Canadian National Railway Q1 2025 Earnings Report

Canadian National Railway EPS Results

• Actual EPS: $1.29
• Consensus EPS: $1.26
• Beat/Miss: Beat by +$0.03
• One Year Ago EPS: $1.72

Canadian National Railway Revenue Results

• Actual Revenue: $3.06 billion
• Expected Revenue: $4.38 billion
• Beat/Miss: Missed by -$1.32 billion
• YoY Revenue Growth: +3.60%

Canadian National Railway Announcement Details

• Quarter: Q1 2025
• Date: 5/1/2025
• Time: After Market Closes
• Conference Call Date: Thursday, May 1, 2025
• Conference Call Time: 4:30PM ET

Canadian National Railway (NYSE:CNI) Company, together with its subsidiaries, engages in the rail, intermodal, trucking, and marine transportation and logistics business in Canada and the United States. The company provides rail services, which include equipment, custom brokerage services, transloading and distribution, business development and real estate, and private car storage services; and intermodal services, such as temperature controlled cargo, port partnerships, and logistics parks. It offers trucking services, such as door-to-door services, import and export dray, interline services, and specialized services, comprising flatbed trucks, on-deck mobile transport trays, expedited cargo, and permit/overweight services; and supply chain services. It serves automotive, coal, fertilizers, temperature controlled cargo, forest products, dimensional, grain, metal and minerals, petroleum and chemicals, consumer goods, and third party logistics applications. The company operates a rail network of approximately 20,000 route-miles of track and shipping spanning. Canadian National Railway Company was incorporated in 1919 and is headquartered in Montreal, Canada.

Canadian National Railway Q1 2025 Earnings Call Transcript

Presentation

[Operator]

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. At this time, I would like to turn the call over to Stacy Alderson, CN's Assistant Vice President of Investor Relations.

[Operator]

Ladies and gentlemen, Ms. Alderson.

[Stacy Alderson, AVP - Investor Relations at Canadian National Railway Company]

Thank you, Krista. Welcome, everyone. Thank you for joining us for CN's first quarter financial and operating results conference call. Of note, we have forward looking statements and non GAAP definitions for your view on page two of our presentation. These forward looking statements include estimates, goals and predictions about the future based on current information and educated assumptions.

[Stacy Alderson, AVP - Investor Relations at Canadian National Railway Company]

These come with risks and uncertainties, and with that, there is always the possibility that the outcomes may differ from the expectations. That being said, forward looking statements aren't guarantees, and factors like economic conditions, competition, fuel prices, and regulatory changes could affect actual results. Joining us on the call today are Tracy Robinson, our President and CEO Derek Taylor, our chief field operations officer Pat Whitehead, our chief network operations officer Remy Lalonde, our chief commercial officer and Ghislain Wu, our chief financial officer. It's now my pleasure to turn the call over to CN's President and Chief Executive Officer, Tracy Robinson.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

Thanks,

[Tracy Robinson, CEO & President at Canadian National Railway Company]

everyone, for joining us on today's call. 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. This 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. The team delivered these results despite experiencing a more normalized Q1 weather pattern, which meant tougher comps versus last year, especially in February.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

The resiliency we saw is again proof that our operating model is the right one for this rubber. And we're also pleased with the conclusion of the arbitration process involving our Canadian conductors and locomotive engineers. 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.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

As well. We've now reached a ratified agreement with nine unions representing roughly half of our US workforce. Now in terms of the outlook, when we spoke with you in January, we expected that there would be some uncertainties during the year around tariffs and trade in particular. We certainly point out that way. We've not seen a significant impact to our volumes thus far, but there's 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 US.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

Now it's difficult to say what will happen from here. While we remain optimistic that The US 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. What 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 options. So we're ready.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

Now for Prince Rupert specifically, we continue to believe that it will play a large role in our future growth. Rupert has an available capacity and its ability to expand intermodal and bulk shipments is unique in Canada. There's a tremendous amount of ongoing investment and business development to diversify the commodities handled by the terminals in Rupert. It's an 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.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

Now getting back to the quarter, Derek's going to take you through our field ops performance. Pat will provide an overview of our resource and labor productivity and our progress on our mechanical and engineering efficiency. Our operating measures, although off from last year, are 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. All in, EPS grew by 8% on one percent RTM growth in the quarter.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

Now as we look forward, we're keeping a very close eye on the external environment and staying close to our customers to understand potential changes in traffic flows. Remi will give some more color in a moment. And we continue to assume year over year volume growth driven by our CN specific initiatives and lapping last year's disruptions. 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.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

We continue to assume RTM growth in the low to mid single digit range. We are intentionally keeping resources tight and driving efficiencies across the organization to deliver better margins. And we're focused on running this railroad efficiently, serving our customers well and driving value for our shareholders, our employees and all stakeholders. Our full year guidance of 10% to 15% EPS growth remains unchanged. And we do recognize that there's an increasing risk of recession.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

And if the economy moves into a recession, this could impact our outlook. But we expect to deliver within our guidance range as long as we see year over year volume growth. So I'll now turn it over to the team to fill in the details. Derek, you're up first.

[Derek Taylor, Executive VP & Chief Field Operating Officer at Canadian National Railway Company]

Thanks, Tracy, and good afternoon, everyone. I'll be speaking on Slide six. We started the first quarter with strong operational performance in January and car velocity was at 200 miles per day, a seasonally solid number. Winter conditions really hit hard in February and not just in the West where we're used to seeing cold temperatures. We also had some extreme cold and record snowfall in the Eastern Region and saw considerable flooding in the Southern region along our Chicago to New Orleans corridor.

[Derek Taylor, Executive VP & Chief Field Operating Officer at Canadian National Railway Company]

Tying it together, we had 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 wasn't able to absorb the switching to help out Winnipeg. The team continued to execute through nineteen consecutive days of tier restrictions in February. Per perspective, there were only three days of tier restrictions last February. A reminder to everyone on the call that, for safety reasons, we implement three tiers of train length and speed restrictions at temperatures below 25 degrees Celsius, which have the impact of constraining car velocity and network fluidity.

[Derek Taylor, Executive VP & Chief Field Operating Officer at Canadian National Railway Company]

For example, we lose about 30% of train length capacity for intermodal and manifest train at Tier two temperatures. This compounding effect is very impactful to the network the longer the restrictions are implemented. We are very careful to manage our resources and costs. For example, being disciplined about not injecting more equipment into the mix to maximize fluidity and throughput during February's deep freeze. When the weather broke in March, the network quickly rebounded and a few stats tell the story.

