, and Prince Rupert are up 12% as U S. Destined traffic returned after last summer's West Coast, Canada strike.
The port of Halifax volume was down due to Red Sea impacts.
Doug Macdonald: In Q1, we lapped the remaining comparable container storage revenues, roughly a $35 million impact this quarter, which negatively impacted revenues per RTM. Domestic volume is down 3% on ample truck capacity. Let's move to the outlook on slide 12. The North American economy continues to be supportive. International Intermodal continues to strengthen with strong service and dwell times at our ports. The CAN export development at Rupert is well underway, as well as land clearing for the Ridley Island Energy Export Facility.
Doug Macdonald: In Q1, we lapped the remaining comparable container storage revenues, roughly a $35 million impact this quarter, which negatively impacted revenue per RPM.
Doug Macdonald: Domestic volume was down 3% on ample truck capacity.
Doug Macdonald: Let's move to the outlook on slide 12.
Doug Macdonald: The North American economy continues to be supportive.
Doug Macdonald: International Intermodal continues to strengthen with strong service and dwell times at our ports.
Doug Macdonald: Can export development at Rupert is well underway as well as land clearing for the Ridley Island energy export facility.
Doug Macdonald: We are also expecting to see a gradual recovery in the domestic intermodal markets as capacity exits the over-the-road segment. However, automotive demand remains strong, with some OEMs pushing back the timeline for retooling their plans for EV production.
Doug Macdonald: We are also expecting to see a gradual recovery in the domestic intermodal market as capacity exits the over the road segment.
Doug Macdonald: Automotive demand remains strong with some Oems pushing back the timeline for retooling their plants for EV production.
Doug Macdonald: In bulk, Canadian-met coal mines should return to full production. In addition, Canuma's Quintet mine will start this summer, and the new Valerie mine is delayed until 2025 due to permitting. However, U.S. export thermal coal volumes will be challenged with low global demand and a surplus of natural gas.
Doug Macdonald: In bulk Canadian met coal mines should return to full production.
Doug Macdonald: In addition, <unk> quintet mine will start this summer and the new Valerie mine is delayed until 2025 due to permitting.
Doug Macdonald: U S export thermal coal volumes will be challenged with low global demand and a surplus of natural gas.
Doug Macdonald: In terms of grain, we expect more oil and meal production from new and expanding crush plants on CN in the second half. Additionally, our IANR acquisition, which remains subject to SCB approval, will create further volume growth for U.S. grains. Podash demand remains firm, but we expect lower volume in the balance of 2024 as we lap last year's Portland terminal outage. Our CN specific growth projects are advancing as expected. In Northeast BC, our growing frack stand market for natural gas drilling also produces propane for export via Prince Rupert.
Doug Macdonald: In terms of grain, we expect more oil and meal production from new and expanded crush plants on CN and the second half.
Doug Macdonald: Our INR acquisition, which remains subject to <unk> approval will create further volume growth for U S grain.
Doug Macdonald: Potash demand remains firm, but we expect lower volume and the balance of 2024, as we lap last year's Portland terminal outage.
Doug Macdonald: Our CN specific growth projects are advancing as expected.
Doug Macdonald: In northeast BC are growing frac sand market for natural gas drilling also produces propane for export via Prince Rupert.
Doug Macdonald: New FRACSTAN terminals are expected to be announced in the coming months to grow the market even more. Partnership initiatives like the EMP program, Falcon Premium, and Crowley's service into Mexico and access to Gulfport will deliver intermodal growth in the second half and beyond. CN's new fuel terminal at our yard in Toronto has received its first cars, and ramp-up is commencing in May. Construction took a little longer since some Phase 2 construction was advanced to minimize downtime later in the year. Both phases one and two are now sold out.
Doug Macdonald: New Frac sand terminals are expected to be announced in the coming months to grow the market even more.
Doug Macdonald: Partnership initiatives like the E&P program Falcon premium and Crowley service into Mexico, and access the Gulfport will deliver intermodal growth in the second half and beyond.
Doug Macdonald: <unk> new fuel terminal at our yard in Toronto has received its first cars and ramp up is commencing in may.
Construction took a little longer since some phase II construction was advance to minimize downtime later in the year.
<unk> phase one and two are now sold out.
Doug Macdonald: We also moved our first steel cars into our new transload facility in Flat Rock, Michigan, which is an all truck-to-rail conversion. We've come through the first quarter of 2024 in great shape with excellent service for our customers and a strong pipeline of significant growth opportunities that are starting to deliver. I want to recognize Remy, who has spent the last few months getting up to speed with the great CMP people across our network. He'll be ready, more than ready, for our next quarterly call. It's over to you, Ghislain.
Doug Macdonald: We also moved our first steel cars into our new trans load in flat rock, Michigan, which is all truck to rail conversion.
Doug Macdonald: We've come through the first quarter of 2024 in great shape with excellent service for our customers and a strong pipeline of significant growth opportunities that are starting to deliver.
Doug Macdonald: I want to recognize Remy, who has spent the last few months getting up to speed with the great <unk> across our network will be ready more than ready for our next quarterly call over to you is just land.
Remy: Merci Beaucoup, Doug is that simply <unk>.
Speaker Change: Judah visited a Hollywood and all this is subsequently three minutes.
Ghislain Houle: Turning to slide 14, in the first quarter, we executed and delivered a financial performance in line with, or maybe even a bit better than planned. Volumes, in terms of RPMs, were flat on a year-over-year basis, while our revenues were down roughly 1%.
Remy: Turning to slide 14 on the in the first quarter, we executed and delivered a financial performance in line with or maybe even a bit better than plan.
Volumes in terms of Rpms were flat on a year over year basis, while our revenues were down roughly 1%.
Ghislain Houle: We delivered operating income of around $1.5 billion, 7% lower than last year with a more winter-like operating ratio of 63.6% versus 61.5% last year, up 210 basis points. The first quarter EPS was $1.72 versus $1.82 for the first quarter last year, down 10 cents or 5%. Recall that last year we had a favorable fuel lag tailwind of around 10 cents of EPS. We are monitoring fuel prices very closely. OHD, which drives fuel surcharge revenue, decreased by 17% versus last year, while our fuel prices, driving our expense, decreased only 6% year-over-year in Q1. In terms of expenses, labor was 10% higher versus last year, driven by a 3% higher average headcount and general wage increases.
Remy: We delivered operating income of around $1 5 billion, 7% lower than last year with a more winter life operating ratio of 63, 6% versus 61, 5% last year up 210 basis points.
The first quarter EPS was $1 72 versus $1 82 for the first quarter last year down 10, 5%.
Remy: Recall that last year, we had a favorable fuel lag tailwind of around 10 cents of EPS.
Remy: We are monitoring fuel prices very closely.
Remy: <unk> HD, which drives.
Remy: Versus last year, while our fuel prices driving our expense decreased only 6% year over year in Q1.
Remy: In terms of expenses labor was 10% higher versus last year, driven by 3% higher average headcount and general wage increases.
Ghislain Houle: Fuel expense was more than $40 million lower than in the same period last year, mostly due to a 6% decrease in fuel prices that I just mentioned. Our effective tax rate in the quarter was 24%, which is a bit lower than the guidance we provided in January. This was mostly due to the excess tax benefit on incentive compensation booked in the first quarter. We had anticipated this benefit in the quarter, so we will expect our effective tax rate for the full year to be around 25%. We generated around $530 million of free cash flow in Q1, about $65 million lower than last year, mainly due to higher capital expenditures, partly offset by higher net cash from operating activities.
Remy: Fuel expense was more than $40 million lower than in the same period last year, mostly due to a 6% decrease in fuel prices that I just mentioned.
Remy: Our effective tax rate in the quarter was 24%, which is a bit lower than the guidance. We provided in January.
Remy: This was mostly due to the excess tax benefit on incentive compensation booked in the first quarter.
Remy: We had anticipated this benefit in the quarter. So we will expect our effective tax rate for the full year to be around 25%.
Remy: We generated around $530 million of free cash flow in Q1 about $65 million lower than last year, mainly due to higher capital expenditures, partly offset by higher net cash from operating activities.
Ghislain Houle: Under a current share repurchase program that runs from February 1st, 2024 to January 31st, 2025, we have repurchased close to 3.5 million shares for almost $600 million as at the end of March. As a result, our leverage ratio increased to around 2.4 times at the end of the first quarter. This increase is largely due to timing and reflects the atypical quarterly earnings trend in 2023. We expect the leverage ratio to decrease as we move through 2024 and earnings increase sequentially.
