Good afternoon. My name is Patrick, and I will be your operator today. Welcome to CN's Fourth Quarter and Full Year 2022 Financial and Operating Results Conference Call. After the speaker's remarks, there will be a question-and-answer session. I would now like to turn the call over to Paul Butcher, Vice President, Investor Relations. Ladies and gentlemen, Mr. Butcher.

Well, thank you, Patrick. Good afternoon, everyone, and thank you for joining us for CN's Fourth Quarter and Full Year 2022 Financial results Conference Call. Before we begin, I'd like to draw your attention to the forward-looking statements and additional legal information available at the beginning of the presentation. As a reminder, today's conference call contains certain projections and other forward-looking statements within the meaning of the U.S. and Canadian securities laws. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied in these statements and are more fully described in our cautionary statement regarding forward-looking statements in our presentation. After the prepared remarks, we will conduct a Q&A session. I do want to remind you to please limit yourself to 1 question. The IR team will be available after the call for any follow-up questions. Joining us on the call today are Tracy Robinson, our President and CEO; and Doug MacDonald, our Chief Marketing Officer; Ghislain Houle, our Chief Financial Officer; and last but not least, the youngest recruit on the team, Ed Harris, our Chief Operating Officer. It is now my pleasure to turn the call over to CN's President and Chief Executive Officer, Tracy Robinson.

Thanks, Paul, and welcome to our earnings call. I'm glad to see you all, whether you're joining by phone or webcast. I appreciate your participation. As I near the end of my first year with CN, I feel immense pride in our team and what we have achieved together over the past year. It matters to me and to all of us that we have fulfilled our commitments. We've driven top line growth that translated to the bottom line. We faced a challenging first quarter, but we ended the year meeting our guidance with an EPS increase of 25% and an operating ratio starting with a 5 for the first time since 2017. Additionally, we delivered a return on invested capital of 15.9% and nearly $4.3 billion in free cash flow. I want to take this opportunity to thank every CN employee for your dedication and hard work in meeting our significant commitments this year. We united as a team and rose to the challenge across the organization. However, our work is not yet complete. We have more tasks ahead of us in various areas, and our focus will remain on this throughout 2023. Undoubtedly, we are navigating through uncertain economic times, and like many others, we are anticipating a mild recession this year. Our bulk segment will support us in the first half, but we have less visibility for the second half. Just like in past recessions, we will navigate this challenge. Our robust network and diverse business portfolio will provide us stability during such times. We plan to stay agile and responsive to our customers, aiming for strong performance this year regardless of volume fluctuations, while positioning ourselves for the eventual recovery. Although current predictions indicate that North American industrial production will decline in 2023, we expect to grow our EPS in the low single-digit range. Today, my team will discuss our performance in 2022 and our outlook for 2023. I'm pleased to welcome Ed Harris to the call for the first time as our new Chief Operating Officer, appointed in December. With 40 years of experience, mostly at CN running a scheduled operation, he is excited to contribute to our team. Ed will provide updates on our operating performance and our strategies to enhance operations while preparing the next generation of talent. Following a strong top line performance in 2022, Doug and his team are closely collaborating with our customers to track volume trends and ensure our portfolio aligns with our network. We will continue our strategy of selling into our capacity. Doug will provide insights into our key markets and how we'll aim to surpass North American industrial production this year in terms of volumes. Ghislain will detail our financial performance for the quarter and the year, as well as the assumptions guiding our financial outlook for 2023. Ed, the floor is yours.

