Q1 2025 Canadian National Railway Co Earnings Call
Good afternoon. My name is Krista and I will be your operator today. All participants are now in a listen only mode. After the Speakers' remarks, there will be a question and answer session during which we ask that you kindly limit yourself to one question at.
At this time I would like to turn the call over to Stacey Alder thing, she and assistant Vice President of Investor Relations, Ladies and gentlemen, Ms Alderson.
Stacey Alderson: Thank you Christa welcome everyone. Thank you for joining us for <unk> first quarter financial and operating results conference call.
Stacey Alderson: No we have forward looking statements and non-GAAP definitions for your view on page two of our presentation.
Stacey Alderson: These forward looking statements include estimates and predictions about the future based on current information and educated assumptions these come with risks and uncertainties and with that there's always the possibility that the outcomes may differ from the expectations.
Stacey Alderson: Instead, we're looking statements arent guarantees and factors like economic conditions competition fuel prices and regulatory changes could affect actual results.
Speaker Change: Joining us on the call today are Tracy Robinson, our president and CEO Derek Taylor, She field operations Officer, Pat Whitehead, our Chief operations Officer, Remy alarmed, our chief commercial officer, and just like our Chief Financial Officer. It's now my pleasure to turn the call over to Sheila.
Speaker Change: President and Chief Executive Officer Tracey Horton.
Speaker Change: Yeah.
Speaker Change: Do you have any way to thanks, everyone for joining us on today's call.
Speaker Change: We are very pleased today to be reporting strong first quarter results, we delivered 8% earnings growth and a 20 basis point improvement in the operating ratio.
Speaker Change: Gives us a good start on the year, particularly as we expect earnings growth to pick up in the second half as we lap last year's labor related disruption.
Speaker Change: The team delivered these results despite experiencing a more normalized Q1 weather pattern, which meant tougher comps versus last year, especially in February.
Speaker Change: Resiliency, we saw it again proof that our operating model is the right one for this Robert.
Speaker Change: And we're also pleased with the conclusion of the arbitration process involving our Canadian conductors locomotive engineer.
Speaker Change: It resulted in a three year deal and annual wage increases of 3% in line with our expectations. We continue to make progress on labor agreements in the U S. As well, we've now reached a ratified agreements with nine unions, representing roughly half of our U S workforce.
Speaker Change: Now I'll turn to the outlook.
Speaker Change: When we spoke with you in January we expected that there would be some uncertainties during the year around tariffs and trade in particular.
Speaker Change: He pointed out that way.
Speaker Change: We've not seen a significant impact to our volume thus far but theres no question that uncertainty has increased over the last few months and we're seeing a heightened risk of recession in both Canada and the U S.
Speaker Change: It's difficult to say what will happen from here, while we remain optimistic that the U S will ultimately reach trade agreements with Canada, China and other countries. We don't know what those deals will look like nor when they will happen.
Speaker Change: Well, we do know is that CN is well positioned to enable global trade regardless of potential changes in trade patterns. We have the right service and available capacity at all three coasts of North America to provide our customers with gateway option. So we're ready.
Speaker Change: Now for Prince Rupert specifically, we continue to believe that it will play a large role in our future growth.
Speaker Change: Is it available capacity and its ability to expand intermodal and bulk shipment is unique in Canada is a tremendous amount of ongoing investment in business development to diversify the commodities handled by the terminals in Rupert.
Speaker Change: It's increasingly important outlet for liquids and plastics from Western Canada that are in high demand in Asian markets. For example, I know that some of you on the call will be joining Remy and the team in Rupert in June to see firsthand, what we're so excited about.
Speaker Change: Getting back to the quarter, just going to take you through our field ops performance.
Speaker Change: Pat will provide an overview of our resource and labor productivity and our progress on our mechanical and engineering efficiency now.
Speaker Change: Our operating measures, although off from last year or in the range of a more normal winter and most importantly, we showed incremental margin improvement coming from tighter Resourcing and cost management. In addition to strong same store pricing.
Speaker Change: So all in EPS grew by 8% and 1% RPM growth in the quarter.
Speaker Change: Now as we look forward.
Speaker Change: We're keeping a very close eye on the external environment and staying close to our customers to understand potential changes in traffic flows.
Speaker Change: I mean, we'll give some more color in a moment.
Speaker Change: And we continue to assume year over year volume growth driven by our CN specific initiatives and lapping last year's disruption. We expect that this will translate into volume and margin growth acceleration to the last half of the year.
So we have four months under our belt with performance in line with our plan.
Speaker Change: We continue to assume RPM growth in the low to mid single digit range.
Speaker Change: We're intentionally keeping resources tight and driving efficiencies across the organization to deliver better margin.
Speaker Change: We're focused on running this railroad efficiently, serving our customers well and driving value for our shareholders our employees and all stakeholders.
Speaker Change: Our full year guidance of 10% to 15% EPS growth remains unchanged.
Speaker Change: And we do recognize division increasing risk of recession.
Speaker Change: If the economy moves into a recession that could impact our outlook, but we expect to deliver within our guidance range as long as we see year over year volume growth.
Speaker Change: I'll now turn it over the team to fill in the detail Eric you're up first.
Eric: Thanks, Tracy and good afternoon, everyone I'll be speaking to slide six.
Eric: We started the first quarter with strong operational performance in January and car velocity with that 200 miles per day, but seasonally solid.
Speaker Change: What are conditions really hit hard in February not just in the west where we're used to seeing cold temperatures.
Speaker Change: We also have some extreme cold and record snowfall in the eastern region and saw considerable flooding in the southern region or Chicago in the world.
Speaker Change: Tie that together, we have impacts across the entire network at the same time, which limited the ability for some parts of the network to assist other regions for instance, Toronto was unable to absorb the switching to help out.
Speaker Change: The team continued to execute through 19 consecutive days of care restrictions in February.
Speaker Change: For perspective, there are only three days a few restrictions whatsoever.
Speaker Change: A reminder to everyone on the call that for safety reasons, we implement three tiers with train length of speed restrictions at temperatures below 25 degree Celsius.
Speaker Change: Which has the impact of constraining car velocity and network fluidity.
Speaker Change: For example, we lose about 30% of trainline capacity for intermodal and manifest train at tier two temperatures.
Speaker Change: This compounding effect is very impactful to the network. The one of the restrictions are implemented.
Speaker Change: We were very careful to manage our resources and cost for example, being disciplined about not injecting more equipment into the mix to maximize fluidity and throughput there in February decrease.
Speaker Change: When the weather broke in March the network quickly rebounded from the first half.
Speaker Change: These stats tell the story.
Carver: We moved nearly $1 4 billion daily GTS, which is among our top performances for the month of March Carver.
Carver: Car velocity improved to nearly 200 miles per day.
