Q3 2024 Canadian National Railway Co Earnings Call
Sarah: My name is Sarah and I will be your operator today.
Good afternoon. My name is Sarah 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 Stacey Alderson C N assistant Vice President of Investor Relations, Ladies and gentlemen myself Jason.
Operator: All participants are now in a listen-only mode.
Stacy Alderson: At this time, I would like to turn the call over to Stacy Alderson, CN's Assistant Vice President of Investor Relations.
Unknown Executive: Ladies and gentlemen, Ms. Alderson.
Unknown Executive: Thank you.
Tracy Robinson: Bonjour à tous et merci de vous joindre à notre telle conférence sur les résultats du troisième trimestre 2024. Good afternoon, everyone, and thank you for joining us for CN's third quarter 2024 Financial and Operating Results Before we begin, I'd like to draw your attention to the forward-looking statements and additional legal information available at the beginning As a reminder, today's conference call contains certain projections and other forward-looking statements within the meaning of U.S. and 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.
Speaker Change: Thank you well show it to a female CEO who's learned enough about pet and coffee sitting laser huh.
Stacey Alderson: We must do move that cash you can but afternoon, everyone and thank you for joining us for Cn's third quarter 2024 financial and operating results conference call.
Stacey Alderson: Before we begin I'd like to draw your attention to the forward looking statements and additional legal information available at the beginning of the presentation.
Stacey Alderson: As a reminder, today's conference call contains certain projections and other forward looking statements within the meaning of U S and Canadian Securities laws.
Stacey Alderson: These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied in these statements.
Unknown Executive: They are more fully described in the forward-looking statement section of the presentation.
Stacey Alderson: They are more fully described in the forward looking statements section of the presentation.
Tracy Robinson: After the prepared remarks, we will conduct a Q&A session with our panelists. As usual, we ask that you please limit yourself to Joining us on the call today are Tracy Robinson, our President and CEO. Derek Taylor, our Chief Field Operations Pat Whitehead, our Chief Network Operations Officer.
Stacey Alderson: After the prepared remarks, we will conduct a Q&A session with our analysts.
Stacey Alderson: As usual, we would ask that you please limit yourself to one question.
Stacey Alderson: Joining us on the call today are Tracy Robinson, our president and CEO.
Stacey Alderson: Derek Taylor, our Chief operations Officer.
Stacey Alderson: Whitehead, our Chief Network operations Officer.
Tracy Robinson: Remi Lalonde, our Chief Commercial and Ghislain Houle, our Chief Financial Officer.
Speaker Change: I mean, the long our chief commercial officer, and you're just not what our Chief Financial Officer. It is now my pleasure to turn the call over to CNS, President and Chief Executive Officer Tracy Robinson.
Tracy Robinson: It is now my pleasure to turn the call over to CN's President and Chief Executive Officer, Tracy Robinson.
Tracy Robinson: Thanks, everyone, for joining our call today. Most of you would have already seen our press release on September 10th, where we updated our 2024 guidance and longer term outlook. We'll get to more details about the quarter in a moment.
Tracy Robinson: Thanks to everyone for joining our call today.
Tracy Robinson: Most of you would've already seen in our press release on September 10th where we updated our 2020 for guidance and longer term outlook well get some more details about the quarter in a moment, but I'd like to start by saying a few words about how we see things now that the noise of the past few quarters is mostly behind us now.
Tracy Robinson: But I'd like to start by saying a few words about how we see things now that the noise of the past two quarters is mostly behind us. First, let me say a few words on operation. We implemented our scheduled operating plan 30 months ago now. It's proving over and over again to be the right plan for our network and the velocity it creates, the levels of customer service it supports and in its resilience and ability to recover. The latest proof point is the way our operating performance rebounded after both the fires in northern Alberta in July and after our labour-related shutdown.
Tracy Robinson: First let me say a few words on operation we.
Tracy Robinson: We implemented our scheduled operating plan 30 months ago now, it's proving over and over again to be the right plan for our network and the velocity would create the levels of customer service that supports and its resilience and ability to recover.
Tracy Robinson: The latest proof point is the way our operating performance rebounded after both the fires in northern Alberta in July and after our labor related shutdown.
Tracy Robinson: And we bounced back quickly. When you're putting up numbers, like October month-to-date car velocity at 223 miles per day, train speed of 20 miles per hour, all while handling record Western Canadian grain volumes and maintaining really strong local service levels for our customers. When the team is delivering at those levels, you know that this is a pretty well-oiled machine. This is a credit now to Pat, to Derek, and to the entire operating team.
Tracy Robinson: We bounced back quickly.
Tracy Robinson: When you're putting up numbers like October month to date car velocity at 223 miles per day train speed of 20 miles per hour.
Tracy Robinson: While handling record western Canadian grain volumes, and maintaining really strong local service levels for our customers.
Tracy Robinson: When the team is delivering at those levels you know that this is a pretty well oiled machine.
Tracy Robinson: This is a credit not the path to Derek and to the entire operating team.
Tracy Robinson: Second, the macro is lighter than what we expected coming into 2024, and maybe even a bit softer than what we thought on our last call back in July. We're seeing this play out in our merchandise business, especially in construction-related commodities, as well as in automotive. Having said that, we've built up a strong pipeline of opportunities with our customers that are unique to this network. We see this driving more than half of the volume growth in coming years, so we're confident that these will allow us to grow in spite of some of the macro challenges.
Tracy Robinson: Second the macro was lighter than what we expected coming into 2024, and maybe even a bit softer than what we thought on our last call back in July.
Tracy Robinson: We're seeing this play out in our merchandise business, especially in construction related commodity as well as in automotive, having said that we've built up a strong pipeline of opportunities with our customers that are unique to this network. We see this driving more than half of the volume growth in coming years. So we're confident that these will allow.
Tracy Robinson: How us to grow in spite of some of the macro challenges.
Tracy Robinson: And finally, because of the software economy, we haven't seen the levels of volumes that we expected on parts of our network this year. Because of that, we're continuing to adjust our resource levels to more closely align resources to the demand we see coming our way, particularly in our eastern and southern regions. We stopped hiring on certain parts of the network earlier this year, and we continue to be purposeful in our decisions around labor. We're finding that balance between minimizing costs and having the right resources in place to handle the growth, which means some surge capacity in key locations.
Tracy Robinson: And finally because of the softer economy, we haven't seen the levels of volumes that we expected on parts of our network. This year.
Tracy Robinson: Because of that we're continuing to adjust our resource levels to more closely align resources to the demand, we see coming our way, particularly in our eastern and southern regions.
Tracy Robinson: We stopped hiring on certain parts of the network earlier this year and we continue to be purposeful in our decisions around labor.
Tracy Robinson: Finding that balance between minimizing costs and having the right resources in place to handle the growth, which means some surge capacity in key locations.
Tracy Robinson: Now we have and will continue to take actions to drive margin improvement into the fourth quarter and beyond, and Pat will speak to this in more detail in a few minutes. We're in the process of firming up our outlook for 2025, and we'll be able to give you more details on that in January. But as we do this work, our story remains the same. We're committed to delivering on our growth agenda underpinned by our scheduled operating model. Our recipe of volume growth, pricing ahead of rail inflation, and incremental margin improvement will enable us to deliver our three-year outlook of high single-digit EPS cater.
Tracy Robinson: So we have and will continue to take actions to drive margin improvement into the fourth quarter and beyond and Pat will speak to this in more detail in a few minutes.
Tracy Robinson: And we're in the process of firming up our outlook for 2025, and we'll be able to give you more details on that in January but as we do this work. Our story remains the same we're committed to delivering on our growth agenda underpinned by our scheduled operating model a recipe of volume growth pricing ahead of rail inflation and incremental.
Tracy Robinson: Margin improvement will enable us to deliver our three year outlook of high single digit EPS CAGR.
Tracy Robinson: Okay, now turning to the quarter. I'm pleased that the Teensters arbitration process is now well underway. This gives us labor stability on the railway. With the work stoppage behind us, our operation is fully recovered and Derek will give us more insight into how we managed through and lifted out of that disruption. On the demand side, the noise created by the labor situation clearly had an impact on our business in the quarter, most meaningfully in intermodal. Following the network restart, we saw a snapback in domestic intermodal demand and expect a more gradual return of the international business based on our experience with the Canadian West Coast pork strike last year.
Tracy Robinson: Okay now turning to the quarter.
Tracy Robinson: I am pleased with the Teamsters arbitration process is now well underway. It gives us labor stability on the railway.
And with the work stoppage behind us our operation is fully recovered and Derek will give us more insight into how we manage through and lifted out of that disruption.
Tracy Robinson: On the demand side the noise created by the labor situation clearly had an impact on our business in the quarter most meaningfully in intermodal following the network restart we saw a snapback in domestic intermodal demand and expect a more gradual return of the international business based on our experience with the Canadian West Coast Port strike last.
Tracy Robinson: Vancouver and Rupert remain compelling gateways and Remi and the team are working hard to get those volumes back as quickly as possible.
Tracy Robinson: Year.
Tracy Robinson: Vancouver, and Rupert remain compelling gateways, and Remy and the team are working hard to get those volumes back as quickly as possible.
Tracy Robinson: Now, just a couple of things to mention on the cost. One, we were resourced to handle more volume. And two, bringing the network to an orderly shutdown, as well as the Alberta wildfires, came with some additional expenses, which combined came through in our margin performance this quarter. Putting it all together, we delivered $1.72 of EPS for the third quarter, 2% higher than last year, with an OR of 63.1%. Ghislain will give us more details in just a few minutes.
Tracy Robinson: Now just a couple of things to mention on the cost side.
One we were resource to handle more volume.
Tracy Robinson: And to bring in the network to an orderly shutdown.
Tracy Robinson: As well as the Alberta wildfires came with some additional expenses, which combined came through in our margin performance this quarter.
Tracy Robinson: Putting it all together, we delivered $1 72 of EPS for the third quarter, 2% higher than last year with an or of 63, 1%.
Tracy Robinson: Dan will give us more details in just a few minutes.
Tracy Robinson: Now we're looking past Q3 and into the fourth quarter to really demonstrate what this railroad can do. And I'll hand it over to the team to provide more details.
Tracy Robinson: Now, we're looking past Q3 and into the fourth quarter to really demonstrate what this railroad can do.
Speaker Change: Now I'll hand, it over to the team to provide more detail over to you Derek.
Derek Taylor: Over to you, Derek.
Derek Taylor: Thanks, Tracy.
Derek Taylor: Good afternoon, everyone. I want to start by acknowledging our railroaders out in the field, running their railroad day in and day out. They've been doing a great job, and I'm really proud of how well this railroad ran in the third quarter, especially when you consider what we had to manage. My personal thanks goes out to the entire First was the devastating forest fires in Jaspa, Alberta in July. This is on our Edson subdivision that connects the West Coast to the rest of our network and is the busiest corridor on the entire CN system. There was a two-day period when the fires were burning that we just couldn't run any trains at all.
Derek Taylor: Thanks, Tracy and good afternoon, everyone.
Derek Taylor: I want to start by acknowledging our railroad results in field running the railroad day in and day out.
They've been doing a great job and I'm really proud of how well. This railroad ran in the third quarter, especially when you consider what we had to manage through my personal thanks goes out to the entire team.
Derek Taylor: First was the devastating forest fires in Alberta in July.
Derek Taylor: This is on our essence subdivision.
Derek Taylor: The West coast, the rest of our network is the busiest corridor on the entire CMS system.
Derek Taylor: There was a two day period when the fires are burning that we just couldn't run any trends at all.
Derek Taylor: Once the worst of the fires passed, we were still severely limited in our operations as Jasper is located in a national park. We needed to coordinate all of our activities with the park's infinite commander on the ground and even modify how we operated. This included not being able to stop trains within the park boundary, which meant we had to redesign our train service for a crew change location 60 miles away.
Derek Taylor: Once the worst fires passed we were still drilling limited and our operations as Jasper is located in the National Park.