Thank you, Tracy. I’m thrilled to be back home after spending a significant part of my career here, especially since Tracy and I have a long history from our time at a Canadian competitor. It's wonderful to reconnect with Ghislain, Doug, and many others at CN, including some who are the next generation of people I worked with years ago. I reached out to Doug early on to discuss the challenges we were facing, and we have been working closely together ever since to enhance our customer service. I’m passionate about this business and excited about advancing scheduled railroading. More importantly, I aim to help identify and mentor our talent to develop the next generation of railroaders. We have one of the top networks in the industry and a skilled operating team that can maximize this network's efficiency and drive growth for the North American economy. I joined in April as a consultant and was eager to help the company refocus on scheduled railroading. This year has shown significant improvements, and I was confident that this team would get us back to our previous success. I appreciate the hard work of all the operating personnel. Since April, I’ve spent considerable time with the operating team, and I’ve been out on the property often; I can say the talent is deeper than I expected. They are passionate and eager to push for greater efficiencies moving forward. Initially, as a consultant, my role was to suggest ideas and make recommendations, such as being on time and managing train lengths, and returning to the three regions we previously operated in. Now, in my role as Chief Operating Officer, I can take a more active role in implementing the changes that will elevate this company. My goal is to support the company’s progress swiftly, but above all, safety is my priority. We have made significant strides in safety, with 748 days without a fatality and 560 days without a serious injury—a record we continue to beat. Railroading should remain simple, and I believe we lost sight of that in recent years. Increased velocity creates capacity; being faster allows us to handle more, and sticking to the plan ensures reliability, which enables me to provide a service level that Doug can market to his clients. Tracy often emphasizes our efforts for greater integration, and a core part of my philosophy is collaboration within the team and across functions. This teamwork is essential for our progress. I could discuss railroading for hours, but let me highlight a few operating achievements from the fourth quarter and outline my priorities for 2023. We’ve made notable progress in our operating performance, despite some challenges this quarter. Car velocity averaged 207 miles per day in the fourth quarter, a 10% increase from last year, while origin train performance was 85%, also up 10% year over year. I’m particularly proud of how the operating team responded to challenges and restored network fluidity after severe winter conditions in Western Canada in late December, where temperatures dropped to minus 50 Celsius. Our approach to scheduled railroading and our employees' dedication helped us regain fluidity. The team's quick response is evident in our operational performance. So far this month, car velocity is around 220 miles per day, comparable to last summer’s figures. While winter isn't over, we are in a stronger position to start the year than last year, positioning us well to transition from winter to spring. We’re building resilience through our scheduled operations, emphasizing service, asset use, and velocity. Before passing it to Doug, let me share my priorities for 2023. We plan to elevate scheduled railroading further, focusing on destination, train performance, and individual trip plans. We are also committed to improving capital efficiencies and deploying capital where the network is ready, starting with this year’s program. Our mechanical team is modernizing our locomotive fleet with camera technology and energy management systems, enhancing fuel efficiency and safety. Lastly, we will prioritize coaching and developing future generations of railroaders. With that, I’ll turn it over to Doug to discuss our top-line performance and outlook.

Thank you, Ed, and a huge thanks to you and your team from both me and our customers on the speed of our operating recovery after the extreme winter temperatures on our network in December. The team's disciplined execution and focus on velocity has delivered the service our customers need, and we are pleased that January is off to such a strong start. I'll now turn to Slide 9 and provide a review of our solid fourth quarter top line performance. Fourth quarter revenues were $4.5 billion, up 21% over Q4 of last year on 6% higher RTMs. Our bulk segments led the charge this quarter with strong year-over-year volume growth. We continue to achieve rail inflation plus pricing on renewals and the lower Canadian dollar also contributed to our revenue growth in the quarter. As expected, Canadian grain was very strong this quarter, including an all-time single-month record for tons shipped in October. We also saw growth in U.S. grain given the supply chain shift with the low water levels on the Mississippi River through the fall. For the full year, unit train shipments of U.S. grain to the Gulf beat the previous record from 2006. Coal demand remained strong through the fourth quarter with a strong commodity pricing environment. In fact, we set a record for coal shipment in 2022 with over 30 million tons shipped for the full year. Automotive volumes were strong in the quarter as inventory replenishment continued across the industry. We did however, see some weakness expand in other segments in the fourth quarter. A softening in international intermodal as volumes tapered through all gateways due to inventory overstocking. Lower petroleum and chemicals volumes with reductions in refined products as well as lower chemicals and plastics used as inputs into manufacturing due to numerous small outages and a softer market demand. Lumber and panels decreased following additional mill curtailments in British Columbia due to low commodity prices, high stumpage fees in BC and lower housing demand due to rising interest rates. Before I review our market outlook for 2023, let me provide you with updates on some of the initiatives we spoke about earlier this year. Despite some recent softness, the Port of Halifax had a record volume year for intermodal in 2022, handling in excess of 600,000 TEUs and CN and our partners, PSA and Port of Halifax are all working with our customers to grow the terminal in 2023 and look forward to selling out the terminal in years to come. On the EMP program, which is a shared intermodal equipment pool with the UP and NS, CN has now fully integrated the program into our operations and sales. CN will be adding containers to this pool over the next 2 years as we continue to grow the business for the interline domestic intermodal. CN finished off 2022 averaging over $1 million per week in new business. The Canadian West Coast export propane program continued to gain momentum in 2022. Working with our partners in Prince Rupert, CN moved over 10,000 cars this quarter to terminals in Prince Rupert to support Canada's growing energy export market, an increase of 17% over Q4 2021. We expect this program to continue to grow as additional drilling and gas processing takes place in advance of the new LNG plant coming online in 2025. Finally, turning to Slide 10. We are assuming a mild recession as our base case. We have good visibility in H1 as we continue to move significantly higher Canadian grain crop. With the current economic environment, the H2 outlook remains uncertain at this point. Thank you, everyone. I think we got cut off there, so I'll just continue with my remarks. So we expect coal demand to remain strong through 2023 with commodity pricing staying favorable. Energy shortages are keeping demand strong, and the backlog in autos and development in Asia will underpin net coal demand. We expect more of a flat to negative performance with most other commodities. The weakness that we began seeing in the fourth quarter is expected to persist through at least the first half of 2023. The international intermodal will have multiple blank sailings as the North American inventories rebalance. Lumber will be slow to recover due to market oversupply and high interest rates dampening demand. Chemical and petroleum production is directly tied to the economy, so we expect demand to be soft in the first half of 2023. Automobiles are still in a tight supply situation, but this is changing with higher interest rates as well as part shortages. To close, we are working closely with customers to monitor the economic environment as we run a scheduled railroad with a focus on velocity. We are achieving solid performance that will serve our customers well and continue to grow with our customers as the economy recovers. With that, I will pass it on to Ghislain.