Carver: Well improved to seven five hours.
Carver: We moved a record amount of Canadian grain.
Carver: Importantly, we did all that with 2% lower average head count.
Carver: Turning to the second quarter, we continue to have pockets of weather as we pull out of winter.
Carver: The network has remained resilient and the team stayed on task.
Carver: We're seeing a lot of great things so far.
Carver: We are driving improvements in the ground and container dwell at the ports we service.
Carver: Today's car velocity is almost 215 miles per day.
Carver: Month to date through dwell for six eight hours.
Carver: <unk> is back up to 95% for servicing our customers.
Carver: Q1 was about controlling what we can control regardless of the weather.
Carver: I would certainly say that the team did a great job of operating this railroad in the first quarter and stay focused especially in the thick of the February deep freeze.
Carver: This team knows the importance of sticking to the plan, which we have once again demonstrated with the speed and once we recover from the February weather conditions.
Pat: I am proud to be operating struggling shoulder with these professionals out in the field and we'd like to thank them for their Q1 efforts now I'll pass it over to Pat.
Thanks, Darren starting with safety our injury ratio remained flat year over year. Despite the sustained condition. This stress test the teams in all areas of our operations.
Pat: Shifting the resources, we're seeing strong results from the actions we took in the second half of last year to better align our workforce with demand.
Pat: Overall labor productivity improved by 2%, primarily driven by an 8% gain in training and employee productivity.
Pat: Additionally, we have expanded our internal engineering team compared to last year as we continually strive for the optimal balance between internal labor and external contractors.
Pat: In sourcing more of our core engineering work enables us to achieve greater productivity quality cost control and most importantly accelerates the development of our in house talent.
Pat: This strategic shift is not isolated.
Pat: As part of our commitment to disciplined capital management and project execution.
Pat: Although it's still early in the work season. The initial results from our engineering team has been promising.
Pat: We've seen nearly double digit productivity improvements across rail grinding welding anti installation.
Pat: Our emphasis on schedule adherence translated to a 12% reduction in train delays caused by engineering workforce.
Pat: This means we're getting more out of every dollar spent and we're effectively unlocking additional network capacity simply through better execution.
Pat: Turning to locomotives our fleet availability stayed steady at 91% despite extreme conditions across the network in Q1.
Pat: Our modernization program, which improves availability through reliability drove an 11% reduction in locomotive failures compared to last year.
Pat: Our locomotive strategy is paying dividends when we need it most with power consistently ready for launch.
Pat: The team has also been fine tuning, our predictive maintenance analytics, allowing us to better forecast critical components nearing the end of their useful life. This.
Pat: This resulted in a 5% reduction in locomotive parts inventory and ensures we have the right parts on hand, when Neil this.
Pat: This is all about reinforcing a culture of efficiency and sweeping the corners for all opportunities.
Pat: Our investments in locomotive availability is the focus of engineering productivity helped us sustain the operation create capacity and support fluidity.
Pat: Great example of how it all comes together was in March when we move the most average daily GTS. Since April of 2022 looking ahead, we're on track to bring on additional network capacity. This year, particularly in Western Canada. There are eight projects scheduled to come online in Q4.
Pat: These include yard improvements exciting projects and additional double track specifically on our essence.
Speaker Change: Edmonton and Jeff.
Speaker Change: All of this boost our throughput and improved fluidity positioning us for growth.
Speaker Change: As we continue to improve in productivity cost efficiency and capacity, we are well placed to meet the evolving demands of our customers. Our goal remains to maintain operational excellence and get the most out of our resources all while ensuring we move our customers good efficiently.
Speaker Change: And most importantly safely.
Speaker Change: With that I'll pass it onto Remy great. Thanks, Pat.
Remy: Let's flip to slide 10, we realized revenue ton mile growth of about 1% in the quarter as underlying demand was strong across most segments, particularly grain and coal, which were partly offset by lower volumes of potash as expected and iron ore.
Remy: Overall revenues were up by 4%, which reflects a three 5% tailwind from foreign exchange offsetting a 3% fuel price headwind due to lower applicable HD prices.
Remy: The pricing environment remains mostly constructive and we continue to deliver same store price ahead of CN rail cost inflation.
Remy: While <unk> increased by 1% carloads fell by two which is due mostly to the decrease in iron ore shipments a good portion of which is short haul let me jump right into the macro environment and tariffs and what we're hearing and seeing from customers.
Remy: This is a very dynamic situation and we're staying very close to customers as we collectively navigate through the uncertainty with.
Remy: With most customers and wait and see mode. We did not observe a material shift in overall traffic flows in Q1, but we did see some sector specific reaction, including a combination of pause shipments to avoid tariffs reduced production or inventory building and also some apparent pull forward demand for finished vehicles in.
Particular.
Remy: Let's look at Q1 by sector on an exchange adjusted basis for.
Remy: Our petroleum <unk> chemicals revenue increased by 3%, reflecting mostly continued growth in export NGL, mainly to Rupert which were partly offset by lower refined petroleum volumes due to a production issue with a customer facility and lower southbound biodiesel shipments.
Remy: Metals and minerals revenue slipped by 6%, mostly because of the significant drop in iron ore shipments were softer export demand and production issues at mines, we serve in the iron range.
Remy: Demand for Frac sand remains strong but volumes also fell with the train length restrictions due to the extreme cold which affected shipments in northeast BC.
Remy: Saw strong orders across forest products with pull forward demand ahead of potential tariffs, but we were not able to capitalize on the full opportunity given the operational restrictions.
Remy: Coal exports jumped in both in both Western Canada, and the U S driving revenue up by 9%.
Remy: Average length of haul also rose by 11% with a higher proportion of U S exports shipping through the Gulf.
Remy: We reported a 7% increase in revenue for grain and fertilizers, reflecting higher exports from Egypt, Canada, and the U S and also strong pricing.
As we expected the benefit was partly offset by lower long haul potash exports to eastern Canada due to a terminal outage.
Remy: <unk> pricing and mix change had a favorable impact on revenue per RTI.
Remy: Intermodal, our gms were flat, but revenue slipped by 3% largely reflecting more Canadian cargo as we work to rebuild the U S business. Following the 24 labor disruptions.
Remy: We're not quite where we wanted to be in Q1, but with the Chinese new year behind us and especially as we welcome to John <unk> to Prince Rupert We've got the pieces together to growth.
Remy: Automotive Rpm's rose by 11% against last year with higher shipments of finished vehicles on pull forward Cross border moves ahead of the application of tariffs in April.
Remy: As we think about our outlook for the rest of the year. It goes without saying that there is uncertainty around global trade flows and macroeconomic conditions, particularly when it comes to the trade dispute between the U S and China, the impact and duration of auto industry tariffs and the possibility of additional tariffs.
