Good afternoon. My name is Julianne, and I will be your conference operator today. Welcome to CN's Fourth Quarter and Full Year 2023 Financial and Operating Results Conference Call. I'd now like to turn the call over to Stacy Alderson, Assistant Vice President, Investor Relations. Ladies and gentlemen, Ms. Alderson.

Thank you, operator. Good afternoon, everyone, and thank you for joining us for CN's Fourth Quarter and Full Year 2023 Financial and Operating Results Conference Call. Before we begin, I would like to highlight the forward-looking statements and additional legal information available at the beginning of the presentation. As a reminder, today's conference call includes certain projections and other forward-looking statements according to U.S. and Canadian Securities Laws. These statements are subject to risks and uncertainties that may lead to actual results differing significantly from those expressed or implied. More details are available in our cautionary statement regarding forward-looking statements in the presentation. After my prepared remarks, we will have a Q&A session, and I would ask that you please limit yourself to one question to allow us to hear from as many of you as possible. The Investor Relations team will be available after the call for any follow-up questions. Today, we are joined by Tracy Robinson, our President and CEO; Pat Whitehead, our Chief Network Operations Officer; Derek Taylor, our Chief Field Operations Officer; Doug MacDonald, our Chief Marketing Officer; and Ghislain Houle, our Chief Financial Officer. It is now my pleasure to turn the call over to CN's President and Chief Executive Officer, Tracy Robinson.

I want to start today by welcoming Derek and Pat to their first call. It's great to have you with us. I also want to extend a warm welcome to Remi, who is currently out in the field, getting involved in the operation. You'll have a chance to meet him over the next couple of months. Doug continues to lead our commercial organization and growth efforts, and he's here with us today. Doug will be retiring this year, and there will be more details on that later, but I want to express my appreciation for your partnership over the last few years, Doug. I know you will do a fantastic job in preparing Remi to work with our commercial team. This transition later this year will be seamless for both our customers and employees. We're focused on long-term success and are fortunate to have many strong and experienced individuals at CN. We'll occasionally bring in talent with diverse backgrounds and perspectives to strengthen our team as we refine our strategy and pursue growth. We are also taking a long-term approach to our network, which has always been a core strength for CN, allowing us to provide effective solutions for our customers' needs. We will expand our network where it makes sense to enhance our capabilities. In the fourth quarter, we completed the CBNS acquisition, which will help us further develop the eastern part of our network in the coming years. Additionally, in December, we signed an agreement to purchase the Iowa Northern, which will improve market access for customers in that region and enhance our agricultural business. I want to welcome anyone listening for the first time today to our railroad family. We expect to fully integrate the Iowa Northern property later this year pending a favorable outcome from the STB review process. Before I invite the team to share more details, I'll recap our current status, starting with safety. We finished the year with significant improvements in both accident and injury frequencies, and I'm very pleased with the efforts that contributed to this impact. Our commitment to achieving zero incidents will continue. On the operations front, we entered the fourth quarter having faced some tough conditions last year, managing through a freight recession and various external challenges. In Q4, we benefited from more favorable weather, and our operations team took full advantage, achieving strong on-time performance and velocity metrics. As we begin this year, we're experiencing extreme winter temperatures across the network, but the team is already working hard to return to previous operational levels. No matter what challenges we face, adhering to this model will ensure our resilience and optimal performance. Our full-year car velocity, despite the difficulties in the second and third quarters, was 213 miles per day, reflecting a 9% improvement over 2022. We are running according to plan, maximizing our assets, and maintaining consistent service levels for our customers. A strong, reliable, and resilient operation is essential in this industry and serves as the foundation for driving the economy and achieving our growth objectives. Ultimately, it comes down to fulfilling our commitments. We have a plan, and we're executing it. We've been building our operational track record for the past seven quarters, and I believe I can speak for the entire team in saying that it feels great to have the CN spirit back. Regarding our quarter and full-year results, I’ll highlight a few key points. Our adjusted EPS for the fourth quarter was 4% lower than last year, and our operating ratio was 59.3%. For the year, our adjusted EPS decreased by 2%, with an operating ratio of 60.8%. These outcomes are commendable given the challenging environment. We mentioned last quarter that we believed we reached the bottom concerning volumes, and that has played out as expected, with a sequential improvement of 10% in our Q4 RTMs. Although there are uncertainties regarding the economy heading into 2024, we anticipate ongoing improvement throughout the year, and Ghislain will provide additional details on our expectations. Alongside the economic rebound, we are also advancing our growth initiatives that leverage our network, strong service, and partnerships with customers and supply chains. These initiatives are starting to show results, in some cases more quickly than we anticipated. Doug will elaborate on this, and you'll hear from Pat and Derek about our operational status as we prepare for increasing volumes. I am confident in our EPS guidance of around 10% growth over 2023. I will now turn it over to the team for further details. Pat, you're up.