Derek Taylor: We needed to coordinate all of our activities with the parks incident commander Almond route and even modify how we operated.
Derek Taylor: This included not being able to swap trades within the park boundary, which meant we had to redesign our train service for recruit change locations 60 miles away.
Derek Taylor: This was a big deal, and the team did an outstanding job of managing through all the exceptions.
Derek Taylor: This was a big deal and the team did an outstanding job managing through all of the exceptions.
Derek Taylor: Second was the TCRC work stoppage in August, where we undertook an orderly shutdown of our entire Canadian network. This wasn't a decision we took lightly, but it was necessary to ensure the safety and security of the railroad and our customers' freight. In the lead up to the stoppage, we embargoed certain traffic and started to park equipment in key locations for the eventual restart. This obviously had an impact on our locomotive productivity and fuel efficiency stats in the quarter. Since the stoppage, we've seen those metrics trend in the right direction. During those disruptions, we clearly couldn't operate the way we know how to.
Derek Taylor: Second was the <unk> work stoppage in August where we undertook an orderly shutdown of our entire Canadian network.
Derek Taylor: This wasn't a decision we took lightly but it was necessary to ensure the safety and security of the real.
Derek Taylor: Our railroad and our customer freight.
Derek Taylor: And the lead up to the surface, we embargoes certain traffic and started the park equipment in key locations residential restart.
Derek Taylor: This obviously had an impact on our locomotive productivity and fuel efficiency.
Derek Taylor: Quarter.
Derek Taylor: This is a stoppage we've seen those metrics trended in the right direction.
Derek Taylor: During those disruptions, we clearly couldnt operate the way we know how to.
Derek Taylor: We saw the impact of that on our key operating metrics of car velocity at 208 car miles per day for the full quarter and true dwell of 7.1 hours. Disciplined adherence to the plan provided the resiliency we needed and we bounced back quickly. It's impressive that both car velocity and through-dwell for the quarter were flat on a year-over-year basis in spite of the challenge. In fact, the month of September, which was clear of major disruptions, had the best monthly car velocity and through-dwell of the last three years, approaching 220 car miles per day in 6.8 hours or seconds.
Derek Taylor: We saw the impact of that on our key operating metrics for car velocity at 208 car miles per day for the full quarter.
Derek Taylor: Dwell of $7 one hours.
Derek Taylor: Disciplined adherence to the plan provided the resiliency, we needed and we bounce back quickly.
Speaker Change: It's impressive that both car velocity through dwell for the quarter were flat on a year over year basis in spite of the challenges.
Speaker Change: In fact, the month of September which was cleared a major disruptions.
Speaker Change: Best monthly car velocity and through dwell on the last three years approaching 220 car miles per day and $6 eight hours respectively.
Derek Taylor: As we head into grain season this fall, and we've already seen a record September movement of grain in terms of volumes, I really like where we're at. We remain focused on delivering on our service commitments to our customers, and we continue to look for opportunities to improve training size, given the mix of business that we're handling. At its core, the strength and skill of the team, combined with outstanding execution in what was an extremely dynamic operating environment, even with a solid plan, is the right formula to manage through disruptions and deliver for our customers.
Speaker Change: As we head into grain season, this fall and we've already seen a record September movement of grain in terms of volumes I really like where we're at.
We remain focused on delivering on our service commitments to our customers.
Speaker Change: Continue to look for opportunities to improve train size given the mix of the business that we're handling.
Speaker Change: At its core the strength and skilled team combined with outstanding execution in what was an extremely dynamic operating environment, even with a solid plan.
Speaker Change: This is the right formula to managed through disruptions and deliver for our customers.
Patrick Whitehead: Now, I'll turn it over to Pat.
Speaker Change: Now I'll turn it over to Pat.
Patrick Whitehead: Thanks Derek.
Patrick Whitehead: Let's start by talking about safety. We believe all incidents and injuries are preventable and our priority is to ensure everyone goes home safely at the end of the In an environment as dynamic as ours, there are hundreds of decisions our teams make every day to move goods For our frontline, we have implemented a comprehensive program that emphasizes changes to behavior and the proactive identification of hazards and high-risk We have trained almost 500 front-line managers on exposure reduction techniques. and Human Performance. plan to train a thousand by We pair this with our leading safety indicators to tailor programs and tools to prevent the most common incident.
Pat: Thanks, Derek let's start by talking about safety, we believe all incidents and injuries are preventable and our priority is to ensure everyone goes home safely at the end of each day.
Pat: In an environment is dynamic as ours, there are hundreds of decisions our teams make every day to move goods safely.
Pat: Support our frontline we have implemented a comprehensive program that emphasizes changes to behavior and the proactive identification of hazards and high risk behaviors.
Pat: We have trained almost 500 frontline managers on exposure reduction techniques.
Pat: And human performance with a plan to train 1000 by the end of the year.
Pat: We pair this with our leading safety indicators to tailored programs and tools to prevent the most confidence is eliminating hazards where possible.
Patrick Whitehead: Eliminating Hazards Where Possible. along with our Mocca Railway site. 4-Season Walking Simulator. We're excited to add another industry first, our SLAC The simulator teaches employees techniques for riding equipment while introducing in-train forces. We continue to engineer industry-leading, real-life experiences in a controlled environment to best prepare our teams. I'm pleased with our safety performance in the third quarter, where we saw a 30% improvement in the accident frequency ratio and a 4% improvement in the injury frequency rate. We are always striving for zero injuries and zero deaths.
Pat: Along with our Boston Whaler Sykes.
Pat: Our four season and walking stimulator, we're excited to add another industry first our slack simulator.
Pat: The simulator cages and voice techniques for a variety of equipment, while introducing in train forces or slack.
Pat: We continue to adhere industry, leading real life experiences in a controlled environment.
Pat: Prepare our teams in the field.
Pat: I am pleased with our safety performance in the third quarter, we saw a 30% improvement in the accident frequency ratio and a 4% improvement in the injury frequency rate.
Always striving for zero injuries and zero accidents.
Patrick Whitehead: Turning to resourcing the network, we continue to take steps to adjust to the volume environment. We have stopped hiring, furloughed in surplus areas, and are seeing our headcount gradually come down as we experience attrition. We are purposefully parking locomotives in cars and can flex up quickly when the volume is bad. In addition, our Asset Utilization Strategy to drive availability through improved reliability has been making the most of the locomotives and cars that are online while lowering our cost. Our strategy includes software enhancements to improve maintenance scheduling, executing our DC to AC modernization and Process Changes to Reduce Shock Dwell.
Pat: Turning to Resourcing the network, we continue to take steps to adjust to the volume environment. We.
Pat: We have stopped hiring.
Pat: Our loan and surplus areas and are seeing our head count gradually come down as we experienced attrition.
Pat: We are purposefully parking locomotives and cars and flex up quickly when the volumes bounce back in.
Pat: In addition, our asset utilization strategy.
Pat: Availability through improved reliability has been making the most of the locomotives and cars that are online while lowering our cost to operate.
Pat: Our strategy includes software enhancements to improve maintenance schedule and executing our DC to AC modernization plan and process changes to reduce shop dwell.
Patrick Whitehead: All together, our high horsepower locomotive availability has increased. Translating to 30 more locomotives available per day while lowering costs on maintenance and materials. which over time will reduce the capital required for additional locomotives as volume decreases. Additionally, we've improved our workflow planning and productivity, achieving a 5% unit cost improvement with our TIE installations compared to 2023 in the face of labor and material The railroad is running well. The plan is working and we're set up to maintain fluidity. We have available capacity in the eastern and southern regions to easily onboard growth.
Pat: Altogether, our highest horsepower locomotive availability has increased.
Pat: Translating to 30 more locomotives available per day, while lowering costs on maintenance and materials, which over time will reduce the capital required for additional locomotives as volume increase.
Pat: Additionally, we've improved our workforce planning and productivity.
Pat: Giving a 5% unit cost improvement with our tie installations compared to 2023 in the face of labor and material increases.
Pat: The railroad is running well the plan is working and we are set up to maintain fluidity.
Pat: We have available capacity in the eastern and southern regions to easily onboard growth.
Remi Lalonde: In the West, we have sufficient capacity to efficiently handle growth, and we are staying close to Remi and his team to make sure that we have a clear line of sight to the medium and longer term volume For instance, this year we are continuing to invest in double track on the Edson sub west of Edmonton, which will enable us to maintain velocity and fluidity as we bring on growth in energy, bulk, and intermodal On that, I'll pass it over to Remi to get more color on the commercial side.
Pat: In the west we have sufficient capacity to efficiently handle growth and we are staying close to revenue and his team to make sure that we have a clear line of sight to that.
Pat: Medium and longer term volume outlook for.
Pat: For instance, this year, we are continuing to invest in double track on the <unk>.
Pat: <unk> southwest of Edmonton, which will enable us to maintain velocity and fluidity fluidity as we bring on growth and energy bulk and intermodal markets.
With that I'll pass it over to Remy can give more color on the commercial side alright. Thank you Pat.
Remi Lalonde: Thank you, Pat. Bon après-midi. C'est un plaisir d'être avec vous cet après-midi. CN grew revenue by 3% in the quarter against last year and volume by 2% in RTM terms, led by long-haul international, intermodal and refined petroleum products, including CN-specific initiatives and stronger Canadian-grained exports. Business has been a bit more challenging than expected due to the labor uncertainty and lower than expected industrial production in manufacturing activity and mixed signals around consumer confidence. Revenue per RTM improved by 1%, reflecting higher freight rates, but also longer average length of haul. foreign exchange and fuel surcharge impasse were small and offset Car load volume slipped by 2% mostly due to lower domestic intermodal, automotive, and short haul iron ore shipments.
Pat: Okay.
Pat: So thats very good.
Speaker Change: <unk> grew revenue by 3% in the quarter against last year and volume by 2% in RTL terms led by long haul international intermodal and refined petroleum products, including CN specific initiatives and a stronger Canadian grain exports.
Speaker Change: Business has been a bit more challenging than expected due to the labor uncertainty and lower than expected industrial production and manufacturing activity and mixed signals around consumer confidence revenue for RPM improved by 1%, reflecting higher freight rates, but also longer average length of haul.
Speaker Change: Foreign exchange and fuel surcharge impacts were small and offsetting.
Speaker Change: Carload volume slipped by 2%, mostly due to lower domestic intermodal automotive and short haul iron ore shipments.
Remi Lalonde: Let's take a look, sector by sector, on an FX-adjusted basis. Overall, intermodal RTMs grew by 7% in the quarter against last year, and revenue was flat. This reflects an 18% increase in international RTMs, offset by a 14% decrease in domestic. Volumes started to soften in the second quarter and through the third due to the labor situation, as shippers activated contingency plans, including port diversions and modal Q3 International volume still shows a year-over-year improvement as we moved more traffic through Western Gateways and gained key customer wins by selling end-to-end supply chain efficiency. But the domestic volume in the quarter reflects the full impact of combined pressure from labor uncertainty, market softness, and an oversupply of truckloads.
Speaker Change: Let's take a look sector by sector on an FX adjusted basis.
Speaker Change: Overall intermodal rpms grew by 7% in the quarter against last year and revenue was flat. This reflects an 18% increase in international Rpms offset by a 14% decrease in domestic.
Speaker Change: Volumes started to soften in the second quarter and through the third due to the labor situation as shippers activated contingency plans, including port diversions in modal shifts.
Speaker Change: Q3 International volume is still shows a year over year improvement as we move more traffic through western gateways and gain key customer wins by selling end to end supply chain efficiency.
But the domestic volume in the quarter reflects the full impact of combined pressure from labor uncertainty market softness and an oversupply of truck capacity.
Remi Lalonde: Shift and Mix, and the resulting increase in average length of haul pushed revenue per RTM down by 7%. Quarterly automotive RTMs dropped by 5% and revenue by 10 year-over-year on account of rising dealer inventory toward pre-pandemic levels as well as plant outages and retooling. Revenue per RTM slipped by 5%, reflecting a 7% increase in length of haul due to the relative shift in mix toward the import business. We saw RTMs in revenue in petroleum and chemicals grow by 9% and 10% in the quarter, respectively, due mainly to refined fuels and NGLs, including projects like the Greater Toronto Area Fuel Terminal and propane exports through Prince Rupert.