Remy: On commodities like lumber and metals.
Remy: We have not assumed particularly robust economic growth to support our guidance for the year and indeed, it appears more and more that we are headed toward only slightly positive industrial production in 2025.
Remy: Rather our guidance was built on the expected benefit of lapping the 2020 for Labour rail and terminal disruptions, particularly for international intermodal and our line of sight growth initiatives like met coal export capacity crush plants and sand terminals.
Remy: With our strength in service and the resilience of Cn's network, we still feel good about our position.
Remy: For intermodal, we continue to expect year over year growth, both international and domestic weighted to the second half, but in the near term, we will see a pullback due to that noticeable increase in blank sailings, creating a bit of an air pocket.
Remy: We're cautious with our outlook for metals forest products and autos in the near term and the full year, given the macroeconomic uncertainty and the impact of existing and potential future U S tariffs.
Remy: We will also see a step down in iron ore volumes for the rest of the year because of a mine idling in the iron range and expected lower export demand.
Remy: You could see tariff induced movement around grain and fertilizers, but we feel pretty good with the balance of risks and opportunities for the rest of the year, particularly with the strong demand in the U S grain and potash exports to the east.
Remy: But I would remind us that we are up against a strong comp with a longer tail from last year's Canadian crop.
Remy: Petroleum <unk> chemicals should have lower tariff exposure. So we're expecting continued growth momentum for the year weighted to the second half.
Remy: Taking all this into account, we still expect the business to deliver RTL volume growth in the low to mid single digit range with an acceleration in the second half of the year spring.
Remy: The festival call Amy just visited the <unk> lines as we've touched on these remarks.
Remy: Turning to slide 13, as you've already heard we had a more normal winter this year versus the past couple of years.
Remy: Which required us to activate our winter operating plan and train length restrictions, particularly in the month of February.
Remy: Throughout the quarter, the underlying demand was solid with minimal impacts related to the tariff situation.
Remy: As the weather broke we recovered in March and delivered a solid month.
Remy: For the quarter, we reported EPS of $1 85 up 8% versus last year.
Remy: The operating ratio improved by 20 basis points to 63, 4%.
Remy: And revenues were up 4% year over year.
Remy: Moving to slide 14, let me provide you more details on some of the operating expense categories in the quarter, which I'll speak to on an exchange adjusted basis.
Remy: Labor was essentially flat versus last year, mostly on account of lower average head count.
Remy: Offset by higher compensation per employee driven by general wage increases.
Remy: Fuel expense decreased 5% versus the same period last year.
Remy: Due to an 8% decrease in price per gallon, partially offset by 2% less fuel efficiency.
The net impact of fuel prices was about 7% unfavorable to EPS and 50 basis points of <unk> in the quarter.
Remy: Other income was up over $20 million versus last year due to our net re measurement gain of the fair market value related to our Iowa Northern acquisition.
Remy: We generated over $600 million of free cash flow for the quarter about $100 million more than last year, mainly due to higher net cash from operating activities and lower capital expenditures.
Remy: Moving to slide 15, let me provide some visibility to 2025.
Remy: We continue to believe that the economy will be slightly better than last year with slightly positive North American industrial production for 2025 versus the 1% growth previously expected.
Remy: Having said that we're monitoring the tariff situation closely.
Remy: With this in mind and along with our SaaS specific growth initiatives. We continue to expect volumes in terms of rpms to beat in the range of low to mid single digit.
Remy: Leverage at the end of Q1 was 255 times and we intend to start our share buyback in the second quarter continuing to manage leverage two or two five times adjusted debt to adjusted EBITDA target.
Remy: We continue to assume foreign exchange for the year of around 70.
Remy: However, our view of W. Ti has been updated to 60 to 70 U S dollar per barrel.
Remy: Our effective tax rate continues to be in the range of 24% to 25%.
Remy: We are maintaining our guidance of 10% to 15% EPS growth in 2025.
Remy: We continue to monitor the economy and tariff situations and recognize that the risk of a recession is heightened since our last call.
Remy: Having said that we're off to a strong start to the year staying close to our customers and doing what we can to mitigate any negative impact.
We're also holding our 2020 for 2026 guidance of high single digit EPS CAGR.
Remy: In conclusion, let me reiterate a few points.
Remy: The network has been operating very well since we pulled out of winter.
Remy: We expect volume growth to pick up in the second half driven by specific initiatives as Jamie mentioned.
Remy: We are tightly managing cost in this uncertain environment controlling what we can control.
Speaker Change: We are very pleased with our Q1 results a solid start to the year and footing to deliver on our guidance, Let me pass it back to Tracy. Thank you Kristen.
Remy: Chris <unk>, we'd be happy to take questions.
Speaker Change: Thank you we will now begin the question and answer session. If you would like to ask a question. Please press star one.
Speaker Change: As Lee mentioned, we ask that you kindly limit yourself to one question.
Speaker Change: And your first question comes from the line of <unk> Sherman with BMO capital markets. Please go ahead.
Speaker Change: So good afternoon.
Speaker Change: So.
Speaker Change: I wanted to get some clarity on.
Speaker Change: The intermodal.
Speaker Change: Intermodal International intermodal.
Speaker Change: Got you handled through the western ports to.
Speaker Change: To the U S and what are you assuming in terms of.
Speaker Change: Is that business going into the second half of the year was given.
Speaker Change: Not only some of the blank sailings.
Speaker Change: Kind of a reduction although we are seeing right now, but also potentially if we start with our sustained a little bit longer.
Speaker Change: Affecting kind of the pie.
Speaker Change: Type of traffic and.
Speaker Change: Kind of related to that.
Speaker Change: Of your peers talked yesterday about.
Speaker Change: Yeah.
Speaker Change: Offsetting market opportunity that Ken.
Speaker Change: Mitigate some of the tariff impact on some factors like autos and intermodal and.
Speaker Change: It might be.
Speaker Change: More specific to your network I guess will be different opportunities, but have you.
Speaker Change: Hi, then the opportunities to kind of.
Speaker Change: Examine what potential supply chain.
Speaker Change: Solution you can provide in the context of these trade policies changes.
Speaker Change: Yes.
Speaker Change: Yes. Thanks. Thanks for your question, so starting with the U S. As we mentioned one of the challenges. We've had is that the recovery of U S volume is being a little bit slower than we expected.
Speaker Change: When we spoke to you last quarter, we said that we had to get through Chinese lunar new year and welcome to Gemini Alliance to Prince Rupert.
Speaker Change: With that behind Us U S volumes picked up nicely actually as of as of April <unk>.
And so we've got some good momentum heading into the rest of the year I will tell you with what we see so far Gemini and Rupert has been much stronger than we expected our overall U S volumes to answer your question in Q1 on the West Coast, we're down about 30 <unk>.