Remy: Under our current share repurchase program, which runs from February one 2024 to January 31, 2025, we have repurchased close to three 5 million shares for almost $600 million as at the end of March.
Our leverage ratio increased to around two four times at the end of the first quarter.
Remy: This increase is largely due to timing and reflects the atypical quarterly earnings trend in 2023.
Remy: We expect the leverage ratio to decrease as we move through 2024 and earnings increased sequentially.
Ghislain Houle: Moving to slide 15, let me provide some visibility to 2024. With economists' sentiment on the macroenvironment improving sequentially, we continue to believe that the broad economy in 2024 will be more constructive than last year, with likely positive industrial production growth and interest rates stabilizing. However, the environment remains quite volatile with continued monetary policy and geopolitical risk. Weak sectors, particularly intermodal international and forest products, continue to improve sequentially. We continue to assume that Canadian grain prices will come back to a three-year average in the second half of the year.
Speaker Change: Moving to slide 15, let me provide some visibility to 2024.
Speaker Change: With economists sentiment on the macro environment improving sequentially. We continue to believe that the broad economy in 2024 will be more constructive than last year with lifestyle positive industrial production growth and interest rates stabilizing.
Speaker Change: However, the environment remains quite volatile with continued monetary policy and geopolitical risks.
Speaker Change: We expect Jos particularly intermodal international and forest products continued to improve sequentially.
Speaker Change: We continue to assume that Canadian grain will come back to a three year average in the second half of the year.
Ghislain Houle: We have good visibility on our CN-specific growth initiatives that account for half of our mid-single-digit volume growth assumption in terms of RTMs, and these initiatives are diversified, both from a commodity and geographic standpoint, and they are advancing per plant. Foreign exchange for the year continues to be around 75 cents. Our WTI assumption is now in the range of 80 to 90 U.S. dollars per barrel versus the previous range of 70 to 80 U.S. dollars per barrel.
Speaker Change: We have good visibility on our CN specific growth initiatives that account for half of our mid single digit volume growth assumption in terms of rpms and these initiatives are diversified.
Speaker Change: Both from a commodity and geographic standpoint, and they are advancing per plan.
Speaker Change: Foreign exchange for the year continues to be around 75.
Speaker Change: Our <unk> assumption is now in the range of 80 to 90 U S dollar per barrel.
Speaker Change: There versus the previous range of 70 to 80 U S dollar per barrel.
Ghislain Houle: With this in mind, we are confident that we will deliver 10% EPS growth in 2024 versus 2025. In conclusion, let me reiterate a few points. We continue to deliver strong operating and financial performance. Our customers continue to benefit from our excellent service. We are encouraged by the positive direction of the macro environment. End market demand in most of our segments, importantly Intermodal International and Forest Products, continues to show sequential growth.
With this in mind, we are confident that we will deliver 10% EPS growth in 2024 versus 2023.
Speaker Change: So in conclusion, let me reiterate a few points.
Speaker Change: We continued to deliver strong operating and financial performance.
Speaker Change: Our customers continue to benefit from our excellent service.
Speaker Change: We are encouraged by the positive direction of the macro environment.
Speaker Change: End market demand in most of our segments importantly, intermodal international and forest products continued to show sequential growth.
Ghislain Houle: Our CN-specific growth initiatives are advancing and delivering for plants. We are committed to delivering operating leverage. We are confident in our EPS growth of around 10% this year versus 2023. Let me pass this on to Tracy. Thanks, Chips.
Speaker Change: Our CN specific growth initiatives are advancing and delivering per plan.
Speaker Change: We are committed to delivering operating leverage.
Speaker Change: We are confident in our EPS growth of around 10% this year versus 2023, let.
Speaker Change: Let me pass it back to Tracy.
Tracy A. Robinson: Thanks, Shiz. We're ready to take questions.
Tracy A. Robinson: Thanks, Jason we're ready to take questions now.
Operator: Thank you. We will now begin the question and answer session. As previously mentioned, we ask that you kindly limit yourselves to one question. Our first question comes from Steve Hansen from Raymond James. Please go ahead. Your line is open. Oh yeah, good afternoon, thank you.
Tracy A. Robinson: Thank you we will now begin the question and answer session.
Tracy A. Robinson: As previously mentioned, we ask that you kindly limit yourself to one question.
Tracy A. Robinson: Our first question comes from Steve Hansen from Raymond James. Please go ahead. Your line is open.
Steven P. Hansen: Oh, yes, good afternoon, thanks for the time.
Steven P. Hansen: Oh, yes. Good afternoon. Thank you for your time.
Steven P. Hansen: Look I was hoping you could provide some additional color here on the international intermodal segment of late seen.
Steven P. Hansen: Look, I was hoping you could provide some additional color here on the international intermodal segment of late. We've seen some really good outsized growth there, but also seeing an increase in shipping length, it looks like, or distance hauled. Just based upon your discussions with customers, what kind of visibility do you have on that sustaining through summer into the back half of the year? Thanks, Steve. It's Doug.
Steven P. Hansen: Some really good outsize growth there, but also seeing an increase in shipping length. It looks like our distance holds.
Steven P. Hansen: Just based upon your discussions with customers what kind of visibility do you have on that sustaining through through summer and into the back half of the year.
Steven P. Hansen: Thanks, Steve It's Doug So we're seeing some great growth on the West coast.
Doug Macdonald: So we're seeing some great growth on the West Coast. Customers have really come back there after the strike last summer. We're seeing lots of growth in Vancouver, but we're also seeing it start to push up to Rupert, so that's working really well. And I think you can see that in the numbers. The customers are very confident that that's going to continue moving forward. They really like the service and the dwell time they're seeing from us.
Customers have really come back there after the strike glass summer, we're seeing lots of growth in Vancouver, but we're also seeing it start to push up to Rupert. So that's working really well and I think you can see that in the numbers.
Steven P. Hansen: The customers are very confident that that's going to continue moving forward. They really like the service and the dwell time. They are seeing from US now when you shift over to the East coast is a little bit different story, they have more of an impact because of the Suez canal the routing the boats.
Doug Macdonald: Now, when you shift over to the East Coast, it's a little bit different story. They have more of an impact because of the Suez Canal. They're routing the boats around the south of Africa, and they come back up, which doesn't impact the Canadian business, but it does impact the US business because they're going by a bunch of US ports where they can offload that business there. So we're seeing a little bit down at Halifax, a little bit down at Montreal because of all that. And we're just hoping that that will come back once that issue in the world gets cleared up.
Steven P. Hansen: <unk>.
Steven P. Hansen: South Africa, and they come back up which doesn't impact the Canadian business, but it does impact the U S business because they are growing by a bunch of U S ports, where they can offload that business. There. So we're seeing a little bit down at Halifax little bit down at Montreal, because of all of that and we're just hoping that that will come back once that once that issue in the world gets <unk>.
Steven P. Hansen: Cleared up.
Thank you for your question.
Operator: Our next question comes from Fadi Chamoun from BMO Capital Markets. Please go ahead. Your line is open.
Speaker Change: Appreciate the color.
Speaker Change: Our next.
Speaker Change: Comes from Fatih <unk> from BMO capital markets. Please go ahead. Your line is open.
Fadi Chamoun: Okay, thank you. Doug, congratulations on your retirement.
Fatih: Okay. Thank you Doug congratulations on your retirement.
Fadi Chamoun: Thanks for all the insights and help over the years. My question is on pricing. You know, you mentioned pricing ahead of inflation. What is inflation?
Fatih: Thanks for all the insights.
Fatih: Helpful.
Fatih: My question is on pricing.
Fatih: You mentioned pricing ahead of inflation.
Fatih: What is it inflation first just to kind of help us benchmark with the pricing environment is like and also given kind of the strong demand we're seeing both on your network and your competitor network.
Fadi Chamoun: First, just to kind of help us benchmark what the pricing environment is like. And also, given the kind of the strong demand we're seeing both on your network and on your competitor's network, is the pricing firming up? Do you expect that we could start to see some firming up in the pricing as we move through the year? Okay, well, thanks.
Fatih: The pricing firming up do you expect that we could start to see some firming up in the pricing as we move through the year.
Doug Macdonald: Okay, well, thanks, Fadi. So overall, what we're seeing in pricing is we're still able to price above rail inflation, and I'll get to the second part of your question there. The only part we're starting to see, obviously, some pressure is within the domestic intermodal section, which I think everyone would understand with the truck capacity issues that are out there today. There's a lot of surplus capacity. We're expecting that overall within North America to decline as more and more shops, I'll say, go bankrupt, and some of that capacity comes out of the market.