Speaker Change: And mix and the resulting increase in average average length of haul pushed revenue per RPM down by 7%.
Speaker Change: Quarterly automotive rpms dropped by 5% and revenue by 10 year over year on account of rising dealer inventory towards pre pandemic levels as well as plant outages and retooling.
Speaker Change: Revenue for RPM slipped by 5%, reflecting a 7% increase in length of haul due to the relative shift in mix towards the import business.
We saw rpms in revenue in petroleum and chemicals grow by 10% and 10 by 9% and 10% in the quarter, respectively, due mainly to refined fuels and ngls, including projects like the greater Toronto area of fuel terminal and propane exports through Prince Rupert.
Remi Lalonde: For metals and minerals, quarterly RTMs and revenues were down by 5% and 4% respectively. After a very strong year for FracSand, volumes softened late in the quarter due to an earlier-than-expected seasonal slowdown in drilling activity. Our shipments of other metals and minerals reflect market conditions for steel and construction materials, modal shifts with the labor uncertainty, and certain customer production interruptions. Prolonged Lumber Market Slump Contributed to a 7% Drop in Forest Product RTMs and a 1% Decrease in Revenue. In fact, lumber prices are forcing many sawmills to curtail production. Overall, coal RTMs fell by 9% and revenue by 6% on account of production and supply inconsistencies at various Canadian mines, as well as a further deterioration in U.S.
Speaker Change: Metals and minerals quarterly rpms, and revenues were down by 5% and 4% respectively.
Speaker Change: After a very strong year for Frac sand volumes softened late in the quarter due to an earlier than expected seasonal slowdown in drilling activity.
Speaker Change: Our shipments of other metals and minerals reflect market conditions for steel and construction materials modal shifts with the labor uncertainty in certain customer production interruptions.
Speaker Change: The prolonged longer market slump contributed to a 7% drop in forest product Rpms, and a 1% decrease in revenue fact lumber lumber prices are forcing many sawmills to curtail production.
Speaker Change: Overall coal rpm's fell by 9% and revenue by 6% on account of production and supply and consistency at various Canadian mines as well as a further deterioration in U S thermal coal demand.
Remi Lalonde: thermal coal demand. Grain and Fertilizer RTS improved by 4% and revenue by 8% on strong demand for both Canadian and U.S. In fact, our grain RTMs were up by 15%, but the impact was offset by lower fertilizer volume as we lapped last year's non-recurring export potash opportunity from the Portland terminal outage. Despite a more challenging macroeconomic environment than expected. CNN-specific growth initiatives continue to deliver. For example, we have line of sight on growing FracSan terminal capacity in support of drilling activity in Northeast DC and Alberta with one unit train terminal set to open before the end of this year and tracking for two more next year.
Grain and fertilizer <unk> improved by 4% and revenue by 8% on strong demand for both Canadian and U S grain.
Speaker Change: In fact, our grain rpms were up by 15%, but the impact was offset by lower fertilizer volume as we lapped last year's nonrecurring export potash opportunity from the Portland terminal outage.
Speaker Change: Despite a more challenging macro economic environment than expected CN specific growth initiatives continued to deliver for example, we have line of sight on growing Frac sand terminal capacity in support of drilling activity in northeast BC and Alberta with one unit train terminal set to open before.
Speaker Change: At the end of this year and tracking for two more next year.
Remi Lalonde: Second, we're building our renewables story with a ramp up of crushed plant capacity on both sides.
Speaker Change: Second we're building our renewables story with the ramp up of crush plant capacity on both sides of the border.
Remi Lalonde: Finally, the Greater Toronto Area Fuel Terminal is ramping up on expectation, receiving greater volumes of gasoline, diesel, and ethanol into a growing end market, and we're making good progress with our partners for the second phase of the project, targeting inauguration toward the end of Here's what we expect to see in the fourth order by business unit. Despite soft consumer confidence in the U.S. and Canada, we're looking for sequential and year-over-year growth in intramodal on continued momentum around the international business Prince Rupert remains a compelling gateway for customers. As we turn the page on the labor situation, we're working very hard to regain our earlier momentum for West Coast ball use by selling our service advantage.
Speaker Change: Finally, the greater Toronto area fueled terminal is ramping up on expectation.
Speaker Change: <unk> greater volumes of gasoline diesel and ethanol into a growing end market and we're making good progress with our partners for the second phase of the project targeting inauguration towards the end of next year.
Here's what we expect to see in the fourth quarter by business unit.
Despite soft consumer confidence in the U S and Canada, we're looking for sequential and year over year growth in intermodal on continued momentum around the international business, Prince Rupert remains a compelling gateway for customers as.
Speaker Change: As we turn the page on the labor situation, we're working very hard to regain regain our earlier momentum for west coast volumes by selling our service advantage success here will be in the share of U S destination mix, which we expect will return gradually based on our experience following last.
Remi Lalonde: Success here will be in the share of U.S. destination which we expect will return gradually based on their experience following last year's porcelain. Accordingly, we've seen volumes recover more quickly in the domestic segment compared to international. I should note that there is still an overhang of lingering labour uncertainty at some Canadian For automotive, we expect to see volumes stable to slightly down against last year, in line with the CN served plant schedules and OEM sales forecast. Petroleum & Chemicals should continue to perform well and in line with last year, supported by the projects, despite offsetting crew shipments and an unfavorable change in engine Sprack's hand volumes will soften after an exceptionally strong four quarters due to an earlier year-end seasonal slowdown.
Speaker Change: Last year's Port strike.
Speaker Change: Accordingly, we've seen volumes recover more quickly in the domestic segment compared to international but I should note that there is still an overhang of lingering labor uncertainty at some Canadian ports.
Speaker Change: For automotive, we expect to see volumes stable to slightly down against last year in line with the CN served plants schedules and OEM sales forecast.
Speaker Change: Petroleum and chemicals should continue to perform well and in line with last year supported by the projects, despite offsetting crude shipments and an unfavorable change in NGL mix.
Speaker Change: Frac sand volumes will soften after an exceptionally strong four quarters due to an earlier year end seasonal slowdown.
Remi Lalonde: volume expectation for other metals and minerals against last year is flat to slightly down to the softer market. The difficult lumber market, we don't expect significant improvement in forest products in the near term, but we should see a seasonal uptick in overall volume against last quarter. Coal. We expect a slight year-over-year uptick in overall volume as run rates improve sequentially, including the ramp-up of the restarted Quintet Met Coal. Coming off record Canadian shipments in September, grain is strong, and we're looking to sustain the momentum into Q4 by running the supply chain to capacity. In the U.S., we're looking at an oversized crop in our draw territory, which is good for volume.
Speaker Change: Our volume expectation for other metals and minerals against last year is flat to slightly down due to softer market demand.
Speaker Change: With the difficult lumber market, we don't expect significant improvement in forest products in the near term, but we should see a seasonal uptick in overall volume against last quarter for.
For coal, we expect a slight year over year uptick in overall volume as run rates improved sequentially, including the ramp up of the restarted quintet met coal.
Speaker Change: Coming off record Canadian shipments in September grain is strong and we're looking to sustain that momentum into Q4 by running the supply chain to capacity.
Speaker Change: We're looking at an oversized crop in our draw territory, which is good for volumes, but lower potash against last year's opportunistic gains due to the Portland terminal outage will be a bit of a drag.
Remi Lalonde: The lower potash against last year's opportunistic gains due to the Portland thermal outage will be a bit of a drag. Overall, our expectation is that volumes will continue to grow with initiatives unique to our network on a backdrop of a weaker-than-expected economic landscape.
Speaker Change: Overall, our expectation is that volumes will continue to grow with initiatives unique to our network on a backdrop of a weaker than expected economic landscape.
Ghislain Houle: Gislain, that's all.
Ghislain Houle: Thank you very much, Remi.
Speaker Change: That's why most people quoted me Jim.
Ghislain Houle: I am pleased to talk about our three-year results. Turning to slide 14, Q3 diluted EPS was up 2% versus last year. The operating ratio increased by 110 basis points to 63.1 Obviously, volumes and costs were impacted by the Alberta wildfires in July and the work stoppage in August. From a macroeconomic perspective, lumber remains at the top, and consumer consumption continues to be tepid. Overall, revenues were up 3% year-over-year.
It is a little is it does it wasn't three months.
Speaker Change: Turning to slide 14, Q3 diluted EPS was up 2% versus last year.
Speaker Change: The operating ratio increased by 110 basis points to 63, 1%.
Speaker Change: Just the volumes and costs were impacted by the Alberta wildfires in July and the work stoppage in August.
Speaker Change: From a macroeconomic perspective lumber remains at the trough and consumer consumption continues to be tested.
Speaker Change: Overall revenues were up 3% year over year.
Ghislain Houle: Let me provide you with more details on the quarter. In terms of expenses, which I will speak to on an exchange-adjusted basis, labor was 2% higher versus last year on 2% higher average headcount. General Wage Increases Partly Offset by Lower Incentive Compensation We also saw higher short-term unproductive costs in the quarter related to deadheading, reproofs and held-away costs mostly due to the work stoppage in August. Fuel expense increased 5% versus the same period last year due to 2% increase in gross ton miles, 3% unfavorable fuel efficiency. In a true-up to inter-carrier fuel estimates, in the quarter, partly offset by a 6% decrease in price per gallon.
Speaker Change: Let me provide you with more details on the quarter.
Speaker Change: In terms of expenses, which I will speak to on an exchange adjusted basis labor was 2% higher versus last year or 2% higher average head count.
Speaker Change: General wage increases, partially offset by lower incentive compensation.
Speaker Change: We also saw higher short term unproductive costs in the quarter related to that heading re crews and held away costs, mostly due to the work stoppage in August.
Speaker Change: Fuel expense increased 5% versus the same period last year due to.
Speaker Change: 2% increase in gross ton miles, 3% unfavorable fuel efficiency.
And the true up to enter carrier fuel estimates in the quarter, partially offset by a 6% decrease in price per gallon.
Ghislain Houle: Purchase services and material increased by 5% versus last year, mostly due to higher material and repair costs.
Speaker Change: Purchased services and material increase by 5% versus last year, mostly due to higher material and repair costs.
Ghislain Houle: We generated around $2.1 billion of free cash flow year-to-date at the end of September, about $200 million lower than last year, mainly due to higher capital expenditures, partly offset by higher net cash from operating activities. Under a current share repurchase program, which runs from February 1st, 2024 to January 31st, 2025, we have repurchased close to 12 million shares for almost $2.1 billion at the end of September. We have paused our share buybacks as we continue to manage to our 2.5 times adjusted debt to adjusted EBITDA leveraged card. Moving to slide 15, we are affirming the guidance provided in our September 10 press release of low single digit adjusted diluted EPS growth in 2024.
Speaker Change: We generated around $2 1 billion of free cash flow year to date at the end of September about $200 million lower than last year, mainly due to higher capital expenditures, partially offset by higher net cash from operating activities.
Speaker Change: Under our current share repurchase program, which runs from February one 2024. So January 31, 2025, we have repurchased close to 12 million shares for almost $2 1 billion as at the end of September.
Speaker Change: We have paused our share buybacks as we continue to manage to our two five times adjusted debt to adjusted EBITDA leverage target.
Speaker Change: Moving to slide 15, we are affirming the guidance provided in our September 10 press release up low single digit adjusted diluted EPS growth in 2024.
Ghislain Houle: As we enter the final few months of the year, overall industrial production now looks to be largely flat for 2024. The good news is that we are encouraged by the progress of our CN-specific growth initiatives and the Canadian grain crop that Amy just mentioned. We are continuing to assume volume growth in terms of RTMs to be at the lower end of the 3 to 5% range, mindful that labour uncertainty persists at some of our Canadian ports. On our operations, I would reinforce that the network is fluid and running very well. We continue to take steps to align resources with our volume outlook and expect to see the benefit of our actions reflected in improved fourth quarter margins.