[Derek Taylor, Executive VP & Chief Field Operating Officer at Canadian National Railway Company]

We moved nearly 1,400,000,000 daily GTMs, which is among our top performances for the month of March. Car velocity improved to nearly 200 miles per day, well improved at seven point five hours, and we moved a record amount of Canadian grain. Importantly, we did all that with 2% lower average headcount. Coming to the second quarter, we continue to have pockets of weather as we pull out of winter. The network has remained resilient and the team stayed on task.

[Derek Taylor, Executive VP & Chief Field Operating Officer at Canadian National Railway Company]

We're seeing a lot of great things so far. We are driving improvements in the ground count and container dwell at the ports we service. Month to date car velocity is almost two fifteen miles per day. Month to date thru dwell is six point eight hours. And LSCP is back up to 95% for servicing our customers.

[Derek Taylor, Executive VP & Chief Field Operating Officer at Canadian National Railway Company]

Q1 was about controlling what we could control, regardless of the weather. I would certainly say that the team did a great job operating this railroad in the first quarter and stayed focused, especially in the thick of the February Deep Freeze. This team knows the importance of sticking to the plan, which we have once again demonstrated with the speed in which we recovered from the February weather conditions. I am proud to be operating shoulder to shoulder with these professionals out in the field and would like to thank them for their Q1 efforts. Now, I'll pass it over to Pat.

[Patrick Whitehead, Executive VP & Chief Network Operating Officer at Canadian National Railway Company]

Thanks, Derek. Starting with safety. Our injury ratio remained flat year over year despite the sustained conditions that stress tested teams in all areas of our operation. Shifting to resourcing. We're seeing strong results from the actions we took in the second half of last year to better align our workforce with demand.

[Patrick Whitehead, Executive VP & Chief Network Operating Officer at Canadian National Railway Company]

Overall labor productivity improved by 2%, primarily driven by an 8% gain in training engine employee productivity. Additionally, we've expanded our internal engineering team compared to last year as we continually strive for the optimal balance between internal labor external contractors. 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. This strategic shift is not isolated. It's part of our commitment to disciplined capital management and project execution.

[Patrick Whitehead, Executive VP & Chief Network Operating Officer at Canadian National Railway Company]

Although it's still early in the work season, the initial results from our engineering team have been promising. We've seen nearly double digit productivity improvements across rail grinding, welding, and tie installation. Our emphasis on schedule adherence translated to a 12% reduction in train delays caused by engineering work blocks. This means we're getting more out of every dollar spent, and we're effectively unlocking additional network capacity simply through better execution. Turning to locomotives.

[Patrick Whitehead, Executive VP & Chief Network Operating Officer at Canadian National Railway Company]

Our fleet availability stayed steady at 91% despite extreme conditions across the network in Q1. Our modernization program, which improves availability through reliability, drove an 11% reduction in locomotive failures compared to last year. Our locomotive strategy is paying dividends when we need it most, with power consistently ready for launch. 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 resulted in a five percent reduction in locomotive parts inventory and ensures we have the right parts on hand when needed.

[Patrick Whitehead, Executive VP & Chief Network Operating Officer at Canadian National Railway Company]

This is all about reinforcing a culture of efficiency and sweeping the corners for all opportunities. Our investments in locomotive availability and the focus on engineering productivity help us sustain the operation, create capacity, and support fluidity. A great example of how it all comes together was in March when we moved the most average daily GTMs since April of twenty twenty two. 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.

[Patrick Whitehead, Executive VP & Chief Network Operating Officer at Canadian National Railway Company]

These include yard improvements, siding projects, and additional double tracks, specifically on our Edson sub between Edmonton and Jasper. All of this boosts our throughput and improves fluidity positioning us for growth. As we continue to improve in productivity, cost efficiency, and capacity, we're 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' goods efficiently and most importantly, safely. With that, I'll pass it on to Remy.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

Okay. Thanks, Pat. This is Ramon. 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.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

Overall revenues were up by 4%, which reflects a 3.5% tailwind from foreign exchange offsetting a 3% fuel price headwind due to lower applicable OHT prices. The pricing environment remains mostly constructive and we continue to deliver same store price ahead of CN rail cost inflation. While RTMs increased by 1%, carloads fell by 2%, 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. Clearly, this is a very dynamic situation and we're staying very close to customers as we collectively navigate through the uncertainty.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

With most customers in wait and see mode, we did not observe a material shift in overall traffic flows in Q1, but we did see some sector specific reactions, including a combination of paused shipments to avoid tariffs, reduced production or inventory building and also some apparent pull forward demand for finished vehicles in particular. Let's look at Q1 by sector on an exchange adjusted basis. For petroleum and chemicals, revenue increased by 3%, reflecting mostly continued growth in export NGLs mainly to Rupert, which were partly offset by lower refined petroleum volumes due to a production issue at a customer facility and lower southbound biodiesel shipments. Metals and minerals revenue slipped by 6% mostly because of a significant drop in iron ore shipments with softer export demand and production issues at mines we serve in the iron range. Demand for frac sand remained strong but volumes also fell with the train length restrictions due to the extreme cold which affected shipments in Northeast BC.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

We 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. Coal exports jumped in both Western Canada and The US driving revenue up by 9%. The average length of haul also rose by 11% with a higher proportion of US exports shipping through The Gulf. We recorded a 7% increase in revenue for grain and fertilizers reflecting higher exports from each of Canada and The US 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.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

The stronger pricing and mix change had a favorable impact on revenue per RTM. Intermodal RTMs were flat but revenue slipped by 3% largely reflecting more Canadian cargo as we work to rebuild US destined business following the 24 labor disruptions. We're not quite where we wanted to be in Q1, but with the Chinese New Year behind us and especially as we welcome the Gemini Alliance to Prince Rupert, we've got the pieces together to grow. Automotive RTMs 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. As we think about our outlook for the rest of the year, goes without saying that there's uncertainty around global trade flows and macroeconomic conditions, particularly when it comes to the trade dispute between The US and China, the impact and duration of auto industry tariffs and the possibility of additional tariffs on commodities like lumber and metals.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

We had 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. Rather, our guidance was built on the expected benefit of lapping the 2024 labor 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. With our strength of service and the resilience of CN's network, we still feel good about our position. 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 the noticeable increase in blank sailings, creating a bit of an air pocket.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

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 US tariffs. 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. We 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 US grain and potash exports to the East. But I would remind us that we are up against a strong comp with a longer tail to last year's Canadian crop. Petroleum and chemicals should have lower tariff exposure, so we're expecting continued growth momentum for the year weighted to the second half.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

So taking all this into account, we still expect the business to deliver RTM volume growth in the low to mid single digit range with an acceleration in the second half of the year.