Speaker Change: Okay, well, thanks, Patti so overall, what we're seeing in pricing as we're still able to price above rail inflation I'll get the second part of your question. There. The only part we are starting to see obviously some pressure is in within the domestic intermodal section, which I think everyone would understand with the truck capacity issues that are out there today, there's a lot of surplus capacity.
Speaker Change: We're expecting that overall within North America to decline as more and more shops ill say go bankrupt and some of that capacity comes out of the market. So that is where the only areas I think we're seeing some pressure so with respect to that when it comes to what we gauge it we still use the all inclusive index less fuel for the AAR as our major benchmark that we tell.
Doug Macdonald: So those are the only areas I think we're seeing some pressure. So with respect to that, when it comes to how we gauge it, we still use the all-inclusive index less fuel for the AR, which is our major benchmark that we tell people about our rail costs.
Speaker Change: People for our what our rail costs are.
Operator: Our next question comes from Ken Hoexter from Bank of America. Please go ahead, your line is open. Hey, great. Good afternoon. I just want to
Speaker Change: Thanks for your question.
Speaker Change: Our next question comes from Ken <unk> from Bank of America. Please go ahead. Your line is open.
Ken Hoexter: Hey, great. Good afternoon.
Hey, great.
Ken Hoexter: I just want to, I guess you're coming up against a comp against maybe the strikes and want to understand the CN specific initiatives. So I think you said there's minimal economic growth in there in the mid single digits. It sounded like maybe some of the CN specific issues were delayed. You mentioned a coal field, Doug.
Ken: Good afternoon, I, just wanted to I guess youre coming up against a comp against maybe the strikes and wanted to understand the CN specific initiatives. So I think you said theres minimal economic growth in there in that mid single digits. It sounded like maybe some of the CN specific issues were delayed you mentioned the coal field, Doug I think somebody mentioned the auto field was.
Ken Hoexter: I think somebody mentioned the auto field was delayed, but phase one and two were sold out. Just want to understand, does that impact the outlook on growth, or are those coming back up? Just want to understand the CN specific growth initiatives to meet that target. Thanks.
Ken: Was delayed but phase one and two were sold out just want to understand does that impact the outlook on growth or are those coming back online I just want to understand the CN specific growth initiatives to meet that target. Thanks.
Speaker Change: Alright, Thanks, Ken so.
Doug Macdonald: Oh, thanks, Ken. So, everything's kind of running, I'll say as per plan, the easiest way to say it. So we have seen a delay just in the one, I'll say project that we have ongoing for this year. Right.
Speaker Change: Everything is kind of running I'll say as per plan is the easiest way to say it. So we have seen a delay just in the one I'll say projects that we have ongoing for this year right. So with respect to that that's the that's the facility we have in our backyard for our eastern fuels and we pushed that back so we could actually.
Doug Macdonald: So with respect to that, that's the facility we have in our backyard for Eastern fuels. And we pushed that back so we could actually add some construction. So and sell out phase two. So if we didn't do that, we would have to take more outages in phase two later this year and into next year. We didn't want to do that; it made more prudent economic sense to do it at the beginning.
Speaker Change: We had some construction so and sell out phase two so if we didn't do that we would have to take more outage in phase III later this year and into next year, we didn't want to do that it was made more prudent economic sense to do it at the beginning but with that we actually got additional commitment from the customers so with that.
Doug Macdonald: But with that, we actually got additional commitment from the customer. So with that, that project is moving full steam ahead, and we will recoup those volumes. With respect to the Valerie coal mine, we had a very limited number of volumes into this year, really in the next couple years.
Speaker Change: That project is moving full steam ahead, and we will recoup those volumes with respect to the Valery coal mine, we had very limited number of volumes into this year really was in the next couple of years. So what we're looking at is when does that permitting get done that gets done in the next couple of months that they'll be getting that moving forward. So we will be able to give you a revenue will be able to give you a great update.
Doug Macdonald: So what we're looking at is when that permitting gets done, that gets done in the next couple months, then they'll be getting that moving forward. So we'll be able to give you a Remy, we'll be able to give you a great update on that on the next call, actually. So everything else seems to be running really well; I don't think we're going to see any other issues. And so the projects will deliver where we've said they would, and the economy is doing okay. And I think just lines talk to the community quite a bit about that. Thanks for the questions. P.D. Cowan
Speaker Change: On the next call actually so everything else seems to be running really well I don't think we're going to see any other issues and so the projects will deliver where we've said they will and the economy is doing okay and I think just line has talked to the community quite a bit about that.
Speaker Change: Thanks for the question.
Speaker Change: TD Cowen. Please go ahead your line is open.
Speaker Change: Okay.
TD Cowen: Thanks, very much good afternoon, and thank all of our best you in your retirement.
Operator: Please go ahead. Your line is open. Thanks very much. Good afternoon, and Doug. All the best to you.
TD Cowen: I Wonder if there's a way that you can help us frame how much Ian.
TD Cowen: Specific growth opportunities added to either volume or revenue in the quarter and in terms of the relative importance.
Operator: T. D. Cowan. Please go ahead. Your line is open.
TD Cowen: But you are expecting for the year are they basically listed in rank order of importance. The way that they are listed on slide 11.
Doug Macdonald: Thanks, Cheryl. They're not listed in any order. We just kind of go through them. We don't really give like guidance on specific projects out there. We have given some specific updates as to where we expect them to be on the list that we gave at Investor Day last year. So I'm sure the team can probably help you out with that after the call and say, here's where we are on each single one, but it's a little too much to go into right here.
Speaker Change: Thanks, Sheryl and Theyre not listed in any order, we just kind of go through them, we don't really give guidance per specific.
Projects out there we have given some specific updates as to where we expect them to be on the project on the list that we gave at Investor day last year. So I'm sure. The team can probably help you out with that after the call and say here's where we are on each single one but it is a little box to go into right here.
For your question.
Speaker Change: Yes.
Operator: The next question comes from Ravi Shanker from Morgan Stanley. Please go ahead; your line is open.
Speaker Change: Next question comes from Ravi Shanker from Morgan Stanley. Please go ahead. Your line is open.
Ravi Shanker: Thanks, a lot for everyone.
Ravi Shanker: This call is surprisingly bullish in this environment, especially given what you're seeing from other transportation companies that reported so far.
Ravi Shanker: environment, especially given what you've seen from other transportation companies' reports so far. Do you guys have any evidence or more confidence in the cycle inflection in the back half of the year that's giving you that that confidence? Obviously, you spoke of the idiosyncratic catalyst as well. But obviously, you need a macro backdrop to be supportive as well. So it's trying to get a sense of how confident you are kind of in that four year number and the environment that's been created. Thank you.
Ravi Shanker: Do you guys have like evidence of more confidence in the cycle inflection in the back half of the yard.
Ravi Shanker: Giving you the confidence obviously you spoke of the idiosyncratic catalysts as well, but obviously you did.
Ravi Shanker: <unk> backlog will be supportive as well so just trying to get a sense of how confident you are kind of in that number and the environment Thats going forward. Thank you.
Tracy A. Robinson: Ravi, thanks for the question. Listen, we're mapping out a year. When we put the three-year guidance in front of you, we looked at industrial production that was about in the 2% range. Now, industrial production is turning more positive. It's not 2% yet, but we are following a number of those indicators that Ghislaine spoke about, and it does give us some confidence in a lift in the underlying economy. That's 50% of our growth. The other 50% is CN specific growth, and we're watching it all pretty closely. Do you have any other comments?
Ravi Shanker: Hey, Randy Thanks for the question listen we're mapping out a year when we put the three year guidance in front of you. We looked at that industrial production that was about in the 2% range.
Speaker Change: Industrial production is turning more positive it's not 2% yet, but we are following a number of indicators since his line has spoken about.
Speaker Change: And it does give us some confidence in a lift in the underlying economy, that's 50% of our growth. The other 50% is the CN.
Speaker Change: Specific growth initiatives that desert, taking Youtube, we're watching it pretty closely and just do you have any other comments I think I think Ravi what what makes us confident as well is that <unk> specific growth initiatives are very diversified from a commodity and from a.
Ghislain Houle: Yeah, I think, Ravi, what makes us confident as well is that these CN specific growth initiatives are very diversified from a commodity and from a geographic standpoint. So it's not a one-home run type of thing. It's There are a lot of different singles. So if we're, you know, wrong on one of them, on the negative side, we'll be more right on the positive for someone else. So it's the law of compensating for errors.