Speaker Change: <unk>.
Speaker Change: But our Canadian volumes were up 16 were about two thirds, Canada to one third.
Speaker Change: So that explains the mix a little bit.
Speaker Change: In terms of the rest of the year, we have seen an increase in blank sailings.
Speaker Change: Impact for the ports that we serve is not nearly as severe as what we've.
Speaker Change: Some of the other ports and so we think the value proposition is still is still very very strong. So we're going to see a bit of an air pocket here looking out through the end of the year, particularly on intermodal and it's going to be especially in the second quarter, but for the second half as I mentioned earlier.
Speaker Change: We do we do expect to see good growth there.
Speaker Change: On the second part of your question in terms of market opportunities for sure. These are highly uncertain times.
Speaker Change: Our job and what we're trying to do is to help customers solve their problems.
Speaker Change: And we are out there every day. This is trends work, we're talking to them every single day, everybody is out there pounding the pavement, we're trying to stay very very close to them.
Speaker Change: Is that necessity creates opportunity in the market is going to find a way for some of these things that are that are challenged maybe a couple of things that we've been working on we've got a new intermodal service starting short sea from Mexico into <unk>.
Speaker Change: Into Gulfport the rally service that we're very excited about we're going to build that out.
Speaker Change: We're also developing our partnership with Ferro Max for the CJR vary between between Mexico and the Gulf.
Speaker Change: There are potential opportunities in terms of intra U S. Intra Canada moves for example, and refined for steel scrap and lumber so have to see how things develop and thats going to be a function also of.
Speaker Change: The new Canadian administrations target of setting a new intra Canada trade deal before I think you said July July one so we'll see how that shakes out we will be there to help.
Speaker Change: I talked about Gemini a little bit so.
Speaker Change: It's going to be a little challenging as we go through the air pocket here in the second quarter, but we've got the service reliability that our customers need to deliver for the rest of the year.
Speaker Change: Your next question comes from the line of Brian <unk> with Jpmorgan. Please go ahead.
Brian <unk>: Hey, good afternoon, thanks for taking the question.
Speaker Change: Maybe just one quick clarification.
Speaker Change: The exposure from Canada into the U S. Do you have a sense from you in terms of just how much of your intermodal and I guess total business is going.
Speaker Change: Into the Canadian ports, and then through the U S and therefore might be potentially impacted by some of this tariff uncertainty and then maybe for Doug or Pat I, just wanted to ask a little bit how you're feeling about head count network flexibility, obviously, whether it was pretty tough here this quarter, but you've also had some challenges with some of the work rules.
Speaker Change: The recent past so just wanted to hear how you feel coming out of the quarter and perhaps ability to flex up and down during this upcoming air pocket.
Okay. Thanks for the question, Brian So to answer your question when we look at the total international business, which is about 12% 13% of our total book.
Speaker Change: One third of that is U S.
Speaker Change: In anticipation of potentially another question how much of that is China, it's about half of that particular number.
Speaker Change: Sure.
Speaker Change: On the manpower I would say this and this is Pat as we come out of the quarter.
Speaker Change: This quarter really was.
Speaker Change: January and March.
Speaker Change: Network was very fluid we had the weather we've already discussed in February not going to dwell on it it was significantly impacted by what we see and what we've shown.
Speaker Change: Once again as a quick recovery.
Speaker Change: The strength of our operating model. This scheduled model is that we recover very quickly.
Speaker Change: And thus far in the quarter, we have seen velocity and speed returned to the network feel very good about where we are as it relates to people as we sit here today, we have 470 train and engine service furloughs and about 50 million mechanical we feel very good about our ability to chase the upside of the volume and further adjust.
Speaker Change: If the volume falls off.
Speaker Change: We will we will watch the health of network metrics to see how we're trending and frankly, what's the productivity metrics on the car fleet locomotives as it relates to GTA for total horsepower in the GTS for employ and we have a lot of levers to pull and pull quickly if we need to adjust Brian Let me take let me give the guys a little bit of Khudoni. They are doing in.
Speaker Change: This past quarter and as we go into April a lot more with a lot fewer resources and that's particularly the case with people you heard Gary talk about it.
Speaker Change: The kinds of velocity that this railroad, it's operating at right now and consistency from a customer service perspective, you heard Pat talk about labor productivity improvement on a year over year, you can see that sequentially as well so they're doing a great job.
Speaker Change: Do they have maintained that ability to flex up or flex down depending on what is needed to secret is going to be none of it's known that being what's going to happen from here, but the secret of course is going to be seen it as quickly as possible and so remi staying really close to our customers on that and then we're ready for whatever comes.
Speaker Change: Your next question comes from the line of Chris Wetherbee with Wells Fargo. Please go ahead.
Chris Wetherbee: Yeah, Hey, thanks, good afternoon, so maybe to follow up on that question is we've seen the operations of the business improve in March and now into April in the second quarter here.
Chris Wetherbee: How do we think about sort of the operating ratio cadence as we go through the year, maybe if you could offer some thoughts on maybe <unk> or a full year kind of however, you guys are thinking about it.
Chris Wetherbee: We don't really guide as you know.
Speaker Change: Chris on operating ratio quarter by quarter, and all really I think what we said if we look at next year and what the team managed to from a labor kind of unpredictability and what happened at the ports last year.
Speaker Change: We see as we tally all of that up we see a couple of hundred basis points and that we can attribute to that and so we've talked about that from this years perspective, and we keep our eye on that what happens on any given quarter is going to depend on.
Speaker Change: A couple of things wanted to volume because we know that there's magic in volume and you have each of volume that these guys and it's amazing how they count they handle it and how efficiently the handle it and the second thing is is.
Speaker Change: The third party shocks, whether it be weather or we've had fires in the past.
Speaker Change: <unk> been there, but we've gotten very good at this and so while we do have those third party shop I think is that the railroad up really really quickly and effectively so those are the kinds of things to keep your eyes on.
Speaker Change: Your next question comes from the line of Walter <unk> with RBC capital markets. Please go ahead.
Speaker Change: Thanks, very much operator, and good afternoon, everyone.
Speaker Change: I wanted to come back to Jim and I and I know your competitor has kind of signaled that that's been a big gave for debit in Vancouver, but you're also flagging that you've had some great inroads into that.
Speaker Change: That customer as well I'm, just curious if youre seeing.
Speaker Change: Some of these alliances now kind of consolidate in different areas I know youre going to have a subgroup that you flagged him and I happened to Rupert.
Speaker Change: You see them directing some of your business that perhaps you would have taken in Vancouver up into Prince Rupert and is that allowing you to operate more efficiently given that youre single served in the Prince Rupert just.