[Ghislain Houle, Executive VP & CFO at Canadian National Railway Company]

Turning to Slide 13, as you've already heard, we had a more normal winter this year versus the past couple of years, which required us to activate our winter operating plan and train length restrictions, particularly in the month of February. Throughout the quarter, the underlying demand was solid, with minimal impacts related to the tariff situation. As the weather broke, we recovered in March and delivered a solid month. For the quarter, we reported EPS of $1.85 up 8% versus last year. The operating ratio improved by 20 basis points to 63.4% and revenues were up 4% year over year.

[Ghislain Houle, Executive VP & CFO at Canadian National Railway Company]

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. Labor was essentially flat versus last year, mostly on account of lower average headcount, offset by higher compensation per employee driven by general wage increases. Fuel expense decreased 5% versus the same period last year due to an 8% decrease in price per gallon, partly offset by 2% less fuel efficiency. The net impact of fuel prices was about $07 unfavorable to EPS and 50 basis points to the OR in the quarter. Other income was up over $20,000,000 versus last year due to a net re measurement gain of the fair market value related to our Iowa Northern acquisition.

[Ghislain Houle, Executive VP & CFO at Canadian National Railway Company]

We generated over $600,000,000 of free cash flow for the quarter, about $100,000,000 more than last year, mainly due to higher net cash from operating activities and lower capital expenditures. Moving to Slide 15, let me provide some visibility to 2025. We continue to believe the economy will be slightly better than last year, with slightly positive North American industrial production for 2025 versus the 1% growth previously expected. Having said that, we're monitoring the tariff situation closely. With this in mind and along with our CN specific growth initiatives, we continue to expect volumes in terms of RTMs to be in the range of low to mid single digit.

[Ghislain Houle, Executive VP & CFO at Canadian National Railway Company]

Leverage at the end of Q1 was 2.55 times and we intend to start our share buyback in the second quarter, continuing to manage leverage to our 2.5 times adjusted debt to adjusted EBITDA target. We continue to assume foreign exchange for the year of around $0.70 however, our view of WTI has been updated to US60 dollars to US70 dollars per barrel. Our effective tax rate continues to be in the range of 24% to 25%. We are maintaining our guidance of 10% to 15% EPS growth in 2025. We continue to monitor the economy and tariff situation and recognize that the risk of a recession has heightened since our last call.

[Ghislain Houle, Executive VP & CFO at Canadian National Railway Company]

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 twenty twenty four-twenty twenty six guidance of high single digit EPS CAGR. In conclusion, let me reiterate a few points. The network has been operating very well since we pulled out a winner. We expect volume growth to pick up in the second half, driven by CN specific initiatives, as Vimee mentioned.

[Ghislain Houle, Executive VP & CFO at Canadian National Railway Company]

We are tightly managing costs in this uncertain environment, controlling what we can control. We are very pleased with our Q1 results, a solid start to the year and the footing to deliver on our guidance. Let me pass it back to Tracy.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

Thanks, Shailene. Krista, we'd be happy to take questions.

[Operator]

Thank you. We will now begin the question and answer session. And your first question comes from the line of Fadi Chamoun with BMO Capital Markets. Please go ahead.

[Fadi Chamoun, Transportation Analyst at BMO Capital Markets]

Good afternoon. Remy, I wanted to get some clarity on the intermodal U. S. Intermodal international intermodal that you handle through the Western Ports to The U. S?

[Fadi Chamoun, Transportation Analyst at BMO Capital Markets]

And what are you assuming in terms of that business going into the second half of the year given not only some of the blank sailings kind of reduction order we're seeing right now, but also potentially if these tariffs are sustained a little bit longer and affecting kind of that type of traffic. And kind of related to that, you know, one of your peers talked yesterday about offsetting market opportunities that can mitigate some of the tariff impact on some sectors like autos and intermodal. And, it might be more specific to your network, guess, will be different opportunities. But have you had any opportunities to kind of examine what potential supply chain solution you can provide in the context of these trade policies changes?

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

Fadi, thanks for your question. So starting with The US, as we mentioned, one of the challenges we've had is that the recovery of US volume has been a little bit slower than we expected. When we spoke to you last quarter, we said that we had to get through Chinese Lunar New Year and welcome the Gemini Alliance to Prince Rupert. With that behind us, US volumes picked up nicely, actually as of April. And so we've got some good momentum heading into the rest of the year.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

I will tell you with what we see so far, Gemini in Rupert has been much stronger than we expected. Our overall US volumes to answer your question in Q1 on the West Coast were down about 30%. But our Canadian volumes were up 16% and we're about two thirds Canada to one third US. So that explains the mix a little bit. In terms of the rest of the year, we have seen an increase in blank sailings.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

The impact for the ports that we serve is not nearly as severe as what we've heard of some of the other ports. And so we think the value proposition 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, we expect to see good growth there. On the second part of your question in terms of market opportunities, for sure, these are highly uncertain times.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

Our job and what we're trying to do is to help customers solve their problems. And we're out there every day. This is trench work. We're talking to them every single day, everybody's out there, we're pounding the pavement, we're trying to stay very, very close to them. My sense is that necessity creates opportunity and the market is going to find a way for some of these things that challenged.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

Maybe a couple things that we've been working on. We've got a new intermodal service starting short sea from Mexico into Gulfport that the valley service that we're very excited about. We're going to build that out. We're also developing our partnership with Feromex for the CGR ferry between Mexico and The Gulf. There are potential opportunities in terms of intra US and intra Canada moves, for example, in refined for steel, scrap and lumber.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

So I have to see how things develop. And that's going to be a function also of the new Canadian administration's target of setting a new intra Canada trade deal before I think it said July 1. So we'll see how that shakes out. We'll be there to help. And I talked about Gemini a little bit.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

So 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.