Speaker Change: <unk> standpoint, so it's not a one homerun type of thing it's a lot of different singles. So if we're wrong on one of them on the negative side will be more right on the positive for somewhat something else. So it's the law of compensating air. So the fact that it's a bunch of different projects.
Ghislain Houle: So the fact that it's a bunch of different projects, and we have great visibility on these, as Doug just talked about, I think makes us very confident that our volume; we will deliver on our volume. Thanks.
Speaker Change: And we have great visibility on these.
Speaker Change: As Doug just talked about I think makes us very confident that our volume.
Speaker Change: We will deliver on our volumes.
Speaker Change: Thanks, and thank you for the question.
Operator: Our next question comes from Benoit Poirier from Desjardins. Please go ahead; your line is open.
Our next question comes from Ben <unk> from Deutsche Bank. Please go ahead. Your line is open.
Benoit Poirier: Yes, merci beaucoup. Thank you very much. And Doug, happy retirement and all the best. So one question, obviously, you made some comments about the softness for domestic intermodal, but I was wondering if there's a different dynamic at play in Canada, given the longer average length of all, and also just in terms of headcounts going through the rest of the year. Could you talk about your expectation in terms of headcount given the ramp up in volume in the second half? Thank you very much.
Ben: Yes, Mr. <unk>. Thank you very much Doug.
Ben: Retirement and all the best.
So one question obviously you made some comments about the softness for domestic intermodal, but I was wondering if you could talk about whether there is a different dynamic at play in Canada, given the longer average length of all and also just in terms of head count is going through.
Ben: The reminder of the year could you talk about.
Speaker Change: Your expectation in terms of head count given the ramp up in volume in the second half. Thank you very much.
Doug Macdonald: Okay, thanks a lot Benoit. So I'll address the specific intermodal numbers first. So listen, within Canada, you're correct, we have a much longer length of haul than in the US. So there's a little bit of added protection there where we don't. We do face pressure, because if there's excess capacity, you can see the truckers are dropping their rates, and they put pressure on our pricing. But so far, because of that length of haul, we've been able to hold our own pretty well.
Speaker Change: Okay.
Speaker Change: Thanks, a lot Pat and while it's all just the intermodal specific numbers.
Speaker Change: Within Canada, Youre correct, we have a much longer length of haul than in the U S. So there's a little bit added protection, there, where we don't we do faced pressure because if theres excess capacity you can see the truckers are dropping their rates and they put pressure on our pricing, but so far because of that length of haul we have been able to hold our own pretty well and there is built.
Doug Macdonald: And there's still, there will be cases where we'll let go of some market share; there will be cases where we're going to gain some market share. And that happens all the time. So we're not too worried about that. And we feel it's also the business that's going to come back right away that we've lost because as trucking capacity diminishes across North America and in Canada, that will shift back. I'll say from the headcount perspective, I guess the team will be able to
Speaker Change: There will be cases, where we'll let go some market share there will be cases, where we're going to gain some market share and that happens all the time, so not too worried about that and we feel it is also the business is going to come back right away that we that we've lost because as trucking as the trucking capacity diminishes across North America and in Canada that will shift back I'll say.
Speaker Change: From the head count perspective, I guess, the team will be able to let Pat why don't you take the head count question, Yes, I can take that one so as we look at Keith.
Patrick Timothy Whitehead: Pat, why don't you take the head count? Yeah, I can take that one.
Patrick Timothy Whitehead: Yeah, I can take that one. So as we look at it, keep in mind that as we train T&E employees, it takes six to nine months to have those folks ready in advance of the volume. So we will see our headcount increase, but it will not be a one-to-one increase. We'll ramp up for the volume, but it will be a busy quarter at the training centers, but not a one-to-one increase. Thank you. Thank you very much. Yeah, thank you. Our next question comes from Konark Gupta from Scotiabank. Please go ahead; your line is open. Thanks and good afternoon, and I go to Congress.
Patrick Timothy Whitehead: Keep in mind that as we train.
Patrick Timothy Whitehead: <unk> employees. It takes six to nine months to have those folks ready in advance of the volume. So we will see our head count increase but it will not be a one to one increase we will ramp up for the volume but.
Patrick Timothy Whitehead: We are busy quarter at the training centers, but not a one to one increase.
Patrick Timothy Whitehead: Thank you. Thank you very much.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Connor Gupta from Scotiabank. Please go ahead. Your line is open.
Connor Gupta: Thanks, and good afternoon, and I Echo the congratulation Scott maybe just one question on one of the projects you guys highlighted last year at the Investor day the.
Connor Gupta: Milton project it seems like the court overturned the federal government's decision to approve that project any thoughts on why.
Operator: Our next question comes from Konark Gupta from Scotiabank. Please go ahead; your line is open. Thanks, and good afternoon.
Connor Gupta: What are you expecting from that will that be delayed or will that be cancel them back to the drawing board and your thoughts would be appreciated. Thanks.
Konark Gupta: Thanks, Kodark. So, yeah, it's a complicated issue, obviously. We have filed our appeal, and we expect to have a decision on the stay that we've appealed for in the next couple of months. So, at that point, we're not going to comment too much. We're going to wait for that to come back.
Thanks, Cotter, so yes, it's a complicated issue obviously.
Speaker Change: We have filed our appeal.
Speaker Change: We are we expect to be have a decision on the stay that we've appealed for in the next couple of months. So at that point, we're not going to comment too much we're going to wait for that to come back and then if we're successful there. We will continue building. If we're not successful. There then we will have to decide how we move forward with that project.
Doug Macdonald: And then if we're successful there, we will continue building. If we are not successful there, then we will have to decide how we move forward with that project. We are very dedicated to moving this project forward. If we're going to grow the economy in Canada, as well as in southwestern Ontario, this project is critical. So, we will have this run forward.
Speaker Change: We are very dedicated to moving this project forward, if we're going to grow the economy in Canada as well as in southwestern Ontario. This project is critical. So we are we will have this run forward.
Operator: Our next question comes from David Vernon of Bernstein. Please go ahead; your line is open.
Speaker Change: Thanks for your question.
Speaker Change: Thank you.
Speaker Change: Our next question comes from David Vernon from Bernstein. Please go ahead. Your line is open.
David Vernon: Hey, good afternoon. Thanks. And Doug, congratulations.
David Vernon: Hey, good afternoon, Thanks, and Doug Congratulations I just wanted to figure out.
David Vernon: I just wanted to figure out or ask you if you could kind of help us understand, you know, coming out of 1Q, we're flat RTMs, and we're still looking at mid-singles for the back half of the year, which is obviously going to have quite a bit of mix in it. Can you just help us understand where you're looking at the numbers, like where is the strength in the RTMs going to come from?
David Vernon: Ask if you could kind of help us understand coming out of <unk> were flat our Tms, we're still looking at at that mid singles for the back half of the year, which is obviously.
David Vernon: We're going to have quite a bit of mix in it can you just help us understand from where you are looking at the numbers like where is the strength in the RPM is going to come.
David Vernon: I know you've got a lot more detail on the CN specific growth initiatives and the impact of mix here, but I'm just getting a lot of questions. Questions about whether that mid-single digit RTM number remains realistic. So if you could help us kind of understand that path, that would be great.
David Vernon: <unk> got a lot more detail on the CN specific growth initiatives and the impact of mix here, but I'm just getting a lot of questions about.
David Vernon: Whether that mid single digit RPM number remains realistic. So if you could help us kind of understand that work that would be great.
Doug Macdonald: Yeah, so, hey, great, great question, David. So first of all, you know, you're right. We were flat for their Q1. But our whole whole project and list was geared towards April and on. So, as a good example, in April, we're 7% up in RTM so far this month. So we knew that was really going to start to pop. We have the comparables that are there from last year. So we're easily going to be able to top some of them.
Speaker Change: Yeah. So great Great question, David So first of all you are right. We were flat for their Q1, but our whole whole project and list was geared towards April and on so as a good example in April were 7% up in RPM. So far this month. So we knew that was really going to start the pop we have the <unk>.
<unk> that are there from last year, so we're easily going to be able to talk some of them.
Doug Macdonald: So we're all set, we know there's going to be good growth in intermodal over seas. And that's what we've been seeing a little bit lighter on domestic; we're seeing some other things pop up in other areas. All of these are really just part of the economy as well as part of the projects. Combining them all up, we're pretty confident that we are still going to be able to maintain our guidance.