Speaker Change: I'm just curious.
Speaker Change: As to what explains kind of both of you highlighting Gemini here is a great great opportunity for bulk.
Thanks, Thanks, Walter I think the reason that we're highlighting it is because gemini is kind of bringing a different.
Speaker Change: Approach with service promise that is above what the industry has typically.
Speaker Change: Typically seen and we think it plays very well into our hand, because the way that we sell Rupert is exactly on that basis, because there isn't a city.
Sure.
Speaker Change: Sort of certain surrounding the <unk> 40, if you will weaken service it very very well and so we sell that service reliability that service consistency.
Speaker Change: Kind of build it out so we have pulled some volume into into Rupert.
Speaker Change: The Gemini Alliance as I said, it's exceeding our expectations not only for U S volume, but also seeing Canadian volumes as well so pretty satisfied with how that's coming along.
Speaker Change: Your next question comes from the line of Ken <unk> with Bank of America. Please go ahead.
Hey, great good afternoon.
Speaker Change: So it sounds like you've got a great rebound out of the weather, but maybe if I could just follow up on the near term and I know Tracy you said, you don't give guidance, but I just want to understand maybe the rebound capacity here. So one on revenue per RPM should we see sequential improvement on that or down because of fuel and FX and on the operating ratio I know you don't.
Tom: Want to give guidance, but just if the weather was so bad in the first quarter can you just like Directionally should outperform normal seasonality just given the weather rebound or other factors you'd throw in there and same for the Tms, where we were flat in the first quarter and now its down 2% quarter to date, so a bit below kind of growth Tom.
Tom: <unk> does that mean, a bigger ramp youre expecting in the back half. Thanks.
Speaker Change: Hey, Ken listen the revenue for our team is going to depend on what kind of volumes show up because it is mix can really move revenue prior team around and so I would say that in the uncertainty as we think about the impact of tariffs and those types of things is greater than it was before so really how revenue per TM.
Speaker Change: Sure that is going to be dependent on some of that from an LCR perspective.
Speaker Change: You guys did a great job.
Speaker Change: In Q1 was roughly what you would expect in Q1 with that with a normal winter.
As we go into Q2.
Speaker Change: We're expecting the toughest year over year volume comps in Q2, given how strong it was high and but we intend we expect to get kind of more efficient as the year progresses Remy has been doing some strong pricing.
Speaker Change: We're probably a little bit ahead of plan on pricing the velocity of the network is very strong and so we would expect as you look towards the end of the year to see some really good margin improvement.
Speaker Change: And did you want to make any comments, maybe Jessica Tracy. Thanks, maybe just on fuel can as I said in my opening remarks fuel was negative.
Speaker Change: The year over year basis in the first quarter by seven tenths of 50 basis points to the or if the fuel prices <unk> stays where it is today, we don't expect any impact on the year over year basis in the second quarter.
Speaker Change: Your next question comes from the line of Cheryl Lynn Radbourne with TD Cowen. Please go ahead.
Speaker Change: Thanks, very much and good afternoon.
Speaker Change: As you think about how trade flows may reconfigure into my new normal can you talk about the kind of discussions that you're having with your other rail partners about existing and potential new alliances.
Speaker Change: Do you think that there is potential new terms with trade reopen our conversation about industry consolidation.
Cherilyn: Hi, Cherilyn.
Cherilyn: Well I can tell you that we continue to like the benefits that the partnerships, we're working more closely across the industry together to provide our customers with the benefits of single line type service.
Cherilyn: And we will continue to explore these I think there is lots more opportunities on that front, whether it's with the class ones or whether it's with others and we think thats. The right thing to do so if you think about.
Remi: The Falcon and <unk> in Mexico to Canada on truck conversion. If you think about the Crowley service that Remi just mentioned.
Speaker Change: Connecting into Mexico via barge, that's focused more on container tracking traffic if you think about.
Speaker Change: Links connecting Eastern USA, Canada for truck conversion or the Ohio Valley access with both Nf in CSS.
Speaker Change: Opportunity.
Speaker Change: A lot of benefit without the significant risk on either capital or kind of regulatory risk.
Speaker Change: Consolidation.
Speaker Change: It's always a topic of conversation in this industry has been.
Speaker Change: My entire career in the industry and certainly in the context of.
Speaker Change: The current U S administration is seems to be a little bit more chatter right now, but at the same time the risk of these types of combinations are significant the new rules that came in in 2001 has had a pretty high bar for the.
Speaker Change: Kind of class one rail mergers that we may have seen in the past.
Speaker Change: So certainly for us the focus is going to be on leveraging some pretty significant benefits of our network and working with our partners, where it makes sense to offer our customers kind of more of the benefits of a single line.
Speaker Change: <unk> service offering.
Speaker Change: Okay.
Speaker Change: Your next question comes from the line of Scott Group with Wolfe Research. Please go ahead.
Hey, Thanks afternoon.
Speaker Change: So I think I heard you mentioned that the earnings growth is going to be a little bit more back half weighted I think some of the volume grows more back half weighted I. Just wanted to understand is that simply just a function of the comp or is there some assumption that hey, we've got an air pocket in Q2 and things.
Speaker Change: Prove in the back half of the year and then maybe just with that just to understand some of the moving parts like is there.
Speaker Change: Did we change the FX assumption does that headwind.
Speaker Change: A headwind to the guidance.
Speaker Change: We're not really a change there.
Speaker Change: Scott I'm going to start off and then I'll hand, it to rami for a little bit of color on that.
Speaker Change: The volume profile in shares will take the FX question. So in general I think the short answer to your first part as adults.
Speaker Change: Without a doubt if you look on a year over year basis on volumes that the strengthened for year on year because of the.
Speaker Change: The volume impact of the labor uncertainty and then the port outages last year.
Speaker Change: Not going to have that this year, so youre going to get a lift from that but we also if we look at our book of business and what's been driven and Remy stated earlier, we're not expecting a significant lift from the economy, but what we are expecting is what we have line of sight onto NRC and specific initiatives. So rami do you want to add a little bit of color on that and then just.
Speaker Change: I'd ask you to take the us excellent.
Speaker Change: What I'd say, thanks for the question Scott So.
Speaker Change: Tariffs are starting to bite.
Speaker Change: And so we're seeing that in the intermodal business, we called it out as an air pocket with an increase in blank sailings and we're taking a bit more of a cautious approach to some of the other segments the metals and mining the autos.
Speaker Change: In particular.
Speaker Change: And so so there is part of our comp part of part of the structural there, but as we talked about when we think about our growth over the course of the year. There are these line of site projects that we're excited about when we look at U S grain.
Speaker Change: The growth for for ethanol to use that as an example.
Speaker Change: It's encouraging and in <unk>.