Speaker Change: As we enter the final few months of the year overall industrial production now looks to be largely flat for 2024.
Speaker Change: The good news is that we are encouraged by the progress of our CN specific growth initiatives and the Canadian grain crop that Amy mentioned just mentioned.
Speaker Change: We are continuing to assume volume growth in terms of rpms to be at the lower end of the 3% to 5% range mindful that labor uncertainty persists at some of our Canadian ports.
Speaker Change: On our operations I would reinforce that the network is fluid and running very well, we continue to take steps to align resources with our volume outlook and expect to see the benefit of our actions reflected an improved fourth quarter margins.
Ghislain Houle: Our foreign exchange and WTI assumptions continue to be around 75 cents and 80 to 90 US dollars per barrel respectively. Our effective tax rate for 2024 is now expected to be between 24% and 25%.
Speaker Change: Our foreign exchange and WSI assumptions continues to be around 75.
Speaker Change: And 80% to $90 per barrel respectively.
Speaker Change: Our effective tax rate for 2024 is not expected to be between 24% 25%.
Ghislain Houle: We're also affirming our 24-26 financial outlook of adjusted diluted EPS CAGR in the high single-digit In conclusion, let me reiterate a few points. The network is running well and is fully recovered from the work stoppage in the quarter. Our CN-specific growth opportunities are continuing to deliver. We are delivering industry-leading service to our customers. And we remain intensely focused on delivering growth at low incremental costs.
Speaker Change: We're also affirming our 'twenty four to 'twenty six financial outlook of adjusted diluted EPS CAGR in the high single digit range.
Speaker Change: <unk>.
In conclusion, let me reiterate a few points.
The network is running well and has fully recovered from the work stoppage in the quarter.
Speaker Change: Our CN specific growth opportunities are continuing to deliver.
Speaker Change: We are delivering industry, leading service to our customers.
Speaker Change: And we remain intensely focused on delivering growth at low incremental costs, Let me pass it back to Tracy.
Tracy Robinson: Let me pass it back to Tracy.
Tracy Robinson: Thanks, Suzanne.
Operator: Operator will now take questions. Thank you. We will now begin the question and answer session. We ask that you kindly limit yourself to one question.
Tracy Robinson: Thanks, Suzanne operator, well now take questions.
Speaker Change: Thank you we will now begin the question and answer session.
Speaker Change: We ask that you kindly limit yourself to one question.
Ken Hoexter: Your first question comes from the line of Ken Hoexter with Bank of America.
Speaker Change: Your first question comes from the line of Kenn Hoekstra with Bank of America. Please go ahead.
Unknown Executive: Wow, great.
Ghislain Houle: Good afternoon. Ghislain, you kind of threw in there, we expect the the operating ratio improvement, kind of in fourth quarter, given some of the things you've moved beyond. Can you talk about kind of scale? How should we think about the level of sequential improvement from third quarter to fourth quarter?
Kenn Hoekstra: Great good afternoon.
Kenn Hoekstra: You kind of throw in there we expect the operating ratio improvement kind of in the fourth quarter given some of the things you move beyond can you talk about kind of scale, how should we think about the level of sequential improvement.
Kenn Hoekstra: From third quarter to fourth quarter.
Tracy Robinson: Hey, Ken, it's Tracy.
Ghislain Houle: I'll take the first stab at that. And I know Ghis will play a little cleanup for me on it. Without a doubt, our margin is going to improve in Q4. Now, Q3, as you know, is normally the quarter that we have our best margins. And this year, it's going to be Q4. We're pushing hard to right sides the railroad for the volume that we now expect. And I think what's really going to determine exactly where it lands is international volumes. Remy's watching that very closely and working hard to get that up again. And that'll drive exactly where it's going to end up.
Tracy Robinson: Hey, Ken its Tracy I'll I'll take the first stab at that and I know Jess I'll play.
Kenn Hoekstra: Up for me on it.
Tracy Robinson: Without a doubt our margin is going to improve in Q4 now Q3 as you know is normally the quarter that we have our best margins and this year, it's going to be Q4.
Kenn Hoekstra: We're pushing hard to rightsize and referenced the volume that we now expect and I think what's really going to determine exactly where it lands is international volumes remedies watching that very closely and working hard to get that.
Kenn Hoekstra: Get that up again and that will drive exactly where it's going to end up just anything Dan.
Ghislain Houle: Ghis, anything to add?
Ghislain Houle: No, I think you covered it well.
Thank you covered it well I think we're not we're not going to provide a number but definitely we are confident that we will get a better or in Q4 than we did in Q3 with all the noise that you are all aware of Ken.
Ghislain Houle: I think we're not going to provide a number, but definitely we're confident that we will get a better OR in Q4 than we did in Q3 with all the noise that you're all aware of, Ken. So stay tuned on that one. But I think we're going to deliver a better one and our margins are going to improve.
Kenn Hoekstra: Stay tuned on that one but.
Kenn Hoekstra: I think we're going to deliver a bit of one that our margins are going to are going to improve.
Unknown Executive: Thanks for the question.
Kenn Hoekstra: Thanks for the final question.
Kenn Hoekstra: Thanks.
Fadi Chamoun: Your next question comes from the line of Fadi Chamoun with BMO Capital Markets. Please go ahead. Hi, good afternoon. Thanks for taking my question. Maybe just on this volume guide, because you know, a low end of that three to 5% range. If I'm backing the numbers okay, it means that you have to grow volume almost 12% sequentially and 3% year on year. You're down I think somewhere around 2.5% quarter to date.
Speaker Change: Your next question comes from the line of Savi Salmon with BMO capital markets. Please go ahead.
Speaker Change: Okay.
Speaker Change: Hi.
Speaker Change: Good afternoon, Thanks for taking my question.
Speaker Change: Maybe just.
Speaker Change: <unk> volume guide.
Speaker Change: <unk>.
Speaker Change: Yeah.
Speaker Change: The low end of that 3% to 5% range.
Speaker Change: Im backing the numbers okay.
Speaker Change: It means that you have to grow volume, almost 12% sequentially and 3% year on year.
Speaker Change: I think somewhere around two 5% quarter to date how.
Fadi Chamoun: How much visibility and conviction do you have in some of these levers that, Remi, you talked about in terms of how you can ramp up through the quarter?
Speaker Change: How much visibility and conviction do you have any.
Speaker Change: Some of these levered.
Speaker Change: You talked about.
Speaker Change: You cannot ramp up through the quarter.
Remi Lalonde: Thanks for the question. So yes, sequentially, there is an update that we're that we're looking at year over year, it'll be a little flatter. But I tell you that, you know, the tailwinds that we have behind us are strong grain. We attacked, we talked about we're coming off a record September here. And the US grain crop also looks good. Petroleum and chemicals sequentially will be strong on some of the projects. It's a bit of a headwind from mixed on on NGLs. Recovering domestic intermodal also will be good. But look, we're fighting into macro environment with a bit of headwind here.
Speaker Change: Yeah. Thanks, Thanks for the question. So yes, so sequentially there is.
Speaker Change: Take that we're that we're looking at year over year, it'll be a little flatter, but I would tell you that the tailwind that we have behind us our strong grain we attack that we talked about we are coming off a record September here in the U S. Grain crop also looks good petroleum and chemicals sequentially will be.
Speaker Change: Strong on some of the projects, it's a bit of a headwind from mix on on Ngls.
Speaker Change: Recovering domestic intermodal also will be good.
Speaker Change: But look we're fighting into macro environment with a bit of headwind here.
Remi Lalonde: And as Tracy talked about, recovering the US mix in our western gateways for intermodal is going to be one of the things that we're going to be very, very focused on.
Speaker Change: As Tracy talked about a recovery in the U S mix in our western gateways for intermodal is going to be one of the things that we're going to be very very focused on and the other piece is potash, we're coming off and lapping against a very strong year last year with the opportunistic potash lives.
Remi Lalonde: And the other piece is potash. We're coming off and lapping against very strong year last year with the opportunistic potash moves that we have. But overall, yes, we're down a little bit quarter to date, it is pretty early. But I think we're comfortable with the low end of the range that we got.
Speaker Change: That we have.
Speaker Change: But overall, yes, we're down a little bit quarter to date it is pretty early.
Speaker Change: But I think we're comfortable with the low end of the range that we guided to.
Unknown Executive: Thanks for your question.
Speaker Change: Thanks for your question.
Chris Wetherbee: Your next question comes from the line of Chris Wetherbee with Wells Fargo.
Your next question comes from the line of Chris Wetherbee with Wells Fargo. Please go ahead.
Chris Wetherbee: Please go ahead. Hey, thanks.
Chris Wetherbee: Good afternoon. I guess I maybe wanted to ask about the resource alignment. So relative to demand that you're seeing, certainly sounds like demand maybe is a little bit softer than what you're hoping for earlier in the year. But I guess you maybe be a little bit more specific about what are some of the levers you can pull to kind of get the cost structure a little bit better aligned. And I know it's early, but you're starting to think about 25 in the context of that longer term CAGR. Can you maybe give us a little bit of parameters of how you're thinking about potential earnings growth?
Speaker Change: Yeah, Hey, thanks, good afternoon.
Speaker Change: I guess, maybe I wanted to ask you about the resource alignment so relative to the demand that youre seeing certainly it sounds like demand, maybe it's a little bit softer than what you are hoping for earlier in the year, but I could see maybe be a little bit more specific about what are the some of the levers you can pull to kind of get the cost structure, a little bit better align then I know, it's early but as youre starting to think about 25 in the context of that longer term.
Speaker Change: CAGR can you just maybe give us a little bit of parameters for how youre thinking about potential earnings growth.
Tracy Robinson: So Chris, I'll take the start end of that. And listen, earlier this year, we were still optimistic about economic growth. And then of course, we had the CN initiatives on top of that. And up and through probably early to mid May, we were running from a volume perspective, well ahead of our plan, particularly in international as we reconstructed our portfolio there. When the labor uncertainty kind of hit, you know, we, I would say it got pretty muddy for us to figure out what to be ready for when we got through there. But as we've come through that, it's pretty clear that there's a softer kind of macroeconomic environment than we had anticipated.
Speaker Change: So Chris I'll take the start end of that and a lift in their earlier. This year, we were still optimistic about economic growth and then of course, we have the <unk> initiatives on top of that end up going through probably early to mid may we were running from a volume perspective, well ahead of our plan, particularly in international as we construct.
Speaker Change: Our portfolio there.
When the labor uncertainty kind of hit the.
Speaker Change: I would say it got pretty money for us to figure out what can be ready for when we got through there, but as we've come through that it's pretty clear that there is a softer kind of <unk>.
Speaker Change: Macroeconomic environment than we had anticipated and as we look forward.
Patrick Whitehead: And as we look forward, we see that continuing through next year. So kind of lower and longer. And so we are, you know, we started in Q2, as I said earlier, but we are starting to make those adjustments. And we're driving pretty hard to this new view of what volume is going to look like. We're doing it differently across the different regions.
Speaker Change: We see that continuing through next year still kind of lower and longer and so we are we started.
Speaker Change: In Q2, as I said earlier, but we are starting to make those adjustments and we're driving pretty hard to this new view of what volume is going to look like we're doing it differently across the different regions, but Pat why don't you why don't you give a bit of an overview around the levers that we're pulling as Chris said certainly can so we continue to adjust.
Patrick Whitehead: But Pat, why don't you give a bit of an overview around the levers that we're pulling, as Chris said?
Patrick Whitehead: Certainly can. So we continue to adjust all of our resource levels to match the volume that we see. You can see the changes in our FTE counts, particularly transportation, train and engine service folks. We're, as you see the transition from Q2 into Q3, we were down about 200 train and engine FTEs, and now we're down well over 600 on the train and engine service side. We've parked 140 locomotives. We have returned over 1,000 center beams that were leased. We've reduced intermodal platforms by 20% driven primarily by offlining cars to foreign railroads. And we continue to evaluate each and every day the resources that are needed for the volumes that we see.