Speaker Change: So we're all set we know theres going to be good growth in intermodal overseas and that's what we've been seeing a little bit lighter on domestic we're seeing some other things pop in other areas. All of these are really just part of the economy as well as part of the project's combine them all up we're pretty confident that we are still going to be able to maintain our guidance.
Doug Macdonald: Okay, and then just as a quick follow-up, you know, cost techs fuel up 5% in a quarter. You know, how much of that is because last winter wasn't much of a winter, and how much of that is resourcing ahead of this expected volume growth, and how much of that is just, you know, natural cost creep in a week or revenue quarter?
Speaker Change: Okay and then.
Speaker Change: Just maybe just as a quick follow up.
Speaker Change: Ex fuel up 5% in the quarter how much of that is is because last winter there wasn't much of a winter and how much of that is resourcing ahead of.
This expected volume growth and how much of that is just just natural cost creep in spite of weaker revenue quarter.
Speaker Change: Yes, when you look at when you look at fuel as I said we.
Ghislain Houle: When you look at fuel, as I said, we're comping. I talked about the fuel lag, positive lag last year versus no lag this year. When you look at the overall fuel situation in the first quarter, and you can look at it in the NBNA, it's all disclosed, but our fuel surcharge, Doug mentioned it, was down on a year-over-year basis by about $170 million, while our fuel expense related to just the price was down $30 million.
Speaker Change: We're comping.
Speaker Change: I talked about the fuel lag a positive lag last year.
Speaker Change: Versus no no lag this year when you look at when you look at the overall fuel situation in the first quarter.
And you can look at it in the MD&A, it's all disclosed, but our fuel surcharge that Doug mentioned it was down.
Speaker Change: On a year over year basis by about $170 million, while our fuel expense related just the price was down $30 million.
Ghislain Houle: So the fuel issue in the quarter was about $140 million of headwind, or call it 15 cents of EPS or 180 basis points of OR. So that's the fuel, and yes, we did consume more fuel this year versus last year due to a harsher winter, specifically in January.
Speaker Change: So the fuel issue in the quarter.
Speaker Change: Was about $140 million of headwind or call. It 15 cents of EPS or 180 basis points of <unk>. So so that's the fuel and yes, we did consume David more fuel this year versus last year due to a harsher winter specifically in in January.
Operator: Our next question comes from Walter Spracklin from RBC Capital Markets. Please go ahead. Your line is open.
Speaker Change: Thanks for the question.
Speaker Change: Our next question comes from Walter <unk> from RBC Capital markets. Please go ahead. Your line is open.
Walter Spracklin: Yeah, thanks very much, operator. So when I look back at your guidance that you issued when you reported your fourth quarter, I know there was some trepidation that perhaps it was a little bit too robust, maybe too positive, too optimistic, especially around the 5% volume, and very encouraging, given that you've kind of reiterated that. There was also a lot of mention about how with high single-digit revenue, where you're only achieving 10% earnings.
Walter: Yes, thanks, very much operator, so when I look back at your guidance that you issued when you reported your fourth quarter I know there was some trepidation that perhaps it was a little bit too.
Walter: Two robust maybe two to positive two.
Walter: Too optimistic, especially around the 5% volume and very encouraging given that you've kind of reiterated that.
Walter: There was a lot also mentioning about how with high single digit revenue, where you're only achieving.
Walter: 10% earnings.
Walter Spracklin: And I know Ghislain, since then, through your public remarks at various conferences, you've kind of hinted that perhaps there is some upside there if that volume growth does come in. So I guess my question is, you know, as you're now one quarter through the year, or obviously a bit more than that here, how much, where have things changed relative to your original guide, even though you're maintaining it?
Walter: And I know, Jason since since that you've been through your public remarks at various conferences, you've you've kind of hinted that perhaps there is some upside there if that volume growth does come in so I guess my question is as you are.
Walter: Youre now one quarter through the year.
Walter: There are obviously a bit more than that here.
Walter: How much were hedged things change relative to your original guide, even though youre maintaining it.
Walter Spracklin: Do you feel a bit more comfortable about volume? Are you feeling more comfortable about price? Is margin coming in better or worse? Is there any indication as to the kind of comfort level you have around the guidance? I'd love to hear your thoughts on which areas are coming in a bit better or worse in each of those areas.
Walter: You feel a bit more comfortable about volume or are you feeling more comfortable about price as margin coming in better or worse. If there is any indication as to the kind of comfort level you have around the guidance I'd love to hear your thoughts on on which areas are coming in a bit better or worse in each of those.
Ghislain Houle: Thanks, Walter. So I would tell you that in Q1, we delivered exactly as planned. Even in my opening remarks, I said we did probably a little bit better than planned. So I think that, and when you look, you know, now the volumes are coming in in April, as Doug mentioned, 7% up on a year-over-year basis. I think at the end of the day, you know, as we said, to get to our 10%, we can't just focus on one area.
Walter: Those elements.
Speaker Change: Thanks, Walter So I would tell you that Q1, we delivered exactly as per plan. Even in my opening remarks, I said, we did probably a little bit better than plan.
Speaker Change: So I think that.
Speaker Change: And when you look now.
Speaker Change: Now the volumes are coming in in April as Doug mentioned, 7% to up on a year over year basis.
Speaker Change: At the end of the day.
Speaker Change: We said to get to our 10%. We can just focus on one area, we need a little bit of price and Doug talked about that we need that volume that we've talked about.
Ghislain Houle: We need a little bit of price, and Doug talked about that. We need that volume that we've talked about, and we need better operations, better operations from our guys here. And I call our guys to be a little bit sandbaggers, and that's my own opinion.
Speaker Change: And we need we need better operating better operating.
Speaker Change: Better operations from our guys are you and I call, our guys to be a little bit here sandbaggers and that's my own opinion.
Tracy A. Robinson: Share buyback is not that accretive for the current year, especially when you look at it from an after-financing point of view, but it is helpful a little bit more in the subsequent years because you get that compounding effect of having the shares out of circulation. So when you put all of this in, and I'm happy because when we get out of the winter, Q1 is typically very noisy. As I said, we deliver on plan, so I think, you know, those growth opportunities are happening.
Share buyback is not that accretive for the current year, especially when you look at it from an after financing point of view, but it is helpful. A little bit more in the out years, because you get that compounding effect of having the shares out of circulation. So when you put all of this in and I am happy because when you we got out of the winter Q1.
Speaker Change: Typically very noisy.
As I said, we deliver per plan. So I think those growth opportunities are happening.
Tracy A. Robinson: I'm crossing my fingers that the economy holds up. We're not banking, as Tracy said, on a 2%. We're banking on a slightly positive economy, call it 0.5%. I think that I'm getting – I'm very comfortable that we can deliver, and we will deliver our 10% EPS growth.
Speaker Change: I'm crossing my fingers that the economy holds up we're not banking as Tracy said on a 2% with banking on a slightly positive economy call at <unk>, 5% I think that I'm getting I'm very comfortable that we can deliver and we will deliver our 10% EPS growth. Let me just add to that Walter if I could.
Tracy A. Robinson: Let me just add to that, Walter, if I could. So as we look at volumes, you know, you heard Derek and Pat talk about what we went through in the first quarter, but I think that, you know, we are more optimistic about volumes from an economic perspective. We are, as Doug has outlined, pretty much on plan on our and feeling very, very strongly about our C and specific growth alternatives, our plans. Derek keeps reminding us that if you look at Q1, it's the best Q1, Derek, on operating metrics that we've had in the last seven years.
Walter: So as we look at volume.
Walter: You heard Derek can Pat talk about what we went through the first quarter, but I think that we are more optimistic on the volumes from North America perspective.
Walter: We are as Doug has outlined outlined pretty much on plan on art and feeling very very strongly about our CN specific growth.
Walter: Turning to our planned Derek and it keeps reminding us that if you look at Q1, it's the best Q1, Derek on operating metrics that we've had in the last seven years since 2017.
Derek Taylor: 2017.
Derek Taylor: The last seven years since 2017, with the exception of last year, so the railroad's running, the volumes are coming, and as we look at our plan going forward, we're feeling pretty good about our 10% Thank you. Thank you very much.
Walter: Seven years since 2017 with the exception of last year. So the railroad's running at the volumes are coming in as we look at our plan going forward, we're feeling pretty good about our 10%.
Speaker Change: Thank you. Thank you very much.