Speaker Change: Sand as well and then we've got some new met coal opportunities relatively new met coal opportunities that are growing in western Canada as well. So that's that's the sort of sum total of how we ground our guidance. It wasn't based on any sort of robust economic industrial production as we've mentioned earlier, we're sort of clearly indicating more of <unk>.
Speaker Change: Industrial production for the rest of the year.
Speaker Change: Scott on FX as you know, we disclose our assumptions and our assumptions on FX for 2025, 70, SaaS or approximately approximately 70.
Speaker Change: If you look at the current spot rate and it's been like this mostly all Q1 is about 72 when you compare this with the average FX of last year. It was 73 and as you know the rule of thumb is every penny of Canadian dollar's depreciation versus U S provides about five on an annualized basis of EPS. So.
Speaker Change: Actually if FX remains at 72 for the balance of year, it'll be a tailwind of about five pennies of EPS.
Speaker Change: Your next question comes from the line of David Vernon with Bernstein. Please go ahead.
David Vernon: Hey, good afternoon, everyone and thanks for taking the time.
David Vernon: Wanted to maybe ask Tracy you Remy on a longer term question about the competitiveness of Rupert right. If we think about a world where maybe trade barriers are up little higher there is a little bit more cautionary theres less absolute trade. How do you think Rupert would fare on the container share versus U S. West Coast ports do you think it would be right to think that that volume that was still.
David Vernon: Coming over even if it is a smaller absolute amount would be more oriented around Rupert or do you think it will be.
David Vernon: Subject to also some share losses.
David Vernon: As a result of.
David Vernon: Higher trade frictions.
David Vernon: Well I'll say this David and then I'll hand, it over to Randy to the proof points, but I would say Rupert has got a competitive advantage in almost any situation.
Speaker Change: And we think about it from a container perspective, I'll, let <unk> take you through that.
David Vernon: But for many of you who may be going up there.
Remy: With Remy.
Remy: Shortly here, which you'll see is that the growth in Rupert on the bulk and on the liquid side is also pretty stunning and so we're jazzed about kind of the future of blueprint and the competitive advantage that it offers on pretty much every commodity.
Remy: Echo exactly what you said, we're very bullish on Rupert I think the value proposition there still holds and customers are going to look at it on an end to end basis.
Remy: And so when we think about it on when the boxes side on the intermodal.
Remy: It's the fastest and Flattest road to the Midwest has no port city congestion comparable to what you see in other terminals in the west it's very cost competitive.
Remy: Well and it allows us to give the service reliability that the German airlines showing us customers are looking for but as Tracy said not just an intermodal product. They are significant investments and I look forward to welcoming many of you as possible to Rupert later this summer.
Speaker Change: So that they can show themselves off in the capital they are putting in the ground to grow grow the gateway, which we're very excited about.
Remy: Okay.
Speaker Change: Your next question comes from the line of Steve Hansen with Raymond James. Please go ahead.
Steve Hansen: Oh, Thanks, guys I appreciate the time.
Steve Hansen: At the risk of perhaps being too granular in the weeds I was just hoping you could maybe speak to the magnitude of blank sailings youre expecting through <unk> and perhaps even just if you have any color onto what those blank sailings might look into Q3 at this point, there's just a lot of debate about this within the broader view of course.
Steve Hansen: Yeah look Steve there is a lot of uncertainty about that.
Steve Hansen: I don't have bullet proof data on incoming port traffic I think the ports have been pretty good about reporting on that what I would tell you is that we think the impact of places like Rupert is not as significant as what we've heard from either of the western terminals.
Steve Hansen: So.
Steve Hansen: There's going to be a bit of an air pocket I only see maybe a month or two Max out.
Steve Hansen: But but as I said the impact on a place like Rupert and Vancouver is not not nearly as severe.
Speaker Change: Your next question comes from the line of Brandon <unk> with Barclays. Please go ahead.
Brandon: Hey, good evening and thanks for taking the question.
Speaker Change: And I think maybe Tracy spoke to us at a high level, but there is always unintended consequences of actions in the world. So.
Speaker Change: With potential trade barriers going up with the U S.
Speaker Change: Customers come out of the woodwork, saying, hey, can we reshape the supply chain to maybe be more export centric from Canada to other partners can you just give us some ideas of where maybe this is creating longer term opportunities for you. Thank you.
Speaker Change: Thanks, Brandon listen at those conversations are going on and I would say.
Speaker Change: Happening at all levels, if you look in Canada, even to the election Thats taken place a lot of the themes are.
Speaker Change: What ways and how quickly can we diversify some of our markets and those opportunities are going to be there in the U S and Canada will always be very important and very close trading partners kind of in any scenario, but certainly those conversations have intensified and so given the access we have to global markets and Rupert.
Speaker Change: Vancouver, Halifax, and Montreal, and St John and down the Gulf Coast, where an obvious partner for those types of conversations so theyre, taking place I would say as Randy said in his comments earlier that our customers are kind of on a wait and see basis. So lots of ideas lots of thinking I think some opportunities there are always going to be.
Speaker Change: So towards the best and most consistent and lowest risk.
Speaker Change: Net back right Phil.
Speaker Change: There is some stuff that remains up in the air around where these tariffs are going to take us.
Speaker Change: But I would say that there is more and more optionality being considered as we as we think about what.
Speaker Change: What can happen here.
Speaker Change: You wanted to gain specific on them I think we can leave it at the high level everybody on it.
Speaker Change: Yes, I guess, there's there is a couple of things just to build on that which which is a great great answer.
Speaker Change: There is as Canada is thinking about infrastructure investments.
Speaker Change: Prime Minister has been very clear about how we.
Speaker Change: As a nation and diversify the economy and that means infrastructure.
Speaker Change: And so we think there is going to have to be a conversation about opening opportunities for example to export crude.
Speaker Change: From the West Coast.
Speaker Change: And relaxing some of the rules around allowing tankers to access places like Prince Rupert there's discussions about investing important terminal infrastructure. For example, the port of Montreal is excited about developing.
Speaker Change: To your point on the longer term developing.
Speaker Change: Port of Contra occur, which is on the south shore of the.
Speaker Change: The Saint Lawrence River for which we would be a strategic partner and so I think theres a number of things maybe use it as an opportunity Tracey to also talk about Milton.
Speaker Change: So what we're seeing is Canada traffic is growing.
Speaker Change: We are excited about the project that we have in Milton because there is a lot of growth going into Toronto. So thats, a mid 2007 project for us, but this is all stuff that we can do to help densify the network and operate to the full full potential.
Speaker Change: Your next question comes from the line of <unk> Gupta with Scotiabank. Please go ahead.
Speaker Change: Thanks, Tim I, just wanted to get back to the guidance to understand it more holistically.