[Operator]

Your next question comes from the line of Brian Ossenbeck with JPMorgan. Please go ahead.

[Brian Ossenbeck, MD - Senior Analyst, Transportation at JP Morgan]

Hey, good afternoon. Thanks for taking the question. Maybe just one quick clarification on the exposure from Canada into The U. S. Do you have a sense for me in terms of just how much of your intermodal and I guess total business is going into Canadian ports and then through The U.

[Brian Ossenbeck, MD - Senior Analyst, Transportation at JP Morgan]

S. And therefore might be potentially impacted by some of this tariff uncertainty? And then maybe for Derek or Pat, just wanted to ask a little bit how you're feeling about headcount network flexibility. Obviously, weather was pretty tough here this quarter, but you've also had some challenges with some of the work rules in the recent past. So just want to hear how you feel coming out of the quarter and perhaps the ability to flex up and down during this upcoming air pocket?

[Brian Ossenbeck, MD - Senior Analyst, Transportation at JP Morgan]

Thanks.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

Okay. Thanks for the question, Brian. So to answer your question, when we look at the total international business, which is about 12%, thirteen % of our total book, one third of that is US. And in anticipation of potentially another question, how much of that is China? It's about half of that particular number.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

Pat?

[Patrick Whitehead, Executive VP & Chief Network Operating Officer at Canadian National Railway Company]

On

[Patrick Whitehead, Executive VP & Chief Network Operating Officer at Canadian National Railway Company]

the manpower, I would say this, and this is Pat. As we come out of the quarter, this quarter really was January and March, the network was very fluid. We had the weather we've already discussed in February, not going to dwell on it. It was significantly impactful, but what we see and what we've shown once again is a quick V recovery. Strength of our operating model, the scheduled model is that we recover very quickly and thus far in the quarter we have seen velocity and speed return to the network, feel very good about where we are as it relates to people.

[Patrick Whitehead, Executive VP & Chief Network Operating Officer at Canadian National Railway Company]

As we sit here today, we have four seventy training engine service furloughs and about 50 in mechanical. We feel very good about our ability to chase the upside of volume and further adjust if the volume falls off. We watch the health of network metrics to see how we're trending and frankly watch the productivity metrics on the car fleet, locomotives as it relates to GTM for total horsepower and the GTMs per employee. And we have a lot of levers to pull and pull quickly if need to adjust.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

Brian, my name is Tracy. Let me give the guys a little bit of kudos. They they are doing in this past quarter and as we go into April, a lot more with a lot fewer resources. And and that's particularly the case with people. You heard Derek talk about the kinds of velocity that this railroad is operating at right now and consistency from a customer service perspective.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

You heard Pat talk about the labor productivity improvements year over year. You can see that sequentially as well. So they're doing a great job, and we do they have maintained that ability to flex up or flex down depending on what is needed. The secret is gonna be none of us know exactly what's gonna happen from here, but the secret, of course, is gonna be, you know, seeing it as quickly as possible. And so Remy's staying really close to our customers on that, and we're ready for whatever comes.

[Operator]

Your next question comes from the line of Chris Wetherbee with Wells Fargo. Please go ahead.

[Christian Wetherbee, Senior Analyst at Wells Fargo]

Hey, thanks. Good afternoon. So maybe to follow-up on that question, as we've seen the operations of the business improve in March and now into April in the second quarter here, I guess, 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 2Q or full year, kind of however you guys are thinking about it.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

We don't really guide, as you know, Chris, operating ratio quarter by quarter or at all, really. I think what we've said, if we look at next year and what the team managed through from a labor kind of unpredictability and what happened at the ports last year. We see as we tally all of that up, we see a couple hundred basis points that we can attribute to that. And so we've talked about that from this year's perspective, and we keep our eye on that. What happens on any given quarter is going to depend on a couple of things.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

One is the volume because we know that there's magic in volume and you you throw volume at these guys and it's amazing how they handle it and how efficiently they handle it. And the second thing is, is, you know, the the third party shops, whether it be weather or, you know, we've had fires in the past. And, you know, it's sad to have to have been there, but we've gotten very good at this. And so where we do have those third party shops are the guys that have revered up really, really quickly and effectively. So those are the kinds of things to keep your your eyes on.

[Operator]

Your next question comes from the line of Walter Spracklin with RBC Capital Markets. Please go ahead.

[Walter Spracklin, Canadian Equity Research Managment and Co-Head of Global Industrials Research at RBC Capital Markets]

Yeah. Thanks very much, operator,

[Walter Spracklin, Canadian Equity Research Managment and Co-Head of Global Industrials Research at RBC Capital Markets]

and good afternoon, everyone. I want

[Walter Spracklin, Canadian Equity Research Managment and Co-Head of Global Industrials Research at RBC Capital Markets]

to come back to Gemini. And I know your competitor has

[Walter Spracklin, Canadian Equity Research Managment and Co-Head of Global Industrials Research at RBC Capital Markets]

kind of signaled that that's been a big gate for

[Walter Spracklin, Canadian Equity Research Managment and Co-Head of Global Industrials Research at RBC Capital Markets]

them in Vancouver, but you're also flagging that you've had some great inroads into that customer as well. And I'm just curious if you're seeing some of these alliances now kind of consolidate in different areas. I know you're going have a separate Rupert and you flagged them and I up into Rupert. Do 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 you're single served in the Prince Rupert?

[Walter Spracklin, Canadian Equity Research Managment and Co-Head of Global Industrials Research at RBC Capital Markets]

Just curious as to what explains kind of both of you highlighting Gemini here as a great opportunity for you both.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

Yeah, thanks Walter. I think the reason that we're highlighting it is because Gemini is kind of bringing a different approach with service promise that is above what the industry has 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 surrounding the port, if you will, we can service it very, very well. And so we sell that service reliability, that service consistency to kind of build it out.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

So we have pulled some volume into Rupert with the Gemini Alliance. As I said, it's exceeding our expectations, not only for US volume but also seeing Canadian volumes as well. So pretty satisfied with how that's coming along.

[Operator]

Your next question comes from the line of Ken Hoexter with Bank of America. Please go ahead.

[Ken Hoexter, Analyst at Bank of America]

Hey, great. Good afternoon. So it sounds like you got a great rebound out of the weather, but maybe if I could just follow-up on the near term. 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 RTM, should we see sequential improvement on that or down because of fuel and FX?