Thanks, Doug, and welcome, Ed, it's nice that you're back home. It's my pleasure to review our excellent fourth quarter and full year financial results. I will talk to Slide 12 of the presentation, which will provide more visibility on our fourth quarter performance. These results highlight the strength and resilience of our franchise as we delivered volume growth of 6% in terms of RTMs and 21% growth in revenues despite some significant weather challenges in December. The top line performance combined with the strong operating performance grew solid earnings in the quarter. Let me provide you with more details on the quarter, and I will speak to the adjusted numbers, which exclude advisory costs related to shareholder matters in the fourth quarter of 2021. Labor expense was up around $40 million in the quarter versus last year, driven by increased wages due to higher average head count of close to 900 transportation employees versus last year. Our fuel expense was up nearly 50% FX adjusted, as fuel prices were over 45% higher in the quarter versus Q4 of 2021 and volumes contributed to the remaining 5%. We delivered operating income of $1.9 billion in Q4, up 21% on an adjusted basis. Our operating ratio came in at 57.9%, which is in line with the adjusted operating ratio for the same period last year. Diluted EPS of $2.10 for the quarter was up 23% versus last year on an adjusted basis. Turning to our full year results on Slide 13. I am very proud of our adjusted EPS growth of 25% versus last year, which is aligned with our guidance, demonstrating the strength and resiliency of our franchise and validates the effectiveness of operating a scheduled railroad with a focus on car velocity and working on an integrated basis. We generated free cash flow of nearly $4.3 billion for the year, exceeding our guidance. Under our current share repurchase program, which runs from February 1, 2022, through January 31, 2023, we have repurchased over 29 million shares for $4.6 billion at the end of December. Finally, at the end of 2022, our return on invested capital finished at close to 16%, exceeding our 15% guidance. Moving on to Slide 14. Let me provide some visibility to 2023. As we continue to see weakness in certain segments like international intermodal, driven by lower consumer spending, lumber, chemicals, and plastics, we also see weakening economic indicators with negative North American industrial production expected in 2023. Therefore, like many others, we are assuming a mild recession in 2023 with some rebound in 2024. We have good visibility on Canadian grain for the first half of 2023 and currently assume an average crop starting in the second half of the year. As Ed mentioned, we are off to a good start in January from an operating perspective, and Doug and his team remain disciplined on pricing, but we will be facing some headwinds on the Canadian labor front in regards to work/rest rules and paid sick days. Despite a weakening economic environment, we expect to deliver low single-digit EPS growth in 2023 versus 2022. In terms of shareholder distribution, we are pleased to announce that our Board of Directors approved an 8% dividend increase for 2023. This represents the 27th consecutive year of dividend increase since the 1995 IPO and reflects both the confidence in our strong cash flow generation capacity throughout business cycles and the long-term prospects for the company. The Board also approved a new share buyback program of up to 32 million shares for an amount in the range of $4 billion to be returned to shareholders through a normal course issuer bid from February 1, 2023 to January 31, 2024. In conclusion, let me reiterate a few points. We delivered a strong fourth quarter performance as we continue to push on operating a scheduled railroad. We met our 2022 financial guidance. We are witnessing continuing economic weakness and calling for a mild recession in 2023. Despite this weak economic environment, we are still guiding for EPS growth, demonstrating the resilience of our franchise and the strength of our team. We have a strong balance sheet that provides us financial flexibility, and we will allocate our capital in a manner that drives long-term value for our shareholders. Let me pass it back to Tracy for some closing comments.

Thank you, Ghislain. So today has been a good opportunity to look back at a number of our successes in 2022, and I'm really proud of what we've accomplished together. But this team and I are looking ahead to the future to where we want to take our company and it will take a continued focus on performing at an ever higher level across the organization. As Ed said so, it's not that complicated. We're going to keep it simple. It starts with the plan. We're focusing on the next level of operating performance through the scheduled operating plan and further integrating our team across functions. We're continuing to get closer to our customers, earning their trust through great service and partnering in their growth, and we're going to leverage the strength of our network to grow with them in a manner that's good for both of us. We're in the longest stretch of our company's history without a fatality or serious injury, and there's nothing more important to us than this. But it doesn't mean that we get complacent. That means we get even more committed to our safety culture and looking out for each other every day. We know now what's possible. Our efforts on climate and sustainability are advancing. A number of organizations last year recognized our sustainability efforts. We made the CDPA list once again, and we've now been listed for the 11th consecutive year on the Dow Jones Sustainability World Index. We appreciate the recognition, but we're really focused on is to continue to pursue this agenda, which amongst other objectives is going to help us further improve our industry-leading fuel efficiency. And last but not least, of course, we're intently focused on developing the next generation of talent at CN. There's tremendous capability in this company, as you've seen. And we have the senior team in place now to bring them and their performance up to the next level. You're going to hear a lot more details about our vision and our growth plan and our performance at our Investor Day in Chicago in early May, and we're looking forward to seeing you all there. And now Patrick will open the line to questions, please.