Operator: Our next question comes from Kevin Chiang from CIBC. Please go ahead; your line is open.
Speaker Change: Our next question comes from Kevin Chiang from CIBC. Please go ahead. Your line is open.
Kevin Chiang: Maybe just want to get your sense on, you know, this morning the Canadian Competition Bureau put out, I guess, a report on this Viterra-Bungie potential merger and potential anti-competitive effects. Just wondering how you're viewing that, I guess, potential combination back at investor day in terms of grading fertilizer. OK.
Kevin Chiang: Good afternoon. Thanks for taking my question and best of luck in your retirement Doug.
Kevin Chiang: Maybe just wanted to touch a sense on this morning, the Canadian competition Bureau.
Kevin Chiang: Well put out I guess a report on this bolt taro bogey.
Kevin Chiang: Potential merger and potential anti competitive effects, just wondering how you're viewing that.
Kevin Chiang: The potential combination.
Kevin Chiang: Does that have an impact on on how you view a great franchise.
Kevin Chiang: Have any impact on some of the specific initiatives you've highlighted at the Investor day in terms of in terms of greater fertilizer.
Doug Macdonald: Okay, thanks, Kevin. It's a great question. So we did participate within the transport Canada did ask us for our opinion. Listen, we don't see much of a conflict from our standpoint between if it happens. But with respect to that, Viterra is one of our top customers, right? They are among our top 10, and we move lots of grain for them. And we do it both all over North America, primarily West Coast Vancouver, but also to Rupert, and Montreal.
Speaker Change: Okay. Thanks, Kevin It's a great question.
Kevin Chiang: So we did participate within the comp transport, Canada did ask us for our opinion listen we don't see much of a conflict from our standpoint between if it happens, but with respect to that Vitaros one of our top customers right. They are a top 10 customer we move lots of grain for them and we do it both to.
Kevin Chiang: All over North America, primarily West Coast, Vancouver, but also to Rupert to Montreal. So we're very happy with that we don't see as much of a conflict with bungie at all bundle, we have very little business with we do have some but they are primarily moving other products with another carrier. So overall when you look at that.
Doug Macdonald: So we're very happy with that. We don't see as much of a conflict with Bungie at all. Bungie we have very little business with, we do have some, but they're primarily moving other products with another carrier. So overall, when you look at that, we don't have a problem with the Competition Bureau or the combination of these two companies. So we'll effectively, I'll say stay out of it; it won't really have an issue in our markets today.
Kevin Chiang: We don't have a problem with the competition Bureau, or the combination of these two companies. So we will effectively I'll say stay out of it won't really have an issue on our markets. Today now what they are looking at doing is building some canola meal plants or southern crush plants. So that will eventually bring more business online.
Doug Macdonald: Now what they are looking at doing is building some canola meal plants or some crush plants. So that will eventually bring more business online that we think they're both in a good position for one plant in the Regina market. And they're looking at some others that are both also on CN's line. So it may delay future plants, but none of these were currently in the plan today that we have for 2024 and 2026.
Kevin Chiang: That we think they are both in a good position to one plant would be in there to Regina market and Theyre looking at some others that are both also on <unk> line. So it may delay these future plants, but none of these were currently in the plan today that we have for 2024 to 2020, so we shouldnt see any issues there.
Doug Macdonald: So we shouldn't see any issues there. Thanks for the question. Our next question comes from Scott Group from Wolfe Research. Please go ahead, your line is open. Hey, thanks for the afternoon. So Ghislain, it looks like we can often see a four to five point average.
Speaker Change: Thanks for the question.
Speaker Change: Our next question comes from Scott Group from Wolfe Research. Please go ahead. Your line is open.
Scott H. Group: Hey, Thanks afternoon, so just laying it looks like we can often see a four to five points of or improvement from <unk> to <unk> is that right that we should be sub 60. This quarter and then I guess I'm just wondering how the labor.
Scott H. Group: Negotiate negotiation impacts how you're thinking about Q2 in the year, maybe Tracy just some thoughts on the scenarios, what's the upside potential if we get hourly deals what's the risk that inflation ends up higher than what youre thinking just any thoughts there. Thank you guys.
Operator: Our next question comes from Scott Group from Wolf Research. Please go ahead; your line is open.
Scott H. Group: Any thoughts there? Thank you guys. Why don't you start off, and I'll take it from there?
Ghislain Houle: So thanks, Scott. Listen, we don't give guidance on OR on a quarterly basis, but as you know, if you look historically, from a seasonality standpoint, Q1 has been, you know, the quarter that has the highest OR. Q3 has traditionally been the lowest, and then Q2 is in between, and, you know, Q2 and Q4 are more or less in between, depending on how you finish Q1 getting into the spring, and Q4 is how you get into the winter in October, November, and December.
Tracy A. Robinson: Wanted to start off and I'll take it from there. So so thanks, Scott listen, we don't give guidance on or on a quarterly basis, but as you know if you look historically.
Tracy A. Robinson: From a seasonality standpoint Q1 has been.
Tracy A. Robinson: The quarter that has the highest <unk>.
Tracy A. Robinson: Q3 has been typically the one that has the lowest and then Q2 is in between.
Tracy A. Robinson: Two in Q4 is more or less in between depending on how you finished Q1 getting into the spring and in Q4 is how you get into the winter in October November and December so.
Patrick Timothy Whitehead: So definitely from a historical standpoint, you would assume that the OR in Q2 would be better than Q1. And from a labor perspective, we're working very hard at instilling discussions with the TCRCs; we would like a negotiated agreement with them. And we believe that that is possible. The proposal that we have in front of them now is an hourly agreement. We don't yet have an agreement with them, but it's an hourly agreement. It would have economic benefits, of course, for both of us, for our employees. There would be, you know, predictable scheduling, two consecutive days off, and increased earnings for the company. The benefits would fall largely on improvements in availability and productivity.
Tracy A. Robinson: Definitely from an historical standpoint, you would assume that that or in Q2 would be better than Q1.
Tracy A. Robinson: And from a labor perspective, we're working very hard at 10 and still in discussions with the Trc we.
Tracy A. Robinson: We would like a negotiated agreement with them.
Tracy A. Robinson: And we believe that that is possible.
Tracy A. Robinson: The proposal that we have in front of it now is in the hourly agreement we don't yet have an agreement with them, but it is an hourly agreement. It would have economic benefit of course for both the size of our employees that would be predictable scheduling.
Tracy A. Robinson: Two consecutive days off and increased earnings for the company.
Tracy A. Robinson: Benefits would fall largely and improvements in availability and productivity. So think translating crews are re crews that hedge those types of things.
Patrick Timothy Whitehead: So think, you know, trains awaiting crews, recrews, deadheads, those types of things. So, you know, we're in discussion with them. And I think given that we are in discussion with them right now, it's still negotiations, it would be inappropriate to comment much further than that, Scott. Thanks for the question.
So we are in discussion with them.
Speaker Change: And I think given that we are in discussion with them right now it's still negotiations it would be inappropriate to comment much further than that Scott. Thanks for the thanks for the question.
Operator: Our next question comes from Tom Wadewitz from UBS. Please go ahead. Your line is open.
Our.
Speaker Change: Next question comes from Tom Waterworks from UBS. Please go ahead. Your line is open.
Thomas Wadewitz: Yeah, good afternoon. And Doug, congratulations. I hope you enjoy your retirement as well.
Thomas Wadewitz: Yes, good afternoon, Ed and Doug Congratulations I hope you enjoy the retirement as well.
Doug Macdonald: I guess I have two, you know, two questions for you. I think you talked about some new things, or I don't know, I'll call them part A, part B. Just on the bulk side, you said, I think some new business on crude by rail, I don't know if you have any color on how big that is or what that is. And then coal, you were kind of, you know, one is getting Canadians better, while the US stays weak. What's the kind of net coal view within that? Is coal going to be overall volumes going to be flat or still down, but down less? So, thank you for the comments on those two.
Thomas Wadewitz: Yes, I guess.
Thomas Wadewitz: Two questions for you I think you talked about some new.
I'll call it part a part b.
Thomas Wadewitz: On the bulk side.
You said I think some new business on crude by rail I don't know if you have any color on how big that is or what that is and then coal you were kind of one is getting Canadian is getting better U S stays weak what's the kind of net coal view within that us coal is going to be overall volumes can be flatter is still down but down less so thank you for the comments on this.