[Ken Hoexter, Analyst at Bank of America]

And on the operating ratio, I know you don't want to give guidance, but just if the weather was so bad in the first quarter, can you just like directionally should it outperform normal seasonality just given the weather rebound or the other factors you throw in there? And same for the RTMs where we were flat in first quarter, now it's down 2% quarter to date, so a bit below kind of growth targets. Does that mean a bigger ramp you're expecting in the back half? Thanks.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

Hey, Ken. Listen, the revenue per RTM is going to depend on what kind of volume show up, right? Because mix can really move revenue per RTM around. And so I would say that 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 RTM shows up is going to be dependent on some of that.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

From an OR perspective, the guys did a great job. The OR in Q1 was roughly what you would expect in Q1 with a normal winter. As we go into Q2, we're expecting the toughest year over year volume comps in Q2 given how strong it was. And but we intend we expect to get kind of more efficient as the year progresses. Remy has been doing some strong pricing.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

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. And just did you want to make any comments

[Ghislain Houle, Executive VP & CFO at Canadian National Railway Company]

on the Yeah, maybe just Yeah, Tracy, thanks. Maybe just on fuel, Ken. As I said in my opening remarks, fuel was negative on a year over year basis in the first quarter by $07 or 50 basis points to the OR. If the fuel prices, OHD and WTI stays where it is today, we don't expect any impact on a year over year basis in the second quarter.

[Operator]

Your next question comes from the line of Cherilyn Radbourne with TD Cowen. Please go ahead.

[Cherilyn Radbourne, Managing Director - Equity Research at TD Securities]

Thanks very much and good afternoon. As you think about how trade flows may reconfigure into a 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? And do you think that there's potential that new terms of trade reopen a conversation about industry consolidation?

[Tracy Robinson, CEO & President at Canadian National Railway Company]

Hi, Cherilyn. Well, I can tell you that we continue to like the benefits of the partnership. You know, we're working more closely across the industry together to provide our customers with the benefits of single line type service. And we'll continue to explore these. I think there's lots more opportunities on that front, whether it's with the class ones or whether it's with others.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

And we think that's the right thing to do. So if you think about the Falcon with the UPN FXC connecting Mexico to Canada on truck conversion, if you think about the Crowley service that Remy just mentioned, connecting CN to Mexico via barge, that's focused more on container traffic. If you think about LYNX connecting Eastern US with Canada for truck conversion or the Ohio Valley access with both NS and CSX. There's opportunities to gain a lot of benefits without the significant risk on other capital or kind of regulatory risk. Consolidation, you know, it's always a topic of conversation in this industry.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

It has been my entire career in the industry. And certainly in the context of the current US administration, there seems to be a little bit more chatter right now. But at the same time, you know, the risks of these types of combinations are significant. You know, the new rules that came in in 02/2001 set a pretty high bar for the kind of class one rail mergers that we may have seen in the past. So certainly for us, the focus is gonna be on leveraging pretty significant benefits of our network and working with our partners where it makes sense to offer our customers kind of more of those the benefits of a single line, type of service offering.

[Operator]

Your next question comes from the line of Scott Group with Wolfe Research. Please go ahead.

[Scott Group, MD & Senior Analyst at Wolfe Research]

Hey, thanks. Good afternoon. So I think I heard you mention that the earnings growth is going to be a little bit more back half weighted. I think some of the volume growth more back half weighted. I just want to understand, is that simply just a function of the comp?

[Scott Group, MD & Senior Analyst at Wolfe Research]

Or is there some assumption that, hey, we've got an air pocket in Q2 and things improve in the back half of the year? And then maybe just with that, just to understand some of the moving parts, like is there did we change the FX assumptions? Is that a headwind to the guidance or not really a change there?

[Tracy Robinson, CEO & President at Canadian National Railway Company]

Scott, I'm going to start off and then I'll hand it to Remi for a little bit of color on the volume profile and Gis will take the FX question. So in general, I think the short answer to your first part is it's both. Without a doubt, if you look on a year over year basis on volumes that the strength of the year over year because of the volume impact of the labor uncertainty and then the port outages last year, we're not going to have that this year. So you're going to get a lift from that. But we also if we look at our book of business and what's being driven, 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 in our CN specific initiatives.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

So Remy, do you want to add a little bit of color on that and then just I'd ask you to take the FX one.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

Yes. What I'd say, thanks for the question, Scott. So the tariffs are starting to bite. And so we're seeing that in the intermodal business. We called it out a bit of an air pocket with an increase in blank sailings.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

And we're taking a bit more of a cautious approach to some of the other segments, the metals and mining, the autos in particular. And so there

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

is

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

part of a comp, part of structural there. But as we talked about, when we think about our growth over the course of the year, There are these line of sight projects that we're excited about when we look at US grain and the growth for ethanol, to use that as an example, it's encouraging 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 the sort of sum total of how we ground our guidance. It wasn't based on any sort of robust economic industrial production.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

As we've mentioned earlier, we're sort of clearly indicating more of a tepid industrial production for the rest of the year.

[Ghislain Houle, Executive VP & CFO at Canadian National Railway Company]

Yeah,

[Ghislain Houle, Executive VP & CFO at Canadian National Railway Company]

I'm Scott on FX. As you know, we disclose our assumptions and our assumptions on FX for 2025 is zero seven zero dollars or approximately $0.70 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 was $73 And as you know, the rule of thumb is every penny of Canadian dollar depreciation versus US provides about $05 on an annualized basis of EPS. So actually, if FX remains at 72 for the balance of year, it'll be a tailwind of about 5 pennies of EPS.

[Operator]

Your next question comes from the line of David Vernon with Bernstein. Please go ahead.

[David Vernon, Analyst at Bernstein]

Hey, good afternoon, everyone, and thanks for taking the time. I wanted to maybe ask Tracy or Remy a longer term question about the competitiveness of Rupert, right? If we think about a world where maybe trade barriers are up a little higher, there's a little bit more cost, maybe there's less absolute trade. How do you think Rupert would fare on the container share versus U. S.

[David Vernon, Analyst at Bernstein]

West Coast ports? Do you think it would be right to think that that volume that was still coming over even if it was a small absolute amount would be more oriented around Rupert? Or do you think it'll be subject to also some share losses as a result of higher trade frictions?