Speaker Change: All of our resource levels to match the volumes that we see.
Speaker Change: Continue to changes in our FTE counts, particularly transportation train and engine service folks where as you see the transition from Q2 into Q3, we were down about 200 trading engine Ftes and now were down well over 600.
On the train and engine service side.
Speaker Change: Part 140 locomotives, we have returned.
Speaker Change: Over 1000 center beams are released.
Speaker Change: We've reduced intermodal platforms by 20% driven primarily by Offloading cars to foreign railroads.
Speaker Change: And we continue to value to evaluate each and every day and the resources that are needed for the volumes that we see will continue to make those changes. So let me just kind of close up on that.
Unknown Executive: So let me just kind of close up on that.
Unknown Executive: You know, the railroad's running really well, really well. In fact, almost a little too well.
Speaker Change: The railroad is running really well really well in fact, almost a little too well I would want a little bit more tension between the volumes and kind of our operating capacity. So the guys are on it and we're driving down to the levels that we need to to make sure that our margins are in the right places we look forward the secret to the SME. The art more of this is making sure that we take it to a level.
Unknown Executive: I'd want a little bit more tension between the volumes and kind of our operating capacity. So the guys are on it and we're driving down to the levels that we need to to make sure that our margins are in the right place as we look forward. The secret to this and the art more of this is making sure that we take it to a level that leaves us with the capability to grow with our customers as we look forward. We have a great line of sight on the CN specific initiatives. Remy talked about some of them, you know, when we're replenishing that pipeline.
Speaker Change: That leaves us with the capability to grow with our customers as we look forward. We have great line of sight on the CN specific initiatives Remy talked about some of them.
Speaker Change: And replenish in that pipeline and the Big question is where we put the pin on the macroeconomic and we're doing that work as we finish off the year here and well have a little bit more color for you in January and when we talk to you then thanks for the question Chris.
Unknown Executive: The big question is where we put the pin on the macroeconomic. And we're doing that work as we finish off the year here.
Unknown Executive: And we'll have a little bit more color for you in January when we talk to you then. Thanks for the question.
Cherilyn Radbourne: Your next question comes from the line of Cherilyn Radbourne with TD Cowan.
Speaker Change: Your next question comes from the line of Cherilyn Radbourne with TD Cowen Your line is open.
Cherilyn Radbourne: Your line is open. Very much.
Cherilyn Radbourne: Good afternoon. When you think about the curveballs that 2024 has thrown at CN, and let's set aside the CIRB process, because that was really unusual and shouldn't recur. Can you talk about how you're factoring geopolitical issues and environmental events into your planning process today, versus how you would have done in the past? And what do you think that will translate into any change in the way that you provide guidance in the future?
Cherilyn Radbourne: Thanks, very much good afternoon.
Cherilyn Radbourne: When you think about the curve ball that 2024 has grown at CN and let satisfied the CRB process can fatwood really unusual and shouldn't recur can you talk about how you are factoring geopolitical issues and environmental events into your planning process. Today first really tie you would've done in the <unk>.
And what do you think that will translate into any change in the way that you provide guidance in the future.
Tracy Robinson: It's a really important question, Cherilyn. So let me tell you, yes, we do a lot more work than we ever have and do a lot more consulting on where we think and how we think the geopolitical events will impact volumes, whether it's between North America and the rest of the globe or within North America. And we know for sure we'll never get it right, but the idea is that we understand the range of outcomes well enough to be able to make important decisions around how we resource our plans. Of course, an important part of that process is also the consultations that we do with our customers.
Speaker Change: That's a really important question Shannon. So let me tell you, yes, we do with a lot more work than we ever have.
Speaker Change: And do a lot more consulting on where we think.
Speaker Change: And how we think the geopolitical events will impact volumes, whether it's between North America and the rest of the globe or within North America, and we know for sure we'll never get it right, but the ideas that we understand the range of outcomes well enough to be able to make important decisions around how we resource our plan of course important part of that process is.
Speaker Change: Also the consultations that we do with our customers and that's always highly informative they are close to their market. They don't always get it right either and so what it means for US we may end up guiding differently in the future that remains to be seen but what it means for us is that we set a plan and we're always looking for where we think we've got.
Tracy Robinson: And, you know, that's always highly informative. They're close to their market. They don't always get it right either. And so what that means for us, we may end up guiding differently in the future. That remains to be seen. But what it means for us is that we set a plan and we're always looking for where we think we've got it wrong. And we need to be very responsive to changes as we are, you know, we're making adjustments now. But it's, yeah, without a doubt, it's getting more and more difficult. What I like about what's happening is the responsiveness of the railroad.
Speaker Change: It wrong, and we need to be very responsive to changes.
Speaker Change: As we are we're making adjustments now, but it is without a doubt it's getting more and more difficult what I like about what's happening in the responsiveness of the railroad it seems that.
Tracy Robinson: It seems that, you know, whether it's a change in flows or whether it's a event, a climate or otherwise on the railroad, we have a really resilient operating plan. And the way this all starts is really good service to the customers. And that's what we're providing.
Whether it's the change in flows or whether it's day advantage timely or otherwise on the railroad.
Speaker Change: We have a really resist resilient operating plan and the way. This all starts is really good service to the customers and that's what we're providing thanks for your question.
Unknown Executive: Thanks for your question.
Scott Group: Your next question comes from the line of Scott Group with Wolf Research. Please go ahead. Hey, thanks. Afternoon, guys. So I get the sequential margin improvement Q3 to Q4.
Speaker Change: Your next question comes from the line of Scott Group with Wolfe Research. Please go ahead.
Scott Group: Hey, Thanks afternoon, guys. So I get the sequential margin improvement Q3 to Q4 I'm wondering if you think we can get back to year over year margin improvement in Q4, and then just separately any update you can give us on pricing and how you feel about price heading into 2025.
Scott Group: Wondering if you think we can get back to year over year margin improvement in Q4? And then just separately, any update you can give us on pricing and how you feel about price heading into 2025?
Tracy Robinson: Are there opportunities for pricing to accelerate or not? Scott, you know, we are going to see sequential margin improvement in Q4, as you said. You know, where exactly that lands, as we resize kind of our resources is going to depend more on the volumes. And I would say that we've got a great line of sight on most the one that's really, we're keeping an eye on is the international volume. So that could drive us a little bit up or a little bit down. And so we'll keep an eye on that.
Speaker Change: There are opportunities for pricing to accelerate or.
Speaker Change: We're not.
Speaker Change: Hey, Scott.
Going to see sequential margin improvement in Q4 as you said.
Speaker Change: Where exactly that land as we resize kind of our resources is going to depend more on the volumes and I would say that we've got great line of sight on most the one that's really we're keeping an eye on is the international volumes, so that could drive it a little bit up little bit down and so we'll keep an eye on that.
Tracy Robinson: And second question, sorry, second part of that, I don't recall what it was. Oh, pricing. So the pricing this year has been fairly strong. I would say that we have put together, as we told you, we would the international portfolio that fits our network. And as Remy talked about it a little bit earlier, it's based on a full end-to-end supply chain competitiveness. And we've done what we need to do on that's important part of our portfolio. Pricing outside of that has been strong as we round the turn and go into 2025. We expect pricing ahead of railroad deflation.
Speaker Change: And second question, sorry, second part of that I don't recover it wide pricing our pricing. So pricing. This year has been fairly strong I would say that we have put together as we told you we would the international portfolio that fits our network.
And as <unk> talked about it a little bit earlier, it's based on a full end to end supply chain.
Speaker Change: <unk>.
Speaker Change: And we've done what we need to do on that important part of our portfolio pricing outside of that has been strong as we round the turn and go into 2025.
Speaker Change: We expect.
Tracy Robinson: Our service levels are at the level that I think we should expect that.
Speaker Change: Pricing ahead of railroad deflation and our service levels are at the level that I think we should expect that Remy did you want to add anything to that I think you covered it offers okay. Thanks Scott.
Remi Lalonde: Remy, did you want to add anything to that?
Remi Lalonde: No, I think you covered it all, Tracy. Okay.
Walter Spracklin: Your next question comes from the line of Walter Spracklin with RBC Capital Markets. Please go ahead. Yeah, thanks very much, operator. Good afternoon, everyone. I just wanted to ask a bit on West Coast port activity and certainly with some of the inbounds we're seeing into LA Long Beach, it's starting to jam it up a little bit. We're seeing dwells go up there.
Your next question comes from the line of Walter <unk> with RBC capital markets. Please go ahead, yes. Thanks, so much operator.
Walter <unk>: Good afternoon, everyone I, just wanted to ask a bit on west coast.
Walter <unk>: Port activity and certainly with some of the inbounds were seeing into L. A long beach, starting to jam it jammed up a little bit we're seeing dwells.
Remi Lalonde: Curious if that's leading to any opportunity in particular for Prince Rupert? Are you seeing any new calls up there or even Vancouver as LA Long Beach gets a little bit jammed up? Thanks for the question, Walter.
Walter <unk>: Go up there curious if that's leading to any opportunity in particular for Prince Rupert are you seeing any new calls up there or are even Vancouver.
Walter <unk>: La long beach gets a little bit agenda.
Walter <unk>: Yes.
Remi Lalonde: You know, I talked about it in the prepared remarks, but the key challenge for us is going to be to recover the U.S. mix through our Western gateways. So the feedback that we get from customers is that the consistency and reliability of our service are very important, and that service is valuable to them. But as we recover from a significant disruption, typically through Western gateways, our business mix is probably 60-40 Canada to U.S. And as we recover from this, it's closer to 80-20.
Speaker Change: Thanks for the question Walter.
Speaker Change: Talked about it in the prepared remarks, but the key challenge for us is going to be to recover the U S mix through our western gateways. So the feedback that we get from customers is that the consistency and reliability of our service are very important in that service.
Speaker Change: As valuable to them.
Speaker Change: But as we recover from the significant disruption typically through western gateways, our business mix is probably 60 40 in Canada The U S.
Speaker Change: And as we recover from this it's closer to 80 20, So we know what the challenges, but we've got a plan and part of that is to talk to our customers about where we are.
Remi Lalonde: So we know what the challenge is, but we've got a plan. And part of that is to talk to our customers about where we are and give them some de-risking around the binding arbitration so that they can feel comfortable coming back to us. So what we're thinking about is that the pace of recovery, we're modeling to be closer to what it was on the recovery from last year's West Coast port strike. So that's going to take a little bit of time. The first two months, which we are at right now, are a little bit uncertain.
Speaker Change: <unk>.
Speaker Change: Give them some derisking around the binding arbitration, so that they can feel comfortable coming back to us. So what we are thinking about is that the pace of recovery, we're modeling to be closer to what it was on the recovering from last year's West Coast Port strike, So thats going to take a little bit of time in the first two months.
Speaker Change: <unk>.
We are at right now or a little bit.
Remi Lalonde: But as volume starts to come back, then we expect it to be a little bit more quickly. But certainly the congestion that we see in the U.S. ports, and there was a good report earlier this week on that, I think just underscores the value proposition from places like Rupert and Vancouver as the quickest highway down to Chicago, for example. So thanks for your questions.
Speaker Change: Uncertain.
Speaker Change: But as volume starts to come back than we expected too.
Speaker Change: To be a little bit a little bit more quickly.
Speaker Change: But certainly the congestion that we see in the U S ports and there was a good report earlier this week on that I think just underscores the value proposition from places like Rupert and Vancouver, as the quickest way down to a Chicago for example, so thanks for your question Walter.
Brandon Oglenski: Your next question comes from the line of Brandon Oglenski with Barclays.
Speaker Change: Your next question comes from the line of Brandon of Glinski with Barclays. Please go ahead.
Brandon Oglenski: Please go ahead.