The first question is from Chris Wetherbee from Citi Group.

Maybe I wanted to start on the guidance and I appreciate the fact that you're being, I think, cautious about the outlook or may be realistic about the outlook for a recession in 2023. Ghislain or Tracy, maybe you could walk us through some of the underlying dynamics of that outlook. How do you think about RTMs and maybe how do those progress over the course of the year? And then if we can get revenue growth in the year, do you think operating ratio improvement is possible as well to get you to that low single-digit EPS growth.

Chris, that is the question, isn't it. We're giving you today our guidance based on what is the best information we have right now. Given the uncertainty in the economy and what may happen this year, I think it's the right amount of information to provide. We do hope that it will be better than what we expect. And we'll be ready if that happens. And as we get more clarity, we'll be in front of you with updates. But I think we'll keep it pretty much at that level for today.

Just one quick point. Is it fair to assume that RTMs maybe track roughly industrial production? Is that reasonable?

We believe we can increase our volumes beyond the level of industrial production, as Ghislain indicated in his note.

So you covered it well, Tracy.

The next question is from Konark Gupta from Scotiabank.

Just wanted to follow up on previous question actually. If we look at the EPS guidance for low single digit, we also have a share repurchase here, which could potentially be in the low single-digit range. And then volume, as you said, it's above IP pricing of inflation. Is there something on the yield or operating ratio that we need to figure out to kind of account for the gap? Is it the mix? Is it the accessorial charges? Something else that you're missing.

Thank you, Konark. Currently, we expect industrial production in North America to decline. As Tracy mentioned, we anticipate performing slightly better than that. We are committed to improving our margins year-over-year, although enhancing margins in a low volume environment is challenging. However, we are confident that we will see margin improvements in the mid to long term. Looking at our performance in 2022, our incremental margins for the entire year were a solid 50%, and we improved our return on revenue by 130 basis points. This sets a strong foundation. With rail operations fully back on track, our performance will largely depend on volumes and the economic climate. If the economy improves, we will benefit from that. However, if it worsens beyond our expectations, we are well-equipped to handle a recession and maintain a strong balance sheet. To summarize, we're starting January on a positive note, aided by favorable weather conditions. Our volume levels are good, but keep in mind we are comparing against last year's period of extreme cold. It's still early, with only about 21 days into the new year.

The next question is from Tom Wadewitz from UBS.

I wanted to ask a bit about how you think about pricing against this backdrop of weaker cyclical backdrop. I think the commentary from the Canadian rails in 2022 was pretty optimistic, tight capacity, pretty favorable trends in pricing. Would we expect that to ease meaningfully against weaker volume backdrop? Or you think there's some momentum that carries through that you still have a maybe stronger than normal pricing in 2023?

Thanks, Tom. It's Doug. Once again, about one-third of our business is up for repricing each year. We have observed a continued strong pricing environment. We still need to catch up from previous years. Our goal remains to price above rail inflation, and so far, we don't anticipate any issues with that.

So can you kind of comment on pricing this year versus last year? Do you think it's similar or a bit lighter given the volume backdrop?

It's very similar right now. We expect overall pricing or costs for the rail industry to remain ahead of that. Currently, it's showing very high when you look at the all-inclusive index and similar metrics, and we continue to stay above that.

The next question is from Brian Ossenbeck from JPMorgan.

I just wanted to ask, Ghislain, you mentioned some headwinds on Work/Rest Rules and paid sick days. I wanted to see if you could elaborate on that is that the federally mandated one that kicked in at the end of last year? And how is that going to impact the financials or headcount? And how should we expect that to kind of roll out throughout the year?

Yes. Thanks, Brian. Yes, definitely some headwinds there. Ed and the team will work hard to try to minimize the unfavorable potential impact of those headwinds. But I'd say that when you put them together, they could be as much as $100 million of headwind in 2023. So we'll see, but that's certainly something we have to deal with.

Would that require additional headcount to cover some of the...

The idea is that more employees may be needed to accomplish the same volume of work, which would result in a negative financial impact. However, Ed and the team are actively working to reduce this impact, and we are closely monitoring the situation.