[Tracy Robinson, CEO & President at Canadian National Railway Company]

Well, I'll say this David and then I'll hand it over to Remy for the proof points. But I would say Rupert has got a competitive advantage in almost any situation. We think about it from a container perspective, I'll let Remy take you through that. But for many of you who may be going up there with Remy shortly here, what 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 Rupert and the competitive advantage that it offers on pretty much every commodity.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

Remy?

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

I 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. And so when we think about it on the boxes side on the intermodal, is the fastest and flattest road to the Midwest. There's no port or city congestion comparable to what you see in other terminals in the West.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

It's very cost competitive as well. And it allows us to give the service reliability that the Gemini lines showing us customers are looking for. But as Tracy said, it's not just an intermodal product. There are significant investments and I look forward to welcoming as many of you as possible to Rupert later this summer. So that they can show themselves off and the capital they're putting in the ground to grow the gateway, which we're very excited about.

[Operator]

Your next question comes from the line of Steve Hansen with Raymond James. Please go ahead.

[Steve Hansen, Managing Director & Equity Analyst at Raymond James Financial]

Thanks guys. Appreciate the time. At the risk of perhaps being too granular in the weeds, was just hoping you could maybe speak to the magnitude of blank sailings you're expecting through 2Q And perhaps even just if you have any color on to 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.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

Yes, look, Steve, there's about that. I don't have bulletproof 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 other of the Western terminals. So there's going to be a bit of an air pocket.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

I only see maybe a month or two max out. But as I said, the impact on a place like Rupert in Vancouver is not nearly as severe.

[Operator]

Your next question comes from the line of Brandon Oglenski with Barclays. Please go ahead.

[Brandon Oglenski, Director & Senior Equity Analyst at Barclays]

Hey, good evening and thanks for taking the question. Remin, and I think maybe Tracy spoke to this at a high level, but there's always unintended consequences of actions in the world. So with potential trade barriers going up with The US, had 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.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

Thanks, Brandon. Listen, those conversations are going on and I would say, it's happening at all levels. If you look in Canada, even through the election that's taking place, a lot of the themes are, in what ways and how quickly can we diversify some of our markets. And those opportunities are gonna be there. The US and Canada will always be very important and very close trading partners kind of in any scenario.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

But certainly those conversations have intensified. And so given the access we have to global markets at Rupert, Vancouver, and Halifax, and Montreal, and St. John, and down the Gulf Coast, we're an obvious partner for those types of conversations. So they're taking place. I would say, as Remi said in his comments earlier, that our customers are kind of on a wait and see basis.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

So lots of ideas, lots of thinking, I think some opportunities. They're always gonna go towards the best and most consistent and lowest risk net back, right? So, you know, there's some stuff that remains up in the air around where these tariffs are going to take us, but I would say that there's more and more optionality being considered as we think about kind of what could happen here. I mean, anything you want to say in specific on them? Think we probably leave it at the high level or what do you want to?

[Tracy Robinson, CEO & President at Canadian National Railway Company]

What do Yeah,

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

I mean, I guess there's there's a couple of things just to build on that which which is a great, great answer. I think there is, as Canada is thinking about infrastructure investments, the prime minister has been very clear about how we as a nation diversify the economy and that means infrastructure. And so we think there's going to have to be a conversation about opening opportunities, for example, to export crude from the West Coast and relaxing some of the rules around allowing tankers to access places like Prince Rupert. There's discussions about investing in port and terminal infrastructure. For example, the Port of Montreal is excited about developing, you know, to your point on the longer term, developing the Port Of Contre Coeur, which is on the South Shore of the St.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

Lawrence River for which we would be a strategic partner. And so I think there's a number of things, maybe use it as an opportunity, Tracy, to also talk about Milton. What we're seeing is Canada traffic is growing. We are excited about the project that we have in Milton because there is a lot of growth going into Toronto. So that's a mid twenty seven project for us.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

But this is all stuff that we can do to help densify the network and operate to the full potential.

[Operator]

Your next question comes from the line of Konark Gupta with Scotiabank. Please go ahead.

[Konark Gupta, Equity Research Analyst at Scotiabank]

Thanks. I just want to get back to the guidance to understand it more holistically. What's going on here. So, like three months ago, guys expected 10% to 15%. We are still seeing 10% to 15% for the full year, but things have changed obviously in the market in these three months.

[Konark Gupta, Equity Research Analyst at Scotiabank]

Obviously a lot of people are concerned about the macro environment clearly here, as well as the Canadian dollar has moved up slightly. I mean, if conditions remain where they are right now, from a macro perspective and from an ethics perspective, are you guys expecting to be heading towards the mid point of the range, or are we heading more sort of towards the low end of the range?

[Konark Gupta, Equity Research Analyst at Scotiabank]

Know, like, I'm just thinking, like, what are the key puts and

[Konark Gupta, Equity Research Analyst at Scotiabank]

takes for the high and the low end?

[Tracy Robinson, CEO & President at Canadian National Railway Company]

So, Karnik, listen, you know, we try and model this out too, but the degrees of kind of the range of possibilities here is quite right. What I tell you is this, we've got a good first four months under our belt. We're on plan. We're where we wanted to be. We did expect uncertainties probably more definitely more uncertain than we would have been in as we were putting the plan together in January.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

The probability of a recession, if you listen to those that apply on these things, is greater than it was before. But as we advance through the year, the risk of the impact on the year diminishes. We have, as Remi is taking you through, line of sight on certain initiatives and projects that we're doing with our customers that are less reliant on 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 expect it to hit.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

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 at, you know, we like the range we're at.

[Operator]

Your next question comes from the line of Ravi Shanker with Morgan Stanley. Please go ahead.

[Ravi Shanker, Analyst at Morgan Stanley]

Great. Thanks. Good afternoon. Maybe just a follow-up to the previous question on what's happening with customers here. Just in the pipeline of business, you kind of reiterated your long term guidance, but are those conversations on how to deal with tariffs long term?

[Ravi Shanker, Analyst at Morgan Stanley]

Do you accelerate in 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 perspective from the pipeline perspective, have any big projects in your pipeline got pushed out from your initial timeline?

[Tracy Robinson, CEO & President at Canadian National Railway Company]

I would say there's very few, if any. I would say more it's more of what Remi said earlier, Ravi, which is there's a lot of wait and see. We do expect if tariffs and the economy were to fall down, there may be some of that. There's others that are coming up. Remy, did you have any anything you wanted to add?