Tracy Robinson: Hey, good afternoon, everyone. And thanks for taking my question. I guess, given that you guys did change, you know, the three year CAGR outlook to high single digit on EPS, I was wondering if you could provide any detail on the composition of like volume and price, you know, like you did at your 2024 analyst meeting. And I think Tracy, you just said, you know, the volume outlook in the near term a little bit lower, but how does that shape up for those CN specific opportunities in the out years? Brandon, the CN specific opportunities are going to continue to give us a lift.
Speaker Change: Hey, good afternoon, everyone and thanks for taking my question I guess, given that you guys did change.
Speaker Change: The three year CAGR outlook to high single digit on EPS I was wondering if you could provide any detail on the composition of like volume and price.
Speaker Change: Like you did at your 2024 analyst meeting.
Speaker Change: And I think Tracey you just said.
Volume outlook in the near term a little bit lower but how does that shape up for those CN specific opportunities in the out years.
Speaker Change: So Brandon the CN specific opportunities are going to continue to give us a lift but listen we look forward to laying that out for you in January are right now we're focused on finishing the quarter and then getting our plan in place for next year and we'll lay that out for you in January thanks, So much.
Tracy Robinson: But listen, we look forward to laying that out for you in January. Right now, we're focused on finishing the quarter and then getting our plan in place for next year. And and we'll lay that out for you in January. Thanks.
Steve Hansen: Your next question comes from the line of Steve Hansen with Raymond James.
Speaker Change: Your next question comes from the line of Steve Hansen with Raymond James. Please go ahead.
Steve Hansen: Please go ahead. Yeah, good afternoon. Thanks for the time. We're just hoping you could delve into a little bit more the early seasonal slowdown you've been seeing in Fraxan. I know you also call Fraxan as one of your growth opportunities. on a self-help side. But is there anything specific driving that slowdown that you can see and whether or not you expect that to carry over into the new year? Thanks.
Steve Hansen: Yeah. Good afternoon, thanks for the time.
Steve Hansen: If you could delve into a little bit more.
Steve Hansen: The early seasonal slowdown you've been seeing in Frac sand I know you also coal frac sand and I was one of your growth opportunities on our self help side, but is there anything specific driving that slowdown that you can see and whether or not you expect that to carryover into the new year. Thanks, Yes, no. Thanks.
Steve Hansen: Yeah, no, thanks for the question. Yes, indeed. So we're coming off four very, very strong quarters for Fraxan. Year to date through Q3, we're up, I think, 13 to 15% in RTM terms. So we think a lot of that is just pulled forward of some of the work.
Speaker Change: Thanks for the question.
Speaker Change: Yes, indeed, so we're coming off for very very strong quarters for Frac sand.
Speaker Change: Year to date through Q3, we're up I think 13% to 15% and our TM terms. So we think a lot of that is just pulled forward.
Remi Lalonde: So as things have slowed down in Q4, we're still optimistic into next year. Our customers and their partners are building new terminals. And that's a great opportunity for CN because we can haul the sand up to the drilling sites. And then we haul the NGLs to market. So we still feel comfortable.
Speaker Change: Some of the work so as things have slowed down in Q4, we're still optimistic into next year, our customers and their partners are building new terminals.
Speaker Change: And Thats, a great opportunity for <unk>, because we can haul the sand up to the drilling sites and then we all the Ngls to market. So.
Remi Lalonde: And that's based on our discussions with customers and the capital they're putting in the ground to build a terminal. Appreciate your time.
Speaker Change: We still feel comfortable and thats based on our discussions with customers and the capital they are putting in the ground to build that terminal capacity.
Speaker Change: I appreciate it thanks, thanks for the question.
Ravi Shanker: Your next question comes from the line of Ravi Shanker with Morgan Stanley. Please go ahead. Thanks a lot, everyone.
Speaker Change: Your next question comes from the line of Ravi Shanker with Morgan Stanley. Please go ahead.
Ravi Shanker: Tracy, I think you said at the top of the call that I think the pipeline of new business accounts for about half of the growth next year. Do you have a sense of what a normalized run rate for that is? I'm just trying to get a sense of what we can consider to be kind of just normal macro rebound versus new initiatives and kind of maybe what that net number looks like versus normalized. So thanks, Ravi. I think, as you think about it, we always hold ourselves to growing faster than the economy, and certainly that's, that will be the case next year.
Ravi Shanker: Thanks, Good afternoon, one Tracy I think you said at the top of the call that.
Ravi Shanker: The pipeline of new business accounts for about half of the growth next year do you have a sense of what a normalized run rate for that is I'm just trying to get a sense of what we can consider to be kind of just normal macro rebound versus new initiatives.
Ravi Shanker: Maybe what that.
Ravi Shanker: Net number it looks like versus normalized.
Thanks, Randy I think you should think about it we always hold ourselves to growing faster than the economy and certainly that will be the case next year, what gives us the real lift is the CN specific initiatives and those aren't.
Tracy Robinson: What gives us the real lift is the CN specific initiatives, and those aren't, those can be choppy. So it doesn't come in equally, the new opportunities every month or every quarter. But what we do see is our customers investing in their infrastructure. We invest alongside where we need to, to make sure that we have the capacity to movement, to move it. But we make sure in those cases that we've got line of sight to the volumes that, you know, that will give us the return on any investment that's required.
Those can be.
Ravi Shanker: So it doesn't come in equally and the new opportunities every month or every quarter, but what we do see is our customers investing in their infrastructure, we invest alongside where we need to to make sure that we have the capacity movement and to move it but we make sure in those cases that we've got line of sight to the volumes.
Ravi Shanker: That will give us the return on any investment that's required so remi well in January play out more of what we see for next year, but it will be more youll get an annualized view of it but it's when as far as the new stuff that's coming on it will be different every quarter I hope that answered and strategic question.
Tracy Robinson: So REMI will, you know, in January, play out more of what we see for next year. But it will be more, you know, you'll get an annualized view of it. But it's when as far as the new stuff that's coming on, it will be different every quarter. I hope that answered answered your question.
Konark Gupta: Thank Your next question comes from the line of Konark Gupta with Scotiabank.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Conor Gupta with Scotiabank. Please go ahead.
Konark Gupta: Please go ahead. Thanks everybody. Good afternoon.
Speaker Change: Thanks, operator, and good afternoon, just wanted to understand.
Tracy Robinson: I just wanted to understand as we look into next year, the Canadian grain harvest seems like it's looking stronger from prior year, but any thoughts on the extended inter-switching rules that are being contemplated in Canada? I'll start with that and then we'll see if Remi and Finny back up. I got to tell you, we stand behind our service, and if we're servicing our customers well, that's what draws them to our lines. Anything related to extended inter-switching slows down a supply chain, slows down a green pipeline. It makes capital investment much more uncertain and causes problems from that perspective.
Speaker Change: Looking to next year.
Speaker Change: Indian Green harvest seems like it's looking stronger so on prior year, but any thoughts on the extended into switching.
Speaker Change: Or being contemplated in Canada.
Speaker Change: I'll start with that and then I'll see if some of romance any backup.
Speaker Change: I got to tell you we stand behind our service.
Speaker Change: And if we're servicing our customers well I mean, theyre going to that's what drives them to our lines and anything related to extended inter switching slowed down our supply chain slows down a green pipeline. It makes capital investment much more uncertain and causes problems from that perspective, we haven't seen any impact so far.
Remi Lalonde: We haven't seen any impact so far and don't expect to.
And don't expect to.
Remy: Based on service levels Remy.
Remi Lalonde: Remi, did you want to add anything more? Maybe to underscore that we've done a very good job on grain. We've delivered strongly for our customers and earned good market share as a result, including a record September. So in terms of the crop size for next year, we'll have to see. We're kind of in the range of the three-year boundary now, so we'll have to see how all that shakes out. The end of the summer was a bit drier and warmer than I think we expected before.
Speaker Change: <unk> did you want to add anything more hard, but maybe to underscore.
Speaker Change: But we've done a very good job on green.
Speaker Change: We've delivered strong strongly for our customers and earned good market share as a result, including a record September so in terms of the crop size for for next year, and we'll have to see where kind of in the range of the three year boundary now so we'll have to see how all that shakes out at the end of the summer was a bit drier and warmer.
And I think we expected before so facilities okay.
Unknown Executive: Okay, thank you.
Speaker Change: Thank you.
Brian Ossenbeck: Your next question comes from the line of Brian Ossenbeck with J.P. Morgan. Please go ahead. Hey, thanks. Good afternoon.
Speaker Change: Yes.
Speaker Change: Your next question comes from the line of Brian <unk> with Jpmorgan. Please go ahead.
Brian Ossenbeck: So a couple of quick follow ups just on the getting the share back through the I guess the US destination to the West Coast. Is there still hearing about uncertainty with I guess the final labor union out there to get their contract finalized? Does that come up in your conversations, Remi? And then just from a staffing perspective, it sounds like you're making some adjustments. So want to see if you can get a little more context in terms of headcount and maybe what average comp should be for this coming quarter.
Hey, Thanks. Good afternoon couple of quick follow ups, just on the getting the share back through the I guess the U S destination to the West Coast is there still hearing about uncertainty with I guess the final labor Union out there to get their.
Speaker Change: Their contract finalized does that come up in your conversations and then just from a staffing perspective, it sounds like youre, making some adjustments. So wanted to see if you can give us.
With more context in terms of head count and maybe what average comp should be for this coming quarter. Thank you.
Brian Ossenbeck: Thank Yeah, so on the first question, thank you for that.
Speaker Change: Yes. So on the first question. Thank you for that yes that is one of the things that that comes up.
Remi Lalonde: Yes, that is one of the things that that comes up. You know, our international customers have some measure of needing to understand, you know, the Longshoremen Supervisors Union in the West Coast. There's also the Port of Montreal, that that has some labor uncertainty around it.
Our international customers.
Have some measure of need.
Speaker Change: Needing to understand.
Speaker Change: The longshoreman Supervisors Union in the West Coast. There is also the port of Montreal.
Ghislain Houle: So that's part of the headwinds that that we're facing, and trying to provide some, some comfort to our And maybe, Brian, just to jump in on your second question on average comp per employee, if you look at the average comp in Q3 versus Q2, it's lower by about 6%, and that's mostly due to lower incentive compensation, and we did a little bit more capital work in Q3 than in Q2. From a seasonality standpoint, typically average comp per employee in Q4 is typically higher because we do less capital work. As we hit the winter, engineering forces will go in clean switches and we'll do less capital work and therefore have less capital credit, so you can expect average comp on a sequential basis in Q4 to Q3 to probably go up.
Speaker Change: Ed.
Speaker Change: That has some labor uncertainty around it so that's part of the headwinds that we're facing and trying to provide some some comfort to our customers and maybe Brian just to jump in on your second question on average comp per employee if you look at.
Speaker Change: The average comp in Q3 versus Q2.
Speaker Change: It's lower by about 6% and Thats, mostly due to lower incentive compensation and we did a little bit more capital work in Q3 than in Q2.
Speaker Change: Seasonality standpoint, typically average comp per employee in Q4 is typically higher because we have we do less capital work.
Speaker Change: As we hit the winter Engineering forces will go and clean switches and we will do less capital work and therefore have less capital credit. So you can expect average cost on a sequential basis in Q4 to Q3 to probably go up.
Ghislain Houle: Thanks for your questions.
Speaker Change: Thanks for your question.
David Vernon: Your next question comes from the line of David Vernon with Bernstein. Please go ahead. Hey, good afternoon. And thanks for the call taking the question.
Speaker Change: Your next question comes from the line of David Vernon with Bernstein. Please go ahead.
Hey, good afternoon, and thanks for taking the call and taking the question. So you mentioned before about maybe kind of pulling back on the buyback a little bit is your credit metrics get to the higher end of your range I guess I Wonder. If you guys are kind of coming out of this this this earnings growth trough in the multiples depressed why wouldn't you maybe think about getting ahead of the buyback to make it a little bit.