Brian, if I could just add, it's Ed Harris. We're looking at the operating plan very closely, and we look at it every day, which is no secret to anyone. I think the things that you have to remember with a stronger operating plan and better system performance, we're taking out a lot of unnecessary operating expense like recrewing trains, the die and route or deadheading to a better schedule. And there's quite a bit of savings that we'll see through that as we get stronger in our operating plan. So that's one of the ways that we're thinking about offsetting some of the headwinds. We talk about this quite a bit, and we got a pretty good plan we're working on.

Thank you. The next question is from Benoit Poirier from Desjardins Capital Markets.

Yes. And welcome back, Ed, to CN. Obviously, a lot has been accomplished since April, but could you provide more color about some changes that you're looking to implement that would bring the company to the next level? And maybe if you could expand a bit on the headcount for 2023 and CapEx envelope in order to drive the operations.

Well, I think one of the first things that I saw while I was consulting beginning in April was there wasn't much adherence to an operating plan, and the discipline that we put in beginning in April started leading into some savings right off the bat. And it was something as simple, Benoit, as running on time. From that, we looked at train length. We were running trains way too long, way out of slot, which just created a lot of havoc across the network and really killed our service offering. So we got trains back where they need to be. And lo and behold, our velocity jumps up significantly, probably, what, 10% or so looking at the team here, made all the difference in the world of getting across the railroad. So that's the basis of the operating plan as we speak right now. Train speed has come up very nicely. I've already mentioned about the progress we've made in a necessary expense behind dead heading and recrewing, tighter schedule adherence, and this is near and dear to my heart. We stay with the schedule 7 days a week, and we run the same schedule every day. And if the traffic is there, we're going. If the traffic is not there, we're going, whether it's 120 cars or 40 cars, we're leaving on time. That's really the secret of the business, right? The way I was brought up, and that's what we've been doing. We're also going to reinstitute individual car trip plans. This is something that we started back in the early 2000s. You probably remember it, where we can actually see where the car falls off trip plan, we can isolate the location where it fell off trip plan, the reason why it fell off trip plan, and it was a daily correction exercise we went through. Very impressive to a customer that wants to know why their car is not on time, and we can roll out exactly why it wasn't on time and the reason for it when Doug's sales force makes a call. So that's just some of the plan that we've been addressing since I've been on board, and it's a lot easier to do it as an active employee than it is as a consultant. I don't like suggesting anything. I like telling. So that's where we're at. And so far, so good. I'm very pleased with the results and the progress that we've made operationally.

The next question is from Cherilyn Radbourne from TD Securities.

I also had a question for Ed. So I guess I'm picking up on the last one. First of all, welcome back. Just curious now that you returned to CN after having had the opportunity to assist out a couple of other class ones operationally. Can you comment on what you think RCM's particular strength from an operating perspective? And I think in your prepared remarks, you mentioned the company is moving back to 3 operating regions from 2. So maybe within that, you could outline the rationale for that in particular?

Well, I don't like to compare ourselves to other carriers because all the networks are different to begin with. And I can tell you, I learned a lot in my time with other carriers. I learned different ways of doing the business. But quite frankly, as I said earlier, this is a simple process. I mean, Mr. Harrison always just told us it's like checkers: keep them on the black squares and figure out that way around them. And that's exactly what we're doing here today. What I'm very pleased about this network is it's solid. It's linear, it's easy to operate on, and it's pretty easy to schedule when it comes right down to it. There's not a lot of interference with cross traffic or other railroads and the acquisition when I left CN to begin with, I wish I was part of it, the EJ&E acquisition, we fly through Chicago. I mean, instead of taking 12 hours to get through the city, to get to our yards on the south end, we rounded in an hour. That benefit is unbelievable. And the ability to run trains out of Winnipeg through the J to Toronto around the South Lake, Michigan, is just fantastic. I mean, I wish I could have been here when they bought it because I would have been on the first train going around the horn. But actually, a lot of opportunity, a lot of possibilities here. And I've just started digging back in really when it comes right down to it. I am extremely impressed with the management team here, the operators, a lot of knowledge, a lot of people that were here before. A lot of people that came from other carriers that understand the game, too. Besides that, and we simplified the network going from 2 regions, which to me was just too much for any one guy to handle to 3 regions. I like my operating officers to be able to be in the face and talk to the crews and be part of the crew solutions. And this allows them to do that. And we set up the organization. We just finished reorganizing the operating department in a traditional realm that we used to do back in the days. In fact, Ghislain said, "Hell, that's the way we used to do it when I was here." And that was the truth. We did it the same way again because that's what I was familiar with, and it leads into what's down the road for the next generation of railroads. You can see it on the org chart. if you're second or third out, you can plan on getting promoted probably in about 5 to 10 years. And that's the way I want these people thinking. And I think that drives efficiencies and opportunities. So I hope that answered your question. I probably got a little long-winded, but like I say, I like railroading.