Speaker Change: What's going on here seemed like three months ago, you guys expected, 10% to 15%.
<unk> seen 10% to 15% for the full year, but things have changed obviously in the market in these three months.
Speaker Change: A lot of people are concerned about the macro environment clearly here.
Speaker Change: It's moved up slightly.
Speaker Change: If conditions remain where they are right now from macro perspective, and some from FX perspective are you guys.
Speaker Change: Expecting to be heading towards the mid <unk>.
Speaker Change: Point of the range or are we heading more towards the low end of the range Im just thinking like what are the key puts and takes for the high end the low end.
Speaker Change: So correct listen.
Speaker Change: We try and model this out too, but the degrees of <unk>.
Speaker Change: And as a range of possibilities here is quite right. What I would tell you is this we've got a good first four months under our belt, we're on plan, where we wanted to be.
Speaker Change: We did expect uncertainty is probably more definitely more uncertain than we would've been in as we were putting the plan together in January the probability of a recession, if you listen to dose at a time when these things is greater than it was before but as we advance through the year the risk can be impact on the year diminishes.
Speaker Change: We have as <unk> is taking you through line of sight uncertain.
Speaker Change: Initiatives and projects that we're doing with our customers that are less reliant on that in the underlying economy and of course, we have a much easier compare in the second half of the year. So all of those things combined we think that that range. We can hit that range as long as the volume this year remains positive, which we expected to hit.
Speaker Change: And all kinds of different scenarios based on different tariff outcomes and timelines that could put you at different places in the range and I think we'll just leave it that we'd like to range rent.
Speaker Change: Your next question comes from the line of Ravi Shanker with Morgan Stanley. Please go ahead.
Ravi Shanker: Great. Thanks, Good afternoon, maybe just a follow up the previous question on <unk>.
Ravi Shanker: Like what's happening with customers, who are just going to be.
Ravi Shanker: Pipeline of business do you kind of reiterated your long term guidance, but all of those conversations on how to deal with tariffs long term do you accelerate in the sourcing or do you push it out are those happening now or are they getting pushed out as well. So I'm just asking from a prospect from the pipeline perspective.
Ravi Shanker: Have any big projects in your pipeline got pushed out from your initial timeline.
Speaker Change: I would say there is very few if any I would say more it's more of what Remy said earlier, Ravi which is there's a lot of wait and see we do expected tariffs and the economy were to fall down there may be some of that.
Speaker Change: Others that are that are coming up and Remy did you have any anything you wanted to add to that come to mind Tracy one is there is.
Speaker Change: Probably all saw that Dow announced that they were pausing their investment for their cost of zero project in Fort Saskatchewan, We didn't have any volume increases part of that until 2028 are understanding that is that to your point Ravi that that is sort of in light of.
Speaker Change: The macroeconomic conditions.
Speaker Change: And that they are still very keen on the project, but it's going to take a bit of time for them to get some some comfort we're still growing with Dow we still serve them and there is some debottlenecking that will pick up there. So that's one the second one is around Evs and auto plants.
Obviously, the auto industry is.
Speaker Change: Rethinking their long term strategy, where theyre going to manufacture vehicles in North America, we have 11 origin franchises in mainly in Michigan and.
Speaker Change: <unk> and so we're trying to stay very close to customers as they think their way through through that and we're seeing some strength in other areas. We just had this quarter. The fed announcement on our what is now our third high.
Speaker Change: High throughput Frac sand facility up in northeast B C and so that is underpinned by both customer investment in customer commitment.
Speaker Change: As in any kind of opportunity pipeline. There is some tanks and some of them that have more question marks that were pretty positive and Ngls are still very promising for export markets. So we're excited about that.
Speaker Change: Your next question comes from the line of Stephanie Mora with Jefferies. Please go ahead.
Stephanie Mora: Hi, good afternoon. Thank you.
Speaker Change: I wanted to maybe touch on the labor picture for you guys today, maybe just given all the uncertainty in the broad background and certainly called outcome.
Speaker Change: Vacations across verticals or end market. So maybe if you could talk about what youre doing from a resource and head count perspective in terms of staffing for areas, where youre clearly seeing some incremental opportunities there may be some areas, where it's a little bit weaker.
Speaker Change: And then how that all layers then with your expectations for kind of the second half.
Speaker Change: A nice little volume left there so thank you.
Derrek: Yeah, Hey, good afternoon, Stephanie it's Derrek here as Pat mentioned earlier right now on the <unk> side, we still have 468, roughly $4 70 people furloughed.
Derrek: Really across three different regions. So what I'd tell you. If there is downside that happens will be decisive and make that decision when we see that but at the same slide we will chase it on the way up when you look at it as we said some of this volume we're seeing line of sight in the second half and with those people. There. We can quickly bring them back because they have been working as recently even in the last month for example.
Speaker Change: So Pat and I are comfortable from a resource side with where we're at we'll chase a bit of the upside if it's there but at the same time that the whole team has talked at length. There will be decisive if we don't see what we like and take action at that time.
Derrek: Thanks for the question.
Speaker Change: Your next question comes from the line of Tom Waterworks with UBS. Please go ahead.
Tom Waterworks: Yes. Good afternoon, I just have a kind of short one for you just lane and then.
Tom Waterworks: I guess another one for Rami on purchase services, just what that would the number in <unk> was a bit lower than we were expecting was there anything unusual in that or is that kind of a good go forward and then maybe for Remy on the P&C youre expecting some growth I just wonder if some of that projects are idiosyncratic or is that just more of a market view.
Tom Waterworks: Yes, maybe just thanks for the question maybe just on purchase services very small variance if you adjust for FX I mean, the variance is $5 million, 1% nothing unusual slightly lower outsourced services actually explain that variance.
Tom Waterworks: Yes, and I guess from a from a P&C perspective, its economic backdrop its market share wins in some of our businesses. But this is also where we pick up the tailwind from growing the NGL business that we were talking about and also our refined fuels franchise. For example, the large project that we have in <unk>.
Tom Waterworks: Toronto, which is doing really really well actually.
Speaker Change: Your next question comes from the line of Ben <unk> with <unk> capital markets. Please go ahead.
Speaker Change: Yes, good afternoon, everyone.
Speaker Change: Just to come back on the volume rebound that you expect the air pocket to last about one or two months and expect strong volume recovery in the second half but.
Speaker Change: The air pocket would last a bit longer and volume recovery less pronounced than I expected.
Speaker Change: What would be kind of the potential levers or how fast could you adjust the cost structure.
Speaker Change: Any specific metrics that you monitor two and August situation.
Speaker Change: Hello <unk>.
Speaker Change: Listen the guidance that I talked about.
Speaker Change: They are on it as far as watching volumes pretty closely and we can make those decisions fairly quickly whats the lead time Derek.