Doug Macdonald: Okay, well, thanks, Tom. So on the crude by rail, we have a natural crude heavy oil franchise that moves down to the US. We've been working with a couple of our customers to create a new terminal that's on CN. So rather than having to worry about moving this product offline to other railways, we've been able to work with our customer base to create a new crude receiving terminal for heavy oil down in the Baton Rouge market.
Thomas Wadewitz: Two.
Speaker Change: Okay, well, thanks, Tom so on the crude by rail. So we have a natural crude heavy oil franchise that moves down to the U S. We have.
Speaker Change: Been working with a couple of our customers to create a new terminal that's on CN, so rather than having to worry about.
Speaker Change: Moving this product offline to other railways, we've been able to work with our customer base to create a new crude receiving terminal for heavy oil down in the Baton Rouge market and that is great because we're able to cycle those sets from the Alberta market down there and back a lot faster. So we were able to turn our customers' assets and move Canadian oil to the U S market.
Doug Macdonald: And that is great because we're able to cycle those sets from the Alberta market down there and back a lot faster. So we were able to turn our customers' assets and move Canadian oil to the US market as fast as anybody has ever been able to do it.
Speaker Change: Fast as anybody has ever been able to do so we expect that to continue on moving forward with other opportunities there as well on the core market were expecting obviously Canadian coal to pick up.
Doug Macdonald: So we expect that to continue moving forward with other opportunities there as well. On the coal market, we're expecting Canadian coal to pick up only because we had a couple of mines that were down earlier in Q1. Those mines are now back running properly.
Only because we had a couple of mines that were down earlier in Q1. Those mines are now back running properly. So we expect to see very comparable numbers moving forward on the Canadian coal side.
Doug Macdonald: So we expect to see very comparable numbers moving forward on the Canadian coal side. The US coal side is more market dependent. So our US coal franchise is mostly exporting through the Gulf Coast, that coal moves typically over to Europe. And that market is tough right now because they use it for blending with Russian coal, and they're not taking Russian coal. So it's a complex, I'll say blending operation.
Speaker Change: The U S coal side is more market dependent so our U S. Coal franchise is mostly export through the Gulf coast that coal moves typically over to Europe and that market is tough right now because they use it for blending with Russian coal and Theyre not taking Russian call. So it's a complex.
Speaker Change: I'll say blending operation.
Doug Macdonald: But our customers are, at the same time, looking at new opportunities in different countries around Asia, as well as in Europe. So we'll see what happens there, and we'll only be able to give an update once they're able to convince their customers to enter that coal market. So I think that covers both topics.
Speaker Change: But our customers at the same time, we're looking at new opportunities in different countries around Asia as well as in Europe. So we will see what happens there and will only be able to give an update once they're able to convince their customers to take that coal market.
Speaker Change: I think that covers both from Opex.
Thomas Wadewitz: Thanks for having me. Is the crude a new volume or extended length of haul?
Speaker Change: Is the crude new volume or extended length of haul.
Doug Macdonald: Some of it, most of it, most of it's an extended length of haul, but there will be some new volume in Okay, thank you very much, and comes from David Zazula from Barclays. Please go ahead. Your line is open. Hey, thanks for taking
Speaker Change: Some of it most of it most of its extended length of haul, but there will be some new volume in there.
Speaker Change: Okay. Thank you very much.
Speaker Change: Yes.
Speaker Change: And comes from David <unk> from Barclays. Please go ahead. Your line is open.
David Vernon: Hey, Thanks for taking my question Doug Congrats on.
Operator: and comes from David Zazula from Barclays. Please go ahead. Your line is open.
David Vernon: A great period of service I guess anytime I've I've left anywhere I've always had some on Don items I was wondering what youre done items that you never really got to and what you would be excited to turn it over to rami for them to get started on.
David Michael Zazula: Well, thanks very much. So there's always lots of undone items, like you've said. But listen, my key goal was to help find a great replacement, and that's one goal heavily accomplished. So there's nothing much we can say about that.
Speaker Change: Well, thanks very much so there's there's always lots of unknown items like you've said listen my my key goal was to help find a great replacement and Thats. One goal heavily accomplished so theres nothing much we can say about that youre going to love, having Remy on these calls and the rest of the team will straighten amount. If it is not really working so.
Doug Macdonald: You're going to love having Remy on these calls, and the rest of the team will straighten him out if it's not really working. So, but it's not like he's a stranger. He's been doing this in some of his other jobs. So he is going to be awesome.
But it's not like he's a stranger he's been doing this in some of his other jobs. So he is going to be awesome.
Doug Macdonald: With respect to that, there's always tons of work to do, and I work with the team around that. You always want to be able to grow and help your customers grow. So we're always trying to find new ways to work with our customers to create either new products or even get deeper into their supply chains. And we accomplish that on a regular basis. But there's always the next one and the next one and the next one.
Speaker Change: With respect to that Theres always tons of work to do and I work with the team around that you always want to be able to grow and help your customers grow. So we're always trying to find new ways to work with our customers create either new products or even get deeper into their supply chains, and we accomplish that on a regular basis, but theres always been excellent and the next one and then.
Doug Macdonald: And that's really what I haven't been able to get done. You can't get them all done. It's just impossible because there's always something else to do. So I'm looking forward to turning that over to Remy. And he'll be able to do that and work with the team here on creating those products that the customers really need to drive additional growth at CM.
Speaker Change: Excellent and Thats really what I haven't been able to get done you can't get them. All done it's just impossible because there's always something else to do so I'm looking forward to turning that over to Remy and he'll be able to do that and work with the team here on the creating those products that the customers really need to drive additional growth at CN.
Operator: Our next question comes from John Chappell from Evercore. Please go ahead. Your line is open.
Speaker Change: Thanks for your question Thanks, Doug.
Speaker Change: Our next question comes from Jon Chappell from Evercore. Please go ahead. Your line is open.
Jonathan Chappell: Thank you. Good afternoon.
Jonathan Chappell: Thank you good afternoon.
Jonathan Chappell: On the productivity front, there's a lot of focus on headcount, but your purchase service is down 4% year over year in a flat volume environment. And with the winter, you know, that you actually had this year versus last year, is that all about productivity? And as we think about, you know, that major cost line item, can we kind of extrapolate a much lower run rate going forward? Or is there something kind of out of the ordinary in the first quarter that made that cost item come down, despite the flat volumes?
On the productivity front, there's a lot of focus on head count, but your purchase services down 4% year over year in a flat volume environment.
Jonathan Chappell: With the winter.
Jonathan Chappell: That you actually add this year versus last year is that all kind of productivity and as we think about that major cost line item, we kind of extrapolate a much lower run rate going forward or is there something kind of out of the ordinary in first quarter that made that cost item come down despite the flat volumes.
Ghislain Houle: I'll hand that one over to Ghislain.
Speaker Change: I'll hand that one over in Asia.
Ghislain Houle: Yeah, I mean, when you look at the year over year, you're right. Purchasing services materials were down 4%. A lot of it was a little bit of less snow clearing, a little bit of less housekeeping services, and a little bit of less maintenance. I mean, these are not big differences, but you're right. When you add them all up, you know, we're down 4%. And those are mainly the items that make it up. Thanks for the question.
Speaker Change: When you look at the.
Asia: The year over year, you're right purchasing services material were down 4%.
Speaker Change: A lot of it was.
Speaker Change: A little bit of a little bit of less snow clearing a little bit of less outsource services and a little bit of less maintenance I mean, but these are not big variance, but you are right. When you add them up were.
Speaker Change: We're down 4% and those are mainly.
Speaker Change: The items that make it up.
Jonathan Chappell: So any reason to extrapolate that at a lower run rate than going forward? Are you saying it's basically just kind of a tiny decline? I would not. I would not assume that this would deliver a lower run rate in the following quarter.
Speaker Change: Thanks for the question Joe.
Joe: And any reason to extrapolate that to the lower run rate then going forward or are you, saying, it's basically just kind of a one tiny decline I would not I would not assume that this would.
Joe: We'll deliver a lower a lower run rate.
Joe: In the following quarters.
Ghislain Houle: Got it. Thank you, Ghislain. Thank you.
Speaker Change: Got it thank you.
Operator: Our next question comes from Brian Ossenbeck from J.P. Morgan. Please go ahead; your line is open.
Speaker Change: Our next.
Speaker Change: Comes from Brian <unk> from Jpmorgan. Please go ahead your line is open.
Brian Ossenbeck: Hey, thanks for taking the question. Doug, two quick ones for you.
Hey, Thanks for taking the question.