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

Yeah, two that come

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

to mind, Tracy. One is there's, you know, probably all saw the Dow announced that they were pausing their investment for their path to zero project in Fort Saskatchewan. We didn't have any volume increases part of that until 2028. Our understanding that is that to your point, Ravi, that that is sort of in light of the macroeconomic conditions, and that they're still very keen on the project, but it's going to take a bit of time for them to get some comfort. We're still growing with Dow, we still serve them, and there's some debottlenecking that will pick up there.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

So that's one. The second one is around EVs and auto plans. Obviously, the auto industry is rethinking their long term strategy where they're going to manufacture vehicles in North America. We have 11 origin franchises in mainly in Michigan and in Ontario. And so we're trying to stay very close to customers as they think their way through

[Tracy Robinson, CEO & President at Canadian National Railway Company]

And we're seeing some strength in other areas. We just had this quarter the FID announcement on our what is now, Remy, our third high throughput frac sand facility up in Northeast BC. And so that is underpinned by both customer investment and customer commitment. So, as in any kind of opportunity pipeline, there's some strengths and some of them that have more question marks, but we're pretty positive.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

Yeah, and NGLs are still very promising for export markets. So we're excited about that.

[Operator]

Your next question comes from the line of Stephanie Moore with Jefferies. Please go ahead.

[Stephanie Moore, SVP - Equity Research at Jefferies]

Hi, good afternoon. Thank you. I wanted to maybe touch on the labor picture for you guys today, maybe just given all the uncertainty and the broad macro, and you certainly called out some expectations across verticals or end markets. So maybe if you could talk about what you're doing from a resource and headcount perspective in terms of staffing for areas where you're clearly seeing some incremental opportunities, but maybe some areas where it's a little bit weaker, and then how that all layers in with your expectations for kind of the second half and a nice little volume lift there. So thank you.

[Derek Taylor, Executive VP & Chief Field Operating Officer at Canadian National Railway Company]

Yeah, hey, good afternoon Stephanie, it's Derek here. As Pat mentioned earlier right now on the T and E side, we still have four sixty eight, roughly four seventy people furloughed. And that's obviously across three different regions. So what I'd tell you if there is downside that happens, we'll be decisive and make that decision when we see that. But at the same side, we will chase it on the way up.

[Derek Taylor, Executive VP & Chief Field Operating Officer at Canadian National Railway Company]

When you look at it as we said, some of this volume we're seeing line of sight in 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. So Pat and I are comfortable from the 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's talked at length, they will be decisive if we don't see what we like and take action at that time. Thanks for the question.

[Operator]

Your next question comes from the line of Tom Wadewitz with UBS. Please go ahead.

[Thomas Wadewitz, Senior Equity Research Analyst at UBS Group]

Yes. Good afternoon. I just have a kind of short one for you, Ghislain, and then I guess another one for Remy. On purchased services, Ghislain, what that was the number in 1Q is a bit lower than we were expecting. Was there anything unusual in that?

[Thomas Wadewitz, Senior Equity Research Analyst at UBS Group]

Or is that kind of a good go forward? And then maybe for Remi, on the P and C, you're expecting some growth. I just wonder if some of that projects are idiosyncratic? Or is that just more of a market view? Thank you.

[Ghislain Houle, Executive VP & CFO at Canadian National Railway Company]

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 $5,000,000 1 percent, nothing unusual, slightly lower outsourced services actually explains that variance.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

Yeah, and I guess from P and 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 into Toronto, which is doing really, really well actually.

[Operator]

Your next question comes from the line of Benoit Poirier with Desjardins Capital Markets. Please go ahead.

[Benoit Poirier, VP & Industrial Products analyst at Desjardins Securities]

Yes. Good afternoon, everyone. Just to come back on the volume rebound, expect the air pocket to last about one or two months and expect a strong volume recovery in the second half. But if the air pocket would last a bit longer and volume recovery less pronounced than expected, what would be kind of the potential levers or how fast could you adjust the cost structure and any specific metrics that you monitor to end all this situation?

[Tracy Robinson, CEO & President at Canadian National Railway Company]

So listen, the guys have talked about they're on it as far as watching volumes pretty closely and we can make those decisions fairly quickly. What's the lead time, Derek?

[Derek Taylor, Executive VP & Chief Field Operating Officer at Canadian National Railway Company]

Furloughs, I mean you can do those, you send the notes out within a week. I think the most important thing though is Remy, myself and Pat, there is daily communication in 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. So, we'll be able to wrap very quickly there.

[Derek Taylor, Executive VP & Chief Field Operating Officer at Canadian National Railway Company]

Pat, you want to add anything from the locomotive?

[Patrick Whitehead, Executive VP & Chief Network Operating Officer at Canadian National Railway Company]

I would say that Derek talked about the daily conversation also as you know, we look forward at what's coming in as far as the forecast. What we watch very closely I think to your question is our and I mentioned this health of network metrics. How is the network train speed trending? How is the through dwell?

[Patrick Whitehead, Executive VP & Chief Network Operating Officer at Canadian National Railway Company]

How's the car velocity? And then it's about what are the productivity metrics for each of those resources doing? What's happening with the active cars online? What's happening with the locomotive fleet as it relates to GTM per total horsepower and how productive are our employees. And those are the productivity metrics we watch to then quickly make decisions to lay down cars, down locomotives, furlough people, whatever it may be, and we make those decisions quickly.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

And so we're ready for that side. As we've kind of modeled the various scenarios, Benoit, we do believe that as long as we see a positive volume growth on the year that we'll kind of hit that earnings target, the earnings range that we've targeted.

[Operator]

Your next question comes from the line of John Chappell with Evercore ISI. Please go ahead.

[Jonathan Chappell, Senior Managing Director at Evercore ISI]

Thank you. Good afternoon. So on the revenue per RTM, I know we've talked about currency quite a bit. If we step away from the pennies a little bit and just think about the progression from positive to potentially negative and putting a magnitude on it. Rev per RTM was up 3% in 1Q.

[Jonathan Chappell, Senior Managing Director at Evercore ISI]

You have the currency. You conceptually had some mix headwinds associated with intermodal being a strong driver of the RTM growth, especially in the back half of the year. Can revenue per RTM on a year over year basis stay positive or does it shift to negative given some of those tailwind shifting to headwinds?