David Vernon: So Shaunaen, you mentioned before about maybe kind of pulling back on the buyback a little bit as your credit metrics get get to the higher end of your range. I guess I wonder, you know, if you guys are coming kind of coming out of this, this this earnings growth trough and the multiples depressed, you know, why wouldn't you maybe think about getting ahead of the buyback to make it a little bit more accretive, kind of overall, right? I mean, if growth does start to accelerate, the multiple starts to expand to get a little bit less bang for the buck.
Speaker Change: More accretive kind of overall right I mean, if growth does start to accelerate the multiples start to expand to get a little bit less bang for the Buck I'm. Just wondering why you wouldn't might might not think about.
David Vernon: I'm just wondering why you wouldn't might might not think about sort of frontloading some of this return to growth.
Speaker Change: Sort of Frontloading some of this return to growth.
Ghislain Houle: Yeah, David, thanks for the question. Listen, this is a conundrum that we have. And we debated on a quasi regular basis, to your point, when when you believe that the stock price is down, why don't you do more, versus, you know, managing to our leverage target of 2.5. So far, to your point, in Q3, we've decided to manage to that to that target of 2.5 times, you know, average debt with the DOT. We continue to have those questions. I mean, we'll continue at the debate. Stay tuned. We'll see what we do. But so far, we've managed to that target.
Speaker Change: Yes, David Thanks for the question listen this is a conundrum that we have and we debated on the quasi regular basis to your point when when you believe that the stock price is down why don't you do more.
Speaker Change: Versus managing to our leverage target two five so far to your point in Q3, we have decided to manage to that to that target of two five.
Speaker Change: Five times.
Speaker Change: Average.
Speaker Change: Debt to EBITDA, we continue to have those questions. I mean, we will continue at the debate stay tuned we'll see what we do but so far we've managed to that target in this as discussions that we have I mean, we actually had the discussion with our board yesterday.
Ghislain Houle: And this is discussions that we have. I mean, we actually had the discussion with our board yesterday. So stay tuned on that. But that's, that's what we're looking. Thanks for your question, David.
Speaker Change: So stay tuned on that but that's that's what we're looking at.
Speaker Change: Thanks for the question David.
Benoit Poirier: Your next question comes from the line of Benoit Poirier with Desjardins.
Speaker Change: Your next question comes from the line of Ben <unk> with Deutsche Bank. Please go ahead.
Benoit Poirier: Please go ahead. Yeah, thank you very much. And good afternoon, everyone.
Speaker Change: Yes, Thank you very much and good afternoon, everyone could.
Tracy Robinson: Could you maybe provide an update on what you see from Mexico these days in light of comments made by the new president and also the upcoming US election, especially related to your Falcon premium service?
Speaker Change: Could you maybe provide an update on what you see from Mexico. These days in light of comments made by do present in and also the upcoming U S election, especially related to your <unk>.
Derek Taylor: And if you could say a few words on your trucking operation with Transex and H&R in light of the challenging fundamentals, that would be great. Thank you. There's a lot in that one.
Speaker Change: <unk> premium service and if you could say a few words on your trucking operation with <unk> and <unk>.
<unk> in light of the.
Speaker Change: <unk> fundamentals that would be great. Thank you.
Speaker Change: We have been a lot of that there is a lot in that one let me just start by saying that we're watching all of the.
Remi Lalonde: Let me just start by saying that we're watching all of the political scenarios across all borders very closely, but we're managing our business to what we see in front of us.
Speaker Change: Political scenarios across all borders very closely.
Speaker Change: But we are managing our business to what we see in front of us I'm going to turn to Derek to talk a little bit about Ted our Mexico business that we do in conjunction in that case with E&P generally we're optimistic the he'll speak to it and when it comes to transact in the other trucking operations.
Tracy Robinson: I'm going to turn to Derek to talk a little bit about our Mexico business that we do in conjunction, in that case, with the UP. Generally, we're optimistic, but he'll speak to it.
Derek Taylor: And then when it comes to transects and the other trucking operations, I'll have Remi make a couple of comments. Thanks, Tracy, and good afternoon, Benoit. Listen, the fall from service, it rained solid. I mean, we continue to achieve a consistent, reliable five-day transit time to eastern Canada. While we wish it would grow a bit faster, I mean, it does take time, as we said before, for these customers to gain that trust. A lot of this product removal is very time sensitive, but we've been very consistent. We're playing the long game when we look at this.
Speaker Change: I'll have remi I'll make a couple comments and Derek Thanks, Tracy and good afternoon. Meanwhile, listen the bulk and service remained solid and we continue to achieve the consistent reliable five day transit time to eastern Canada, while we wish it would grow a bit faster I mean, it does take time and we said before for these customers to gain that trust allows us product removing is very time sensitive.
Speaker Change: But we've been very consistent and we're playing a long game, we will look at us and our partners at the <unk> and the FX needs I'd like to thank them because we have a three railroad service that acts as a single line service in terms of transit time and the value of the product. So we're confident where it's at.
Remi Lalonde: Our partners at the UP and the FXV, I'd like to thank them because we have a three railroad service that acts as a single line service in terms of transit time and the value of the product. So we're confident where it's at, and we'll keep after it.
Remi Lalonde: Remi? Yeah, thanks, Derek. And I guess what I'd say, Benoit, bonjour, on the transects, I mean, if you look, in our case, it's in the domestic intermodal business. And one of the challenges we have for domestic business is really around an oversupply truck capacity, which we're still feeling there. And also, that is closely correlated with consumer confidence. And so it is a challenging market in the domestic intermodal, but we expect it sequentially to do better versus the third quarter as they're able to recover more quickly given the turnaround in activity.
We'll keep after Remy, yes, thanks, Derrick and I guess, what I'd say Ben Web also on on the transaction I mean, if you look in our case its in the domestic intermodal business and one of the challenges we have for domestic business is really around an oversupply of truck capacity, which we're steel we're still feeling there.
Speaker Change: And also that is closely correlated with consumer confidence and so it is it is a challenging market in the domestic intermodal, but we expect it sequentially to.
Speaker Change: Do better.
Speaker Change: Versus versus the third quarter as they are able to recover more quickly given the turnaround in assets and best of luck.
Remi Lalonde: Merci pour la question, Benoit.
Unknown Executive: Thank you very much. Your next question comes from the line of John Chappell with Evercore ISI. Please go ahead. Thank you. Good afternoon.
Good morning.
Speaker Change: Thank you very much.
Speaker Change: Your next question comes from comes from the line of Jon Chappell with Evercore ISI. Please go ahead.
Thank you good afternoon.
Derek Taylor: Derek and maybe Pat, as well, trying to understand how you're managing these resources in the software demand backdrop while you're also still trying to recover volume, you know, to the West Coast ports, and there's all this uncertainty with labor, etc. How are you thinking about kind of the cost side of it on the short term versus maintaining service reliability, so that if you do get that recovery in the West Coast, the service doesn't choke on a volume surge?
Eric maybe Pat as well just trying to understand how you are managing these resources in the softer demand backdrop. While you also still trying to recover volume to the west coast ports and there is always uncertainty with labor et cetera. How are you thinking about kind of the cost side of it in the short term versus maintaining service reliability. So if you do get that recovery in the west coast.
Speaker Change: The service doesn't choke on.
Speaker Change: Serge.
Speaker Change: Yeah.
Patrick Whitehead: Okay, I'll take that one. I would say this, that while we're we are aggressively adjusting resources to match the volume. We feel very good about where we are with this. We've created a locomotive surge fleet with what we have parked. The mechanical improvements that I talked about both in Shop Processes, Reducing Dwell, some of the IT improvements we've made within the process as well are producing more locomotives. Gives us more confidence in the locomotives that we have stored. So I feel very good about where we are with locomotive availability should we have a surge. I feel good about where we are from a car perspective and frankly some of the self-help that we have done with simplifying the crewing structure has produced a surplus and led us to some of the reductions that we've made in overall train engine head count.
Speaker Change: Okay, I'll take that one and I would say this that while we are we are aggressively adjusting the.
Speaker Change: Resources to match the volume.
Speaker Change: Feel very good about where we are with this we've created a locomotive surge fleet with what we have parked.
Speaker Change: The mechanical improvements that I talked about those in.
Speaker Change: Shop processes, reducing dwell.
Speaker Change: The.
Improvements we've made within the process as well are producing more locomotives gives us more.
Speaker Change: Confidence in the locomotives that we have stores. So I feel very good about where we are with locomotive availability should we have a surge.
Speaker Change: Feel good about where we are with from a car perspective, and frankly some of the self help that we have done with simplifying the crewing structure as produced a surplus.
Speaker Change: And led us to some of the reductions that we've made in overall train and engine head count. So we feel good about where we are from a resource perspective.
Patrick Whitehead: So we feel good about where we are from a resource perspective and the railroad is running very well and that has also created capacity.
Speaker Change: The railroad is running very well and that has also created capacity Derek anything to add no. Thanks, Pat pattern are attached at the hip when we look at these resources and listen I mean, when you look at it with the macroeconomic backdrop and other things we have been very patient and we've taken a very mature approach. When you look at this resource realignment.
Derek Taylor: Derek, anything to add? Yeah, no, thanks, Pat. You know, Pat and I are attached at the hip when we look at these resources, and, listen, I mean, when you look at it with the macroeconomic backdrop and other things, we have been very patient and we've taken a very mature approach when you look at this resource realignment we've recently done over the past time period, really starting back with, you know, lead and attrition workforce, starting in Q2 in certain places. So on a go-forward basis, not all locations are treated equal, but we took more of a scalpel approach to where we needed to adjust those resources at together.
Speaker Change: Recently done over the past time period really starting back with letting attrition workforce starting in Q2 in certain places. So on a go forward basis not all of our locations are created equal, but we took more of a scalpel approach to where we needed to adjust those resources that together. Thanks for your question. Let me just stay on top of that one final thing is our service quality will.
Tracy Robinson: Thanks for your question.
Tracy Robinson: Let me just say on top of that one final thing is our service quality will always be primary, right? And so part of our approach on a scheduled operating plan, and we think we've demonstrated, you know, that we deliver a really high level of service, and what we're doing now is just resourcing the railroad to continue to do that at a slightly adjusted volume level, because, you know, and as Derek said, it's...
Speaker Change: Always be primary alright, and so part of our as part of our approach and our scheduled operating plan and we think we've demonstrated.
We deliver a really high level of service and what we're doing now is just resourcing. The railroad to continue to do that at slightly adjusted volume levels.
Speaker Change: And as Derek said it is.
Speaker Change: Its precision stuff around where we're making those adjustments. Thanks, so much John.
Unknown Executive: Thanks so much, Jonathan.
Stephanie Moore: Your next question comes from the line of Stephanie Moore with Jeffries. Please go ahead. Hi, good afternoon. Thank you. I wanted to follow up on, you know, kind of your updated view on the underlying volume environment, given your updated kind of mid-single-digit outlook. I'm sorry, given your updated mid-term EPS outlook, I think historic, or before you had said you were kind of viewing that CM-specific initiatives would drive about half of the volume performance, and then kind of the other half would be kind of macro-driven. So, as you look forward and what's embedded in the now high single-digit EPS growth, how would you kind of look at that balance between underlying market growth or macro and then your own specific initiatives?
Speaker Change: Your next question comes from the line of Stephanie more with Jefferies. Please go ahead.
Speaker Change: Yes.
Speaker Change: Hi, good afternoon. Thank you.
Stephanie More: I wanted to follow up on kind of your.
Speaker Change: Dated view on the underlying volume environment and Kevin your updated kind of mid single digit outlook.
Speaker Change: Sorry, given your updated midyear.
Speaker Change: Mid term EPS outlook I think historically before you had said you were kind of viewing that.
Speaker Change: CN specific initiatives to drive about half volume performance and then kind of the other half would be kind of macro driven so as you look forward and what's embedded in the now high single digit EPS growth. How would you kind of look at that balance between underlying market growth or macro and then your own.
Stephanie Moore: Thanks. Thanks, Stephanie. I think what we've said is that as we look forward, that is, you know, we will grow faster than the economy, so faster than the macro. But about 50% of our volume growth is going to come from those CN specific initiatives. And that may vary over time. But as we look forward right now, that's kind of the way that we're seeing it.