The next question is from Brandon Oglenski from Barclays.

And Ed, welcome back. Ghislain, I hate to focus on the operating ratio. But given the EPS guide, it seems like there are some pushes and pulls regarding the outlook for margins. Is this an environment where you think some of those cost pressures might be too significant to show much improvement this year?

No. Listen, Brandon, as I mentioned earlier, we are continuing to focus on costs. We know we need to improve our margins compared to last year. It's a low volume environment, which makes it somewhat challenging, but we are working on it and ask you to stay tuned. I believe we will see what unfolds, and we'll monitor the economy as well.

Let me come in over the top of that just for a moment, Brandon. So I'm pretty proud of what this team did this year on a 130 basis points improvement. When you want to improve operating ratio and improving our margins, it takes everybody. It means a good efficient operation. It means that you sell into your network, and it means you price properly and you stay focused on the velocity of your operations. So those are all basic building blocks. And in any economic environment this year, whatever unfolds, those are the things that we're going to be working on. We have a couple of headwinds that Ghislain outlined to you. We'll see how those play out over the year. We're going to mitigate them as much as we can. So really, it comes down to what kind of leverage we get out of volumes. And that remains to be seen. So we will be in front of you as that becomes more clear to us.

Thank you. Next question is from Kenneth Hoexter from Bank of America.

Great to be back with you all. Ghislain, I have a question for you that ties into some previous inquiries. Can you discuss the first quarter of last year and the weather impacts during that time? Historically, there has been a roughly 500 basis points decline in the first quarter over the last few years. Given that the weather seems to be improving, should we anticipate a different outcome this year? Also, regarding your mention of the plan and traffic — did the plan change, or were people simply not adhering to it? I'm trying to grasp what caused the rapid shift.

Let me begin by addressing your first question before handing it over to Ed. Last year at this time, we were in a difficult position, finishing Q1 with an operating ratio of 66.6%. This year, our volumes have increased, as you can see on a weekly basis. We've been fortunate with favorable weather conditions across the network, which has contributed positively. The team is performing exceptionally well. However, let's not get ahead of ourselves. We have only completed about 20 days of this period. We'll have to wait and see how things progress, especially since winter is not finished yet; next week, temperatures are expected to drop significantly in some regions. What we've achieved so far is promising, but we need to remain cautious. Now, Ed, you can take over for the second part of the question.

I would say that my comment about following the trip plan, it was just something as simple as you got a plan out there, why don't you run to it and run on time, depart on time. And that really is what pushed the envelope to getting people focused on following a scheduled railroad. That was the first step. And we're well into it now. So...

The next question is from Ravi Shanker from Morgan Stanley.

A follow-up on the volume commentary for '23. Tracy, I think you said at the top of the call that you think the first half is going to be fine, but the second half visibility is low I think there is at least one scenario that believes that in the back half of the year, kind of inflation should be more under control and kind of rates are potentially under control and inventories are potentially under control. And so the back half outlook should be better in the first half outlook. Can you talk about kind of why you think there's less visibility into the second half and maybe some of the kind of things that concern you about volumes right now?

Ravi, what I said was that we have a clear line of sight in the first half, given we know what the grain crop is. And as Doug outlined, we know what coal looks like. And Doug outlined kind of where we see the softness. What I said about the second half is we don't have line of sight. We've modeled a certain grain crop, but the crop is not in the ground yet. So it remains to be seen what that looks like. And we are hearing, like you, any number of different scenarios on what inflation may do and therefore, how quickly volumes may rebound. As I said, our guidance is based on the best information that we have right now. And as we get further into the year, we'll give you an update as it becomes clear.

Great. And just a very quick follow-up. How much of the NCIB is included in the EPS guide?

We are planning to complete the entire program. We expect to finish the $5 billion share buyback program by the end of January, and we anticipate completing the $4 billion portion of it by the end of January 2024.

The next question is from Fadi Chamoun from BMO.

Yes. And, Ed, nice to have you back on this call. I hate to make you endure one more question on guidance. But I hear you talking about how operationally things should continue to improve this year and pricing ahead of inflation and you've got the share count going down in the 3%, 4% on average this year potentially. Just how bad do you think the volume could be this year? Just seems to be kind of the variable that may be keeping you on the edge a little bit with the guidance. Are there kind of specific end market you're worried about? Are there other cost items that outside of the labor that maybe just last are factored in this guidance that you may be missing?

Thanks, Fadi. I'll begin by saying we think it's wise to be cautious given the current uncertainty in both volume and the economic environment. We've observed a slight dip in North American industrial production, but we believe our volumes will perform better than that. We have our next schedule ready and are laying the groundwork for improved rail operations and greater efficiency. Doug, regarding the one-third that's becoming available, the focus will be on pricing strategies that outpace inflation. As Ghislain mentioned, we are facing some labor-related challenges that we are addressing. Given the time of year, we deem it sensible to maintain a cautious stance. As the year progresses, our outlook could become more optimistic, or it might trend more pessimistic. Right now, that's our current position.

