Canadian National Railway Company (CNR:CA) Presents at The Scotiabank Transportation & Industrials Conference Transcript

CN said its network performance and customer service have materially improved, delivering 6% EPS growth and a 170-basis-point improvement in operating ratio to 61.4% on flattish volumes, and management expects to finish 2025 inside guidance but toward the lower end. The company is cutting 2026 capex to $2.8 billion (about $600 million less) to prioritize productivity, free cash flow and shareholder returns—having retired 8 million shares in Q3—and will keep buyback capacity and balance-sheet optionality (leverage rose from ~2.0x to ~2.5x) to fund potential strategic opportunities. Operationally CN highlights de‑bottlenecking (Edson Sub adds ~7 trains of capacity), latent network capacity, a growing Prince Rupert franchise (now 55% carload vs 45% in 2022, targeting ~60% by 2030 and ~10% CAGR), targeted yard/terminal productivity improvements and pilots in automation/AI; risks remain in a prolonged freight recession and tariff‑hit sectors (forest products, steel, aluminum, autos), and management is positioning to benefit from any U.S. rail consolidation only if regulatory concessions create new market access.

Analysis

CN reported meaningful operational improvement in 2025 with network performance and customer service driving 6% EPS growth and a 170-basis-point improvement in operating ratio to 61.4% on flattish volumes, and management expects to finish 2025 inside guidance but toward the lower end. Year‑over‑year comparisons are aided by lapping the ILWU strike, but management sees the macro remaining weak over the next 6–12 months after a freight recession beginning in early 2022, with tariff-impacted sectors (forest products, steel, aluminum, autos) presenting near-term volume and margin headwinds.

Management is lowering 2026 capex to $2.8 billion (about $600 million less than 2025) to prioritize productivity and free cash flow; CN retired 8 million shares in Q3 and has increased leverage to roughly 2.5x from ~2.0x, preserving balance-sheet optionality for shareholder returns or strategic opportunities. Operational productivity gains are measurable—T&E productivity +13% year‑to‑date and +20% in Q3—and pilots in yard automation and AI aim to sustain cost improvements.

CN has expanded physical capacity (Edson Sub adds ~7 trains of capacity, completed EJ&E work, ongoing yard/terminal initiatives) and highlights Prince Rupert growth (now ~55% carload vs 45% in 2022, targeting ~60% by 2030 and citing ~10% CAGR potential). The combination of latent capacity and targeted commercial initiatives positions CN to leverage an eventual volume recovery, but investors should weigh this against persistent macro risk, tariff exposure and uncertainty around any U.S. consolidation outcomes.

Key Decisions for Investors

• Consider modestly increasing exposure to CN on operational momentum and accelerating free cash flow but size positions conservatively because management expects 2025 to land toward the lower end of guidance and macro weakness may persist
• Monitor weekly/monthly volume trends, operating ratio progression and T&E productivity in Q4 and Q1 as triggers to add to positions if improvements are sustained,
• Watch capital allocation updates—pace of buybacks, capex guidance and any debt-target commentary—and re‑rate positively if buybacks accelerate while leverage remains at prudent levels,
• Track regulatory filings and concession proposals tied to U.S. rail consolidation closely; treat any credible concessions that expand CN's U.S. access as a catalyst for opportunistic reallocation, while hedging exposure to tariff‑sensitive commodities in the interim