Speaker Change: Furloughs them and you can do those used the minerals out within a week I think the most important thing, though is Remy myself and past there is daily communication. Many cases, we have a formal weekly meeting every Friday amongst the three of US along with many of our reports to review what that forecast looks like versus what's really coming in different things. So it's made us very nimble.
Speaker Change: So we will be able to react very quickly there Bert you want to add anything from the locomotives.
Speaker Change: I'd say that Derek talked about the day daily conversations also as we look forward at what's coming what's.
Speaker Change: Whats come in as far as the forecast of what we watch very closely I think to your question is our and I mentioned the health of network metrics. How is the network train speed trending how is the through dwell has the car velocity and then it's about what are the productivity metrics for each of those resources doing what's happening with.
Speaker Change: The active cars online what's happening with the locomotive fleet as it relates to GPM per total horsepower and how productive our employees and those are the productivity metrics. We watch to then quickly make decisions to lay down cars laid out on locomotives.
Speaker Change: Furlough people whatever it may be in and we make those decisions quickly and so we're ready for that side and as we've kind of modeled various scenarios spend while we do believe that as long as we see positive volume growth on the year that will well kind of hit that earnings target.
Speaker Change: The earnings range that we've targeted.
Speaker Change: Your next question comes from the line of Jon Chapell with Evercore ISI. Please go ahead.
Jon Chapell: Thank you good afternoon. So on the revenue per RPM I know, we've talked about currency quite a bit.
Jon Chapell: If we step away from the Penny is a little bit and just think about the progression from.
Jon Chapell: From positive potentially negative in putting a magnitude on it.
Jon Chapell: <unk> was up 3% in <unk> you had the currency you conceptually had some mix headwinds associated with intermodal being a strong driver of.
Jon Chapell: The RPM growth, especially in the back half of the year can revenue per RPM on a year over year basis stay positive or does it shift to negative given some of the tailwind shifting the headwinds.
Jon Chapell: I think in most cases in most scenarios.
Jon Chapell: Positive without a doubt as we as we model both the international intermodal growth domestic growth as well as what <unk> talked about on all of our bulk and merchandise traffic. It should end up positive by year end.
Speaker Change: Your next question comes from the line of Daniel <unk> with Stephens. Please go ahead.
Speaker Change: Yeah, Hey, good evening, everybody, thanks for taking our questions.
Speaker Change: Rami I wanted to follow up.
Speaker Change: On the growth conversation from earlier, you mentioned, some intra U S opportunity intra Canada, maybe Mexico to the gold, but what about more specifically just from Canada to Mexico, maybe those direct trading opportunities in those conversations youre, having and just related like how do you feel about your rail service down in Mexico with your partner versus your closest competitor when we think about the competitor.
Speaker Change: The dynamics and maybe winning that business as it increases.
Speaker Change: So I mean.
Speaker Change: For sure.
Speaker Change: Daniel Thanks for the question, we are actively engaging customers on all of these types of opportunities, whether it's ngls to Mexico.
Speaker Change: We think we do have a.
Speaker Change: Good value proposition working with our.
Speaker Change: Our interline partners.
Speaker Change: Get to where we where we need to get.
Speaker Change: And I talked about some of the growth that we're working on in Mexico, whether it's the Crowley service for the rail ferry.
Speaker Change: But we're also working on developing the Falcon business. So we think we've got a good leg to stand on and for sure. We're engaging customers on any opportunity that we can pick up whether its NGL or act.
Speaker Change: Say on the service side for your question, it's been a seamless interchange in Chicago, both with the UV with Falcon and our partners with the FX and then staying with the Norfolk Southern on a linked service. We've maintained those transit times, that's been very solid and we look forward to continuing to grow that with them that this new Gulfport call services, something unique I mean, thats something thats.
Speaker Change: Nothing done in U S. Gulf Coast for many years is going to run essentially EPS schedule from the Gulfport into Chicago. So we're very very excited about the potential that down the road.
Ari Rosa: Your next question comes from the line of Ari Rosa with Citigroup. Please go ahead.
Speaker Change: Okay.
Ari Rosa: Hi, good afternoon, so it looks like labor and benefits expense took a bit of a step up.
Ari Rosa: In the first quarter, just wanted to understand that hopefully you could contextualize that especially on a on a per employee basis it looks like.
Ari Rosa: It was a bit higher than what we were expecting just if you could give us some help on also how we should think about forecasting that thanks, yeah. Thanks for the question. When you look at Q1 on average comp per employee you're right. We're up 5% on a year over year basis, 2% of that is related to FX.
Ari Rosa: FX going from <unk>.
Ari Rosa: 74 last year to 70 this year and then.
Ari Rosa: Three 5% call it 3% as a regular wage inflation. So that explains a 5% increase average company year over year basis.
Speaker Change: Our final question comes from the line of Boscombe majors with Susquehanna. Please go ahead.
Ari Rosa: Okay.
Speaker Change: Thanks for taking my question.
Speaker Change: Can you talk a little bit about if any opportunities from Canada direct to Mexico have emerged from some of this volatility certainly your competitor mentioned some of that and when they hear about.
Speaker Change: Long haul opportunities.
Speaker Change: With respect thank you.
Speaker Change: I'll start on that one and then I'll hand, it over to Randy If he has got anything to add we are seeing a little bit of that I'm not sure. It's as it related to the tariff activity in particular because of the things that we were working on.
Speaker Change: Right.
Speaker Change: The recent quarter warrants for five months and so it is in line with what we're doing on the Falcon.
Speaker Change: Seeing opportunities arise on things like recreational vehicles.
Speaker Change: One is on track and so we are doing more and more of that type of business. So remi is there anything you wanted to add novartis okay.
Speaker Change: Okay. Thanks Pat.
Speaker Change: Listen it.
Speaker Change: The final question. Okay. Thanks, guys. We really appreciate your time today, we are let me just say this as we close we're really pleased in the quarter. This railroad is running extremely well and we're running really tight from an efficiency perspective, our volume growth as we are now four months tenants unplanned and the strongest year over year growth.
Speaker Change: Is ahead of us.
Speaker Change: It can have an remy has pricing kind of at or ahead of our plan right now and without a doubt and while there remains some uncertainty as it relates to tariffs and economy. We continue to focus on what we can control, which is driving our plan everyday and we are delivering to our customers.
Speaker Change: Whether it's partnering with them as they think about adjusting to new markets are chasing the next carload our opportunity pipeline is strong and it's delivering.
Speaker Change: This team is performing really really well and I want to thank every one of our railroad is for their commitment to our customers into our plan and I want to thank all of you for your time today, we look forward to senior soon thanks, so much.
Speaker Change: This concludes today's conference call. Thank you for your participation and you may now disconnect.
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