The next question is from Scott Group from Wolfe Research.

So obviously, we're all trying to figure out like how much of this is macro uncertainty, conservatism versus reality. So maybe Ghislain, like you talked about the $100 million headwind from the paid sick and work rules. Anything else just you want us to be considering? Is pension a headwind? I know fuel was a big tailwind last year. Does that turn into a headwind this year? Anything else that you just want us to be thinking about? And then I didn't hear a CapEx number. I don't know if I missed it, but if not, can you just share CapEx for the year?

Yes. So yes, the big ticket items, obviously, is what I mentioned in terms of the labor headwind. In terms of pension, we don't see a big headwind on pension. I think we see even a little bit of a tailwind next year. And I think on CapEx, I think that we did not talk a lot about CapEx. I think you can assume that we would continue to invest in the range, high level of the last few years. And those are the big ticket items. I think that when you look at fuel, it could be a bit of a headwind in terms of fuel surcharge. When you look at our average OHD last year, it was around $480. And I think that the spot rate on OHD so far is about $450. So if you assume that the $450 million remains, then that could be a bit of a headwind in terms of fuel surcharge for 2023. But I would say that these are essentially the big ticket items.

The next question is from Walter Spracklin from RBC Capital Markets.

It's great to have you back on the call. Ed, you mentioned the importance of developing the next generation of railroaders and that fostering a culture of precision scheduled railroading can be challenging and time-consuming. I'm interested in how you plan to tackle that. How long do you anticipate it will take? Will you primarily develop talent internally, or are you considering bringing in outside expertise? I’d like to hear more about your overall strategy for training the next generation of railroaders.

Well, thanks for the question. We've already started. We've got 3 or 4 candidates that we're looking at very closely. We're changing duties for each of the candidates as the year goes on to get them prepared to handle more than what the responsibilities are today. I don't think we're going to look to the outside unless Tracy's got plans I'm not aware of, but I like this team. I like everything I've seen about it since I came back full-time and am very confident in the level of expertise and operational knowledge that's out there. So no, I'm not looking on the outside. And yes, we already got candidates we're considering right now.

That's great. Looking forward to hearing more about it at Investor Day. Thanks very much, Ed.

The next question is from Amit Mehrotra from Deutsche Bank.

I wanted to follow up on that fuel question and discussion. One of the things we've noticed, obviously, is when you look at fuel surcharge revenue over the last several quarters and the coverage of that revenue relative to the expense is just much higher than it has been really at any time in the past. And I want to understand kind of, has there been a change in like the fuel mechanism or something that allows that fuel surcharge revenue to kind of well more than cover the expense? And can that unwind and could that be a source of kind of profit headwind just really based on like how that ratio has trended today versus how it trends over the last many years?

Amit, when considering fuel, last year did indeed have a lot of fluctuations from quarter to quarter due to fuel lag. In Q1 last year, our fuel lag negatively impacted EPS by $0.13 year-over-year. This created considerable noise around fuel lag. Additionally, the fuel surcharge is determined by OHD while our fuel expenses rely on spot prices, which led to a disconnect between OHD and WTI last year, contributing to this noise. That's essentially the situation.

The next question is from Jon Chappell from Evercore ISI.

Thank you. Good afternoon. Doug, I wanted to ask you about capacity. I mean you're dealing with a lot of moving parts here, really strong grain, kind of uncertainty in international intermodal, weak industrial. At the same time, you're implementing somewhat of a new operating plan. How are you managing your capacity across the entire network with so many moving parts to ensure that you don't have an elevated cost basis, but also to ensure you still have the capacity if growth does pick up before you expect it to?

That's a great question, Jon. It's truly a team effort. We collaborate closely with Ed and his team, looking at each segment in detail to assess our capacity along every lane. We schedule and assign our traffic accordingly, and Ed's team ensures it moves through those lanes. As we analyze and adjust, we add or remove traffic while ensuring our network can accommodate these changes. From a sales perspective, we price based on that capacity and aim to maximize the utilization of our trains. Ed's team does an excellent job of keeping us informed about areas where we can sell, allowing us to act on those opportunities. This approach has been very effective, and we'll continue to grow our railway in line with our available capacity.

The next question is from David Vernon from Bernstein.

So just on this legislation just came about in December. I guess I'm wondering how fixed and firm it is and whether there might be an opportunity to work with the regulators to try and engineer a solution that adds the time off, but in a structured way that limits the productivity drag of having just to add excess resources to deal with increased callouts and things like that?

David, it's Tracy. I'll take that one. I think that the right form to work that out is sitting in front of our employees and their representatives. And so we have discussions and we'll be in negotiations this year with a number of them, and we look forward to that opportunity to work out what an agreement on what works for them and what works for us, and we think that we're going to find something that's in between.

