What Canadian National Railway (CNI) Said on Its Q3 Earnings Call

Key Points

• Strong Q3 performance: CN’s adjusted EPS rose 18% to C$2.16 and revenue increased 15%, helped by volume growth, pricing and productivity gains. The company reaffirmed its 2026 outlook and is tracking toward the upper end of its adjusted EPS guidance.
• Improved efficiency and cash generation: CN handled 4% more volume while raising locomotive and employee productivity, generating C$120 million in year-to-date Fast Track benefits. Nine-month free cash flow climbed 25% to C$2.9 billion, while leverage is expected to reach roughly 2.5 times by year-end.
• Growth opportunities and leadership change: CN highlighted expansion potential in Mexico, LNG, natural gas liquids and industrial resources, while CFO Ghislain Houle will retire and be succeeded by Jamie Lockwood on Feb. 1. Management cautioned that weaker coal and intermodal volumes, tougher comparisons and trade conditions remain risks.

Canadian National Railway NYSE: CNI reported higher third-quarter earnings and revenue as volume growth, pricing and productivity improvements helped offset higher costs, while the company reaffirmed its full-year outlook and said it was tracking toward the upper end of its adjusted earnings-per-share guidance range.

Adjusted diluted earnings per share rose 18% year over year to C$2.16, while reported diluted EPS was C$2.00, up 9%. Reported results included C$118 million in non-cash asset impairments tied to the discontinued development of portions of certain technology projects, as well as C$14 million in advisory fees related to industry consolidation.

Revenue increased 15% in the quarter, while revenue ton miles, a measure of freight volume, rose 4%. CN said its adjusted operating ratio improved 40 basis points to 61%. Excluding fuel effects, the adjusted operating ratio would have been 60.4%, according to Chief Financial Officer Ghislain Houle.

Leadership transition announced

Chief Executive Officer Tracy Robinson opened the call by announcing Houle’s planned retirement after nearly three decades with CN. Houle will remain CFO through Feb. 1, when CN Vice President of Investor Relations and Special Projects Jamie Lockwood will succeed him. Houle will then remain an adviser through the end of March.

Robinson credited Houle with building financial discipline at the railroad and said Lockwood brings nearly 20 years of experience across finance, strategy, supply chain and operations.

Productivity and cash flow gains

CN said it handled 4% more volume while maintaining network fluidity and improving productivity. Chief Operations Officer Pat Whitehead said locomotive productivity increased 5% and employee productivity improved 7%, marking the seventh consecutive quarter of year-over-year employee-productivity improvement.

The company also reported its best third-quarter accident and injury performance in a decade and record third-quarter fuel efficiency, including its best monthly fuel-efficiency performance in September. Whitehead said the fuel-efficiency improvements generated approximately C$15 million in savings during the quarter.

CN’s Fast Track operating initiative generated approximately C$120 million in realized benefits year to date, up C$20 million from the prior quarter. Whitehead described the program as an ongoing operational discipline rather than a one-time cost-cutting measure.

Free cash flow for the first nine months rose 25% from the prior year to C$2.9 billion, with free-cash-flow conversion reaching 80%. During the quarter, CN repurchased nearly 4 million shares for approximately C$675 million. Its adjusted debt-to-adjusted EBITDA ratio was about 2.6 times at quarter-end, and Houle said CN now expects to reach roughly 2.5 times leverage by year-end, earlier than its previous expectation of 2027.

Commercial growth across several freight categories

Chief Commercial Officer Janet Drysdale said CN’s commercial teams generated approximately C$300 million in new revenue so far this year through business-development efforts. Same-store pricing remained ahead of rail-cost inflation, though the benefit was partly offset by freight mix and lower regulated-grain pricing.

Grain and fertilizer revenue ton miles increased 12%, supported by record crop production and export demand. Petroleum and chemicals RTMs increased 5%, driven by refined-product shipments and higher crude volumes to the U.S. Gulf Coast. Metals and minerals growth reflected higher long-haul steel movements in Canada as well as increased scrap iron and aluminum shipments.

Automotive results benefited from share gains and a shift toward longer-haul import traffic. Coal RTMs declined because of production challenges affecting West Coast traffic, while forest-products volumes remained pressured by market conditions. Domestic intermodal volumes were disrupted by wildfires, while overseas intermodal was affected by the de-marketing of certain shipments and weather-related supply-chain disruptions in Asia.

For the fourth quarter, CN expects petroleum and chemicals to benefit from new crude traffic, expanded fractionation capacity, and continued growth in natural gas liquids and refined products. The company expects domestic intermodal performance to strengthen, though overseas intermodal volumes are expected to remain below prior-year levels.

Capacity, Mexico opportunity and outlook

Robinson said CN has completed much of the heavy investment needed to support future growth and can add volume without a proportional increase in capital spending or resources. Whitehead said CN has more than 200 locomotives in storage and available capacity across the network, including in Western Canada.

Management highlighted long-term growth opportunities tied to LNG Canada Phase II, Coastal GasLink, natural gas liquids, frac sand, and industrial-resource investment in Canada. CN also said its pending agreement with Union Pacific Railroad would extend its reach into Mexico and allow it to pursue a greater share of the roughly US$45 billion in annual Canada-Mexico trade.

CN reaffirmed guidance for mid- to high-single-digit growth in adjusted diluted EPS for 2026, based on low-single-digit RTM growth, and expects capital investment of approximately C$2.8 billion, net of customer reimbursements.

In response to questions, Drysdale said the planned change in Elk Valley Resources traffic routing is expected to reduce CN’s 2027 EPS by about C$0.03. She said the commercial team is focused on replacing those contribution dollars with other opportunities.

Robinson said CN expects to continue pursuing productivity and commercial gains through economic cycles, targeting “high single-digit, low double-digit” EPS growth over time. However, she noted the company faces tougher comparisons from record grain volumes and remains exposed to broader economic and trade conditions.

About Canadian National Railway (NYSE:CNI)

Canadian National Railway Company NYSE: CNI is a transportation and logistics company that operates a major freight railway network across Canada and the United States. The company provides rail, intermodal and related transportation services for shippers, connecting production and consumption centers with ports and distribution hubs.

CN transports a broad range of commodities and manufactured goods, including petroleum and chemicals, grain and fertilizers, forest products, metals and minerals, coal, automotive products and consumer goods.

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