[Tracy Robinson, CEO & President at Canadian National Railway Company]

I think in most cases, in most scenarios, it's safe positive, without a doubt. As we model both the international intermodal growth, the domestic growth, as well as what Remi has talked about on all of our bulk and merchandise traffic, it should end up positive by year end.

[Operator]

Your next question comes from the line of Daniel Imbro with Stephens. Please go ahead.

[Daniel Imbro, Managing Director at Stephens Inc]

Yeah. Hey, good evening, everybody. Thanks for taking our questions. Remy, I wanted to follow-up on the growth conversation from earlier. You mentioned some intra U.

[Daniel Imbro, Managing Director at Stephens Inc]

S. Opportunity, intra Canada, maybe Mexico to The Gulf. But what about more specifically just from Canada to Mexico and maybe those direct trading opportunities? Are those conversations you're 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 competitive dynamics and maybe winning that business as it increases?

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

So, I mean, for sure, Daniel, thanks for the question. We are actively engaging customers on all these types of opportunities, whether it's NGLs to Mexico. We think we do have a good value proposition working with our interline partners to get to where we need to get. And I talked about some of the growth that we're working on in Mexico, whether it's Crowley service or the rail ferry. But we're also working on developing the Falcon business.

[Remi Lalonde, Executive VP & Chief Commercial Officer at Canadian National Railway Company]

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 it's NGL or ag.

[Derek Taylor, Executive VP & Chief Field Operating Officer at Canadian National Railway Company]

I'd say on the service side for your question, know, it's been a seamless interchange in Chicago both with the UP, with Falcon and our partners with the FXE and then same with the Norfolk Southern on the link service. We've maintained those transit times. That's been you know very solid and we look forward to continuing to grow that with them. You know this new Gulfport call service is something unique. Mean that's something that's not been done in The U.

[Derek Taylor, Executive VP & Chief Field Operating Officer at Canadian National Railway Company]

S. Gulf Coast for many years. It's going to run essentially UPS schedule from the Gulfport into Chicago. So we're very, very excited about the potential of that down the road.

[Operator]

Your next question comes from the line of Ari Rosa with Citigroup. Please go ahead.

[Ari Rosa, Senior Analyst at Citigroup]

Hi, good afternoon. So it looks like labor and benefits expense took a bit of a step up in the first quarter. Just wanted to understand that. Hopefully, you could contextualize that, especially on per employee basis. It looks like it was a bit higher than what we were expecting.

[Ari Rosa, Senior Analyst at Citigroup]

Just if you could give us some help on also how we should think about forecasting that? Thanks.

[Derek Taylor, Executive VP & Chief Field Operating Officer at Canadian National Railway Company]

Yeah, thanks for the question. When you look in 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. FX going from 74% last year to 70% this year.

[Derek Taylor, Executive VP & Chief Field Operating Officer at Canadian National Railway Company]

And then 3.5%, call it 3% is regular wage inflation. So that explains your 5% increase average company year over year basis.

[Operator]

Our final question comes from the line of Bascome Majors with Susquehanna. Please go ahead.

[Bascome Majors, Senior Equity Research Analyst at Susquehanna]

Thanks for taking my question. Can you talk a little bit about if any opportunities from Canada direct to Mexico have emerged from some of this volatility? Certainly, competitor mentioned some of that and wanted to hear about long haul opportunities in that respect. Thank you.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

I'll start on that one, then I'll hand it over to Remi if he's got anything to add. We are seeing a little bit of that. I'm not sure it's as related to the tariff activity in particular, because it was things that we were working on prior to the recent quarter or four, five months. So it is in line with what we're doing on the Falcon. We're seeing opportunities arise on things like recreational vehicles that were once on truck.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

And so we are doing more and more of that type of business. Remy, is there anything you wanted to add on

[Tracy Robinson, CEO & President at Canadian National Railway Company]

the front we're good.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

Okay. Thanks, Bascome. Listen, that's the final question.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

Okay. Thanks, guys. We really appreciate your time today. We are let

[Tracy Robinson, CEO & President at Canadian National Railway Company]

me just say this as we close. We're really pleased on 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 in is on plan and the strongest year over year growth is ahead of us through the second half. And Remy has pricing kind of at or ahead of a plan right now.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

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 every day. We're delivering to our customers, whether it's partnering with them as they think about adjusting to new markets or chasing the next carload. Our opportunity pipeline is strong and it's delivering. This team is performing really, really well, and I want to thank every one of our railroaders for their commitment customers and to our plan. And I want to thank all of you for your time today.

[Tracy Robinson, CEO & President at Canadian National Railway Company]

We look forward to seeing you soon. Thanks so much.

[Operator]

This concludes today's conference call. Thank you for your participation and you may now disconnect.

Participants

Executives

• Stacy Alderson, AVP - Investor Relations
• Tracy Robinson, CEO & President
• Derek Taylor, Executive VP & Chief Field Operating Officer
• Patrick Whitehead, Executive VP & Chief Network Operating Officer
• Remi Lalonde, Executive VP & Chief Commercial Officer
• Ghislain Houle, Executive VP & CFO

Analysts

• Fadi Chamoun, Transportation Analyst at BMO Capital Markets
• Brian Ossenbeck, MD - Senior Analyst, Transportation at JP Morgan
• Christian Wetherbee, Senior Analyst at Wells Fargo
• Walter Spracklin, Canadian Equity Research Managment and Co-Head of Global Industrials Research at RBC Capital Markets
• Ken Hoexter, Analyst at Bank of America
• Cherilyn Radbourne, Managing Director - Equity Research at TD Securities
• Scott Group, MD & Senior Analyst at Wolfe Research
• David Vernon, Analyst at Bernstein
• Steve Hansen, Managing Director & Equity Analyst at Raymond James Financial
• Brandon Oglenski, Director & Senior Equity Analyst at Barclays
• Konark Gupta, Equity Research Analyst at Scotiabank
• Ravi Shanker, Analyst at Morgan Stanley
• Stephanie Moore, SVP - Equity Research at Jefferies
• Thomas Wadewitz, Senior Equity Research Analyst at UBS Group
• Benoit Poirier, VP & Industrial Products analyst at Desjardins Securities
• Jonathan Chappell, Senior Managing Director at Evercore ISI
• Daniel Imbro, Managing Director at Stephens Inc
• Ari Rosa, Senior Analyst at Citigroup
• Bascome Majors, Senior Equity Research Analyst at Susquehanna