Yes. I mean I appreciate you don't want to negotiate on the call here. But I mean, historically, CN has had a pretty good track record of kind of working with labor to find ways that align interests as opposed to the disruptive things like this. I'm just wondering like the $100 million estimate, like how firm is that? I mean, I got to imagine it's a plug at this point?

It's a rough estimate based on several assumptions. We are currently in negotiations with a few of our unions. We have new agreements in place with the IBEW and the RTCs, both of which are multiyear agreements. We are also negotiating with others and hope to reach settlements that protect our workers and enhance our efficiency, benefiting both parties. This is the perspective we are taking into these discussions. As the year progresses, we'll provide more visibility on this issue. It makes sense to acknowledge it as a variable factor.

The next question is from Steve Hansen from Raymond James.

Just hoping you could perhaps provide some commentary around the intermodal outlook and specifically, the delta you're seeing between international and domestic. I think on the last call, you had started to acknowledge some weakness in the international side, and that continues to be the case. But domestic weakness is a newer phenomenon that's been downgraded it seems. Just maybe some commentary around the relative prospects for the 2 would be helpful for the year.

Thanks, Steve. It's Doug. On the international front, we are still experiencing some inventory overstocking and witnessing blank sailings coming from Asia. This trend is expected to continue into the first quarter, indicating some weakness in that area, though our visibility moving forward is limited. Conversely, on the domestic side, we are seeing normal volumes currently without significant weakness or strength. As a result, we are approaching volumes cautiously. We believe we are prepared to adapt as necessary. Despite the decrease in truck prices, we are maintaining a steady position from the rail perspective.

The next question is from Ariel Rosa from Credit Suisse.

So I wanted to ask, in terms of the volume outlook and maybe some of the conservatism around that, does any of that reflect anticipated impact from the CP KCS merger going through? And then separately, with regard to this Investor Day coming up, in May. I just wanted to understand, Tracy, kind of what are your objectives there? And what are the main things that you're trying to communicate to investors that you feel maybe aren't being understood? Or I guess why holding Investor Day now?

Thank you for the question. Regarding KCS, we've discussed this several times and feel confident in our position concerning any announcements or mergers that may occur. Our focus remains on our own operations, and when we execute effectively, we become quite competitive. During Investor Day, we plan to share some key topics for discussion, including our vision for the future of scheduled operations. The resilience of our operations is central to our railroad's management strategy. Scheduled operations encompass not just the operational aspects but also how we optimize capacity sales. Additionally, we'll outline our growth expectations moving forward. We are enthusiastic about the growth opportunities ahead, despite this year's anomalies and some downturns, which we have experienced before and will occur again. We believe we are well-positioned to emerge strongly from this. At our event in May in Chicago, we will discuss our medium to long-term growth outlook, and we have a lot of exciting information to share with you.

The next question is from Justin Long from Stephens.

Tracy, when you were brought on board, one of the themes you talked about was curating the book of business. Is that process now complete? And if it is, is the next leg of OR improvement dependent on volume growth? Or do you still see what I would define as self-help opportunities that can drive meaningful margin improvement in the absence of volumes moving higher?

Last year at this time, we had a portfolio that didn't align well with our network and capacity. This made it challenging to operate efficiently and deliver the promised service to our customers. We've addressed that issue, and it's now behind us. Looking ahead at scheduled railroad opportunities, we expect year-over-year improvements in velocity as we continue to organize. There's more work to be done, which Ed will discuss further during Investor Day. Our next focus is to leverage the capacity we've established as we refine our scheduled plan. We can now identify where we have train capacity in specific corridors and where trains aren't yet operating at full length. Doug will focus on selling into the available capacity, particularly in the East and the South. Additionally, we are looking for partnerships with our customers, pursuing organic growth, and exploring new markets that we've previously discussed and will provide more detail on in May, as we invest in that growth. These are the next two steps for us.

The next question is from Jason Seidl from Cowen.

Ed, welcome back. I wanted to piggyback on one of the questions about sort of the potential of CP KCS merger, if it gets approved, is the guidance assuming any concessions from that? Or would any concessions potentially add to your outlook?

I appreciate the interesting question. Our guidance takes into account the steps we've taken to ensure our business is secure regarding any potential transaction. It also factors in the volume and pricing estimates you've seen. We'll leave it at that and see how things develop.

Okay, I appreciate the time as always, Tracy.

Thank you.

Thank you. This concludes today's question-and-answer session. I would like to turn the meeting back over to Ms. Robinson.

Thanks for your interest today. We know it's a little bit of an uncertain climate and a certain year. We're pretty focused on doing our job well, running efficiently, and we will, we believe, lift our volumes above what the market would tell us industrial production is this year. And most importantly, we look forward to connecting with you again at the end of the first quarter, where inevitably we'll have a little bit more information. Thanks for your time today.

Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.