Brian: Two quick ones for you one on the Canadian Green pricing on the regulated side you had thank.
Doug Macdonald: One, on the Canadian Green pricing on the regulated side, you had, I think, two 12%s in a row. I don't know if you'd expect something similar, just based on how that formula works, but we're going to get that any day now. So, any way to set the expectations for the coming year and then just maybe some brief thoughts on the pipeline as you look further out from the CN specific growth opportunities.
Thank to 12% scenario I don't know if you would expect something similar just based on how that Formula works, but we're going to get any day now so.
Brian: Any way to level set what we should expect for the coming year.
Brian: Then just maybe some brief thoughts on the pipeline as you look further out from the <unk> specific growth opportunities, obviously, you outlined at the Investor day.
Doug Macdonald: Obviously, you outlined it at the investor day a little while ago. There have been a few moving pieces, but any other themes you've seen since then in terms of what's come in, come out, or maybe accelerated or slowed down as you look at the multi-year view? Thanks.
Brian: A little while ago, there have been a few moving pieces, but any any other themes you've seen.
Brian: Since then in terms of what's come in come out or maybe accelerated or slowed down as you look on a multiyear view. Thanks.
Doug Macdonald: Okay, so thanks, Brian. So on the Canadian grain price, it's been one year at 12%. So that's the current year we're in. The prior year, if memory serves me right, was more than that four to 5%. So, but it's still all good numbers. So we're going to do very well on Canadian grain this year. So we continue to have a strong grain market even into the spring. It's going extremely well.
Speaker Change: Okay. So thanks, Brian so on the Canadian grain pricing, it's been one year at 12%. So that's the current year were in the prior year. If memory serves me right was more in that 4% to 5%. So so but its still all good numbers. So we're going to do very well on Canadian grain. This year. So we continue to have a strong green market even into.
Speaker Change: The spring so it's going extremely well.
Doug Macdonald: And we expect that to continue moving forward through Q2 for at least the next month or so. So we're very happy with the overall grain this year. Now, we've also been able to get the pricing with them there, so we should do very well on grain pricing. For next year, we listen, it's a little bit of a black box within the CTA and Transport Canada. So when they come back, they consider a lot of different things. And then out comes the number.
Speaker Change: And we expect that to continue on moving forward actually through Q2 for at least the next month or so so we're very happy with the overall grain. This year now we've also been able to get the pricing with there. So we should finish very well on grain pricing for next year, we listen it's a little bit of a black box within the Cta and transport, Canada. So when they come back they would consider.
Speaker Change: Lot of different things and then outcomes. The number so we usually budget just in that 3% range and just try and move forward from there. If we're surprised on the upside grade if we're surprised on the downside we will adjust accordingly, so we will all be surprised when the number comes out in a week or two now with respect to some of the other pipeline of growth opportunities we have done.
Doug Macdonald: So we usually budget just in that 3% range and just try and move forward from there. If we're surprised on the upside, if we're surprised on the downside, we'll adjust accordingly. So we'll all be surprised when the number comes out in a week or two. Now, with respect to some of the other pipelines of growth opportunities, we've obviously done very well with what you've seen. Some of the things we've really been delivering on are refined products and LPG.
Obviously, very well with what <unk> seen some of the things we've really been delivering on is on the refined products and on the LPG. So that's one that's really starting to add up we obviously got the long term agreement with all of the gas, which we've we announced before but we're seeing additional growth ahead towards both the west coast for export as well.
Doug Macdonald: So that's one that's really started to add up. We obviously got the long-term agreement with AltaGas, which we announced before, but we're seeing additional growth head towards both the West Coast for export, as well as still servicing the domestic market really, really well. So we continue to see that, and refined products have actually been the surprise this year. The number's up quite a bit. Now we're moving that to different markets.
Speaker Change: We're still servicing the domestic market really really well. So we continue to see that and refine products has actually been the surprise. This year. The number is up quite a bit now we're moving at the different markets. It was moving export during the winter and we're expecting to see more and more domestic market. During the rest of this year. So we're very happy with all of that.
Doug Macdonald: It was moving export during the winter, and we're expecting to see more and more domestic market during the rest of this year. So we're very happy with all that. And then that ties in nicely with our new facility in Mack Yard as well, which would be above and beyond that. Thanks for your question, Brian.
Speaker Change: And then that ties in nicely with our new facility in Mac yard as well, which would be above and beyond that.
Doug Macdonald: Thank you, Doug. Our last question will come from Justin Long of Stevens. Please go ahead. Your line is open.
Speaker Change: Thanks for your question Brian.
Thank you Doug.
Speaker Change: Our last question will come from Justin long from Stephens. Please go ahead. Your line is open.
Operator: Thanks and good afternoon. I know the CAPEX guidance didn't change overall, but I was wondering if you could provide any update on your locomotive plans for this year as it relates to both new locomotives and modernizations. And in addition to that, you know, the CARB has proposed some regulations in the US. I know the EPA is looking at those currently. Just curious if you have any thoughts around what's been proposed and how that could potentially impact your locomotive strategy going forward if it is passed.
Justin Long: Thanks, and good afternoon, so I know the Capex guidance didn't change overall, but I was wondering if you could provide any update on your locomotive plans for this year as it relates to both new locomotives and Modernizations and in addition to that.
Justin Long: Carb has proposed some regulations in the U S. I know the EPA is looking at those currently just curious if you have any thoughts around what's been proposed and how that could potentially impact your locomotive strategy going forward if passed.
Justin Long: So I'll take that one. This is Pat Whitehead.
Justin Long: Yeah.
Justin Long: So I'll take that one this is Pat Whitehead so our plan as we continue to modernize our fleet, we will continue to work with.
Patrick Timothy Whitehead: So our plan is that we will continue to modernize our fleet. We will continue to work with Wabtec, and we have some Progress Rail modernizations as well. That's been our chosen path. It's the most reliable locomotive in the industry currently, and we will continue to invest in it. We are working with both OEMs and exploring other technologies for the locomotive of the future. And we'll continue down that path, and we'll continue to have... We purchased donors last year that we could convert for our modernization program, and we will be converting those between this year and next. Just let me explain.
Patrick Timothy Whitehead: Web Tech and we have some progress rail modernizations as well that's been our chosen path. That's the most reliable locomotive in the industry currently and we will continue to invest in that we are working with.
Patrick Timothy Whitehead: Both Oems and exploring other technologies for the locomotive of the future.
Patrick Timothy Whitehead: We will continue down that path and we'll continue to have we purchased owners last year that we could convert for our modernization program and we will be converting those up between this year and next and just let me add a little bit to that.
Tracy A. Robinson: And just let me add a little bit to that as we finish up today. We are watching CARB very closely and where that is going to go with the rest of the industry. As an industry, this is something that we've got to get our heads around. We have made some investments ourselves in electric, battery-electric locomotives and on a hybrid locomotive, but clearly, as we go forward, this is something the industry will collaborate on more fully and decide on the ultimate path. It's an important effort for us and for the industry, and we'll keep you guys in the loop as we go along. Thanks so much for the question.
Patrick Timothy Whitehead: As we finish up today, we are watching carb very closely and where that is going to go with the rest of the industry.
Patrick Timothy Whitehead: As an industry. This is something that we've got to get our head around we have made.
Patrick Timothy Whitehead: Some investments ourselves.
Patrick Timothy Whitehead: On.
Patrick Timothy Whitehead: Patrick Battery electric locomotive in on a hybrid locomotive.
Patrick Timothy Whitehead: Clearly as we go forward. This is something that Windstream will collaborate on more decide on that path.
Patrick Timothy Whitehead: Effort.
Patrick Timothy Whitehead: And for the industry and we will keep you guys in the loop as we go along thanks, so much for the question.
Tracy A. Robinson: So we'll wrap it up today, and as we do that, I'll reiterate the plan is working clearly. Your guys' mind is on growth. Thanks for giving Doug such a good workout on his last call. Our mind's on growth as well, and we're feeling very optimistic about what we see ahead of us. We look forward to talking again with you in a few months. Thank you.
Speaker Change: So we'll wrap it up today and as we do that.
Speaker Change: Reiterate the client is working clearly you guys mind just on growth. Thanks.
Speaker Change: Does such a good workout on his last call our minds on growth as well and we're feeling very optimistic around what we see ahead of US we look forward to talking again with you in a few months. Thank you.
The conference call has now ended. Thank you for your participation. You may now disconnect your line.
Speaker Change: The conference call has now ended thank you for your participation you may now disconnect your lines.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].