Speaker Change: Thanks.
Speaker Change: Thanks, Stephanie I think what we've said is that as we look forward.
Speaker Change: That is we will grow faster than the economy fell faster than the macro but about 50% of our volume growth is going to come from the CN specific initiatives and that may vary over time, but as we look forward right now thats kind of the way that we're seeing it and as we get.
Stephanie Moore: And as we get, as we confirm our numbers for 2025, and we're talking to you in January, we'll give you a little, a little more color on that then. Thanks. Thanks for the question.
Speaker Change: As we confirm our numbers for 2025, and we're talking to you in January we will give you a little a little more color on that then.
Fred: Thanks, Fred Thanks for the question.
Daniel Imbro: Your next question comes from the line of Daniel Imbro with Stevens Inc. Please go ahead. Yeah, thanks. Good evening, guys. Thanks for taking our questions.
Speaker Change: Your next question comes from the line of Daniel Enbrel with Stephens, Inc. Please go ahead.
Daniel Enbrel: Yes. Thanks, good evening guys. Thanks for taking my questions.
Daniel Imbro: Maybe to come back to the near term kind of 4Q volume outlook you're embedding, I think we're starting the quarter a little bit softer. You mentioned automotive and I think chemicals are soft to start the quarter. So to reach the low end of this guide, I guess, are we assuming a change in that trend line and some of these weaker categories or what is embedded to drive that kind of improvement to get to at least the 4Q guide as we head into 2025? Well, for one thing, the big piece of the puzzle that we're going to work on is the international intermodal volumes, which I talked about a little bit earlier, which includes, you know, driving our U.S.
Daniel Enbrel: Maybe it will come back to the near term kind of four key volume outlook Youre embedding I think we're starting the quarter a little bit softer you mentioned automotive and I think chemicals are soft to start the quarter. So to reach the low end of this guide I guess are we assuming.
Daniel Enbrel: Change in that trend line and some of the weaker categories or or what is embedded to drive that kind of improvement.
Daniel Enbrel: To get to at least the <unk> guide as we head into 'twenty.
Daniel Enbrel: Well.
Speaker Change: For one thing the big piece of the puzzle that we're going to work on is the international intermodal volumes, which I talked about a little bit earlier, which includes driving our U S mix through western gateways. So.
Remi Lalonde: mix through Western gateways. So that's going to be a big area of focus for us. You know, the other businesses, grain has been strong and will continue to be strong, both in Canada and in the U.S., and then, you know, recovering in domestic intermodal as well. So, I mean, I think that that should all carry us into the low end of the range that we guided to earlier. But as we said, there is a couple of pieces of headwind. You know, the potash is a hard comp against last year. And then there is the macro environment as well that we're navigating.
Speaker Change: That's going to be a big area of focus for us.
Speaker Change: The other businesses grain has been strong and we will continue to be strong.
Speaker Change: Both in in.
Speaker Change: In Canada and the U S.
Speaker Change: And then recovering in domestic intermodal as well so I mean.
Speaker Change: I think that that should all carry us into into the low end of the range that we guided to earlier, but as we said there is a couple of pieces of headwind. The potash is a hard comp against last year and then there is the macro environment as well.
Speaker Change: Navigating too.
Remi Lalonde: Thanks for the question.
Speaker Change: Thanks for the question.
Thomas Wadewitz: Your next question comes from the line of Tom Wadewitz with UPS Financial. Please go ahead. Yeah, good afternoon. Tracy, at the beginning of the call, I think you talked about, you know, you like the way the railroad's running. And I know, you know, recalling back to kind of some of the things Ed did when he was kind of came in and, and set the team on a different course, he moved away from train length. And more just towards, you know, make sure you're on time and not waiting for trains. Is there an opportunity in the carload business to kind of review the schedule and maybe look at at train length a little bit or do some other things?
Your next question comes from the line of Tom <unk> with UBS financial. Please go ahead.
Speaker Change: Hi, yes, good afternoon.
Tracy at the beginning of the call I think you talked about like the way the railroad's running and I know.
Speaker Change: Recalling back to kind of some of the things Ed did when he was kind of came in and said the team on a different course, you moved away from train lengths.
Speaker Change: And more just towards you know make sure youre on.
Speaker Change: In time and not waiting for trains is there an opportunity in the carload business to kind of review the schedule and maybe look at train length, a little bit or do some other things. If you see some of the weakness persist right like I think some of the areas you talked about weakness.
Thomas Wadewitz: If you see some of the weakness persist, right? Like I think some of the areas you talked about weakness seem like carload markets. And I'm just wondering if you can, you know, do anything on schedule that helps you if some of those markets stay weak, or is that something where you just say, hey, we just want to maintain this service. And we're not really going to do things on, you know, train length or train starts. Thank you.
Speaker Change: Like carload markets and I'm just wondering if you can do anything on schedule that helps you. If some of those markets stay weak or is that something where you say hey, we just want to maintain the service.
Speaker Change: We're really going to do things on.
Speaker Change: Train lengths or train starts thank you.
Tracy Robinson: Hey, Tom. Well, for the first thing, we never moved away from train length. What we said was that the trains are going to depart on time. We're not going to hold them to wait for them to get longer before they depart. And so we want long trains to depart on time. But what we're going to do is not make those decisions tactically every day, but we build that into the plan. So as we look at the operation every day, if we discover that there's opportunities to tweak the plan, to refine the plan, so that we can take out a train start, combine trains, and move longer trains, then we do that.
Speaker Change: Hey, Tom will for the first first thing we never moved away from train length. What we said was that the trains are going to depart on time or not going to hold them to wait for them to get longer before they depart and so we want long trains and department in time.
But.
Speaker Change: What we're going to do is is not make those decisions tactically everyday but we built that into the plan. So as we look at the operation every day, if we discovered that there is opportunities to.
Speaker Change: Tweak the plan to refine the plan so that we can take out a train start combined trains and move longer trains than we do that but that train depart on time and so it's not one or the other it's what's primary and trust is scheduled operation as primary and will drive their capacity to one of the 1000.
Derek Taylor: But that train departs on time. And so it's not one or the other. It's what's primary. And for us, the scheduled operation is primary. And we'll drive.
Patrick Whitehead: Derek or Pat, did either one of you want to go? Well, Tom, it's a great question. Listen, we have made some adjustments throughout the last two quarters. And now it's more of a scalpel approach, because the manifest volume is not down so significantly. Two trains equal one. But there are certain days a week we have taken a number of train starts out. So we're taking the mature approach where we're going to run our base plan and our schedule plan. But when we need to adjust, Pat and I's team work together to make sure that happens.
Speaker Change: Great question listen we have made some adjustments throughout the last two quarters now it's more of a scalpel approach because in NSS volume is not down so significantly two trains equal one but there are certain days a week, we have taken a number of train starts out. So we're taking the mature approach, where we're going to run our base plan and our scheduled plan, but when we need to adjust patent ice tea.
Speaker Change: Together to make sure that happens.
Patrick Whitehead: Yeah, I would just say that we approach the plan from a perspective that we're going to produce a plan that the outcome is the train load and train length that we desire, that maximizes locomotive and crew productivity while providing the customer service level that we expect, which is the customer service level is near industry best as we look at our local service. Thanks.
Speaker Change: I would just say that we approach the plan from our perspective that we're going to produce a plan that the outcome is the train load and trademarks that we desire that maximizes locomotive and crew productivity, while providing the customer service level that we expect which is the customer service level is.
Speaker Change: Near industry Best is we look at our local service adherence plan. Thanks, Sean.
Unknown Executive: Okay. Thank you.
Speaker Change: Okay. Thank you.
Ben Nolan: The last question comes from the line of Ben Nolan with Stiefel. Please go ahead. Yeah, appreciate it.
Speaker Change #100: The last question comes from the line of Ben Nolan with Stifel. Please go ahead.
Ben Nolan: I was going to ask a little bit about and knowing that you're going to talk a little bit more about the outlook and 2025 in January, any early thoughts on how CAPEX is expected to develop given the focus on equipment efficiency and so forth? Yeah, capital is, of course, an important part of our plan for 2025 and every year. And as we put it together, it's based on a number of things. But one of those things is what the volume levels are. So maintenance capital, of course, is intended to replenish the network as you consume it through day to day operations.
Okay I appreciate it.
I was going to ask a little bit about.
Ben Nolan: Knowing that youre going to talk a little bit more about the outlook in 2025.
Speaker Change: In January.
Speaker Change: And any early thoughts on how capex is expected to develop given.
Speaker Change: Focus on equipment efficiency and so forth.
Speaker Change #101: Yes, I think capital is of course, an important part of our plan for 2025 and every year and as we put it together is based on a number of things one of those things.
Speaker Change #101: With the volume levels are so maintenance capital of course is intended to replenish the network as you consume it through day to day operations and so what volume levels are and what they are over time has an impact on how we think about maintenance capital, we'll be looking closely at that as we firm up volume.
Ghislain Houle: And so what volume levels are and what they are over time has an impact on how we think about maintenance capital. We'll be looking closely at that as we firm up volume. For the kind of return capital or the growth capital, you know, we only spend that, you know, when we have a line of sight and they and a coordinated timing with our customers and our customer initiatives as that volume comes on, so that we've got line of sight to the intended returns on that capital. So we're working through all of that, as we kind of, you know, put our plan together in for 2025.
For the kind of return capital or the growth capital.
Speaker Change #101: Only spend that.
When we have a line of sight and they and a coordinated timing with our customers and our customer initiatives as that volume comes on so that we've got line of sight to the intended returns on that capital. So we're working through all of that.
Speaker Change #101: As we can.
Speaker Change #101: I'll put our plan together in 2025.
Ghislain Houle: And you'll hear about it in January and more specifically, but just know that it's a, it's a dynamic. Got it. All right. Thank you.
Speaker Change #101: You'll hear about it in January and more specifically, but just know that it's a it's a dynamic plan.
Tracy Robinson: Thanks so much.
Got it alright. Thank you. Thanks, so much.
Unknown Executive: This concludes the question and answer session.
This concludes the question and answer session I would now like to turn the call back over to Tracy Robinson.
Tracy Robinson: I would now like to turn the call back over to Tracy Robinson.
Tracy Robinson: Thanks, Sarah. Now, let me tell you that although it's been a very eventful year so far, where I think we're pretty well positioned through Q4 and as we advance in 2025. The railroad's running extremely well. We've got great momentum. Those CN specific initiatives Remi's talking about, they're advancing nicely and they're delivering volume. And we're driving productivity and the sizing of our resources to make sure that they match customer demand so that we achieve the margins, the kind of margins that we expect. And we deliver value to our shareholders.
Tracy Robinson: Thanks, Tara now let me tell you that although it's been a very eventful year. So far we're I think we're pretty well positioned.
Tracy Robinson: Through Q4, and as we advance in 2025 at the railroad is running extremely well.
Tracy Robinson: Got great momentum the CN specific initiatives Remy is talking about their advancing nicely and they are delivering volume and we're driving productivity and the sizing of our resources to make sure that they match customer demand and.
And so that we achieve the margins that kind of margins that we expect and we deliver value to our shareholders I want to thank you all for joining us today and I look forward to our next call in January Thank you.
Unknown Executive: I want to thank you all for joining us today. And I look forward to our next call in January. Thank you.
Operator: The conference call has now ended. Thank you for your participation. You may now disconnect your line.
Speaker Change #102: The conference call has now ended thank you for your participation you may now disconnect your lines.
Speaker Change #102: Okay.
Speaker Change #102: Sure.
Speaker Change #102: Yes.
Speaker Change #102: [music].
Okay.
Speaker Change #102: Okay.
Speaker Change #102: Yes.
Speaker Change #102: Yes.
Yes.
Speaker Change #102: Thank you.
Speaker Change #102: Yeah.
Unknown Executive: Thank you for watching!
Yes.
Speaker Change #102: Okay.
Unknown Executive: The National Railway Co.