It's great to be on the call today. I'll begin with safety. In the fourth quarter, our injury frequency ratio decreased by 14%, and our accident rate dropped by 29%. These outcomes represent a strong performance for the year, showcasing our advancement towards a commitment-based safety culture. Over the entire year, our injury frequency ratio improved by 13% and the accident rate improved by 17%. This marks a record low for injuries at CN, but we acknowledge that we can and need to do better. I take pride in the progress we're making in our safety metrics, but this is a continuous journey, and we won't be satisfied until every employee returns home safely at the end of their shift. Our vision is to create a workplace free from accidents and injuries. We are dedicated to collaborating across all teams and departments to realize this vision. Training, development, technology, and behavior-based safety initiatives are crucial for enhancing our safety culture. One significant contributor to better safety outcomes is operating more predictably. Predictability is essential for our efficiency and resilience. CN's scheduled operating model has achieved seven consecutive quarters of operational and service success. As we have indicated, the plan is flexible and must adapt to our conditions. With rising volumes, we have been fine-tuning our train packages. For instance, we introduced a new train out of Prince Rupert and modified the Vancouver train schedule to accommodate increased volume in that corridor. Timely departures and arrivals, referred to as launch and land, remain a major focus for both network operations and field teams. These are fundamental principles of scheduled railroading. In the fourth quarter, performance for origin trains stayed strong and consistent with previous quarters at about 90%, which is where we aim to be for on-time train meetings. Destination train performance for Q4 was at 70%, and we recognize there's potential for improvement by further reducing train meet delays and ensuring timely crew changes at intermediate terminals. I'm pleased with how the network and field teams have navigated the complexities introduced by the new Canadian Work/Rest Rules regarding crew scheduling. We continue to refine and adjust train schedules to comply with this requirement. You'll hear more from Doug regarding volumes, but my team is preparing for the business, ensuring we have the appropriate resources ready. There are several capital projects underway that will enhance short-term efficiency and foster long-term growth along the mainline from the West Coast to Chicago. In 2024, we will invest in additional double track along our Vancouver to Chicago corridors, including projects on our Edson sub and the former EJ&E around Chicago. We are also investing in our rolling stock, with the locomotive modification program in progress and various car fleets being renewed. Our training campuses were quite active in 2023, qualifying over 900 new conductors to manage attrition and comply with the Work/Rest changes in Canada, and we are now gearing up to align with our growth forecasts. In summary, from a resource perspective, we are well-prepared to meet the expected demand and grow alongside our customers. I'll now turn it over to my good friend, Derek, to discuss how the team executed in the fourth quarter.

Thanks, Pat, and good afternoon, everyone. The team finished the last quarter of 2023 with strong operational momentum, and we started the new year with a very fluid network. While we benefited from unseasonably mild weather and no major disruptions in the fourth quarter, I give full credit to the team for remaining focused and continuing to deliver excellent customer service. Finishing with positive momentum was key because, over the last 2 weeks, we've had more seasonal weather across the network with frigid temperatures, significant snow, and blizzard conditions. As we've said before, our make the plan, run the plan approach is not just about driving velocity and reliability. It also builds operational resiliency, allowing us to bounce back quicker after this kind of disruption. We're talking days instead of weeks. I'll now cover off some of the key operating metrics. Starting with car velocity, what we view as the all-in metric of how well the railway is running, it averaged 215 miles per day in Q4. That is a 4% increase versus last year and one of our best Q4s ever. Importantly, we maintained this level of velocity right up to the end of the year even as volumes were ramping up. Throughput dwell of 6.9 hours was a 4% improvement over last year. This is even more impressive given our traffic mix had less intermodal volume this year, which we know typically does not sit in a terminal for very long. Continued focus on terminal throughput and collaboration between yards and the operation centers enabled this further improvement. To give you a bit more color on our solid operating performance, network train speed of 19.6 miles per hour for Q4 is flat versus last year, but improved 5% on a full year basis to 19.8 miles per hour versus 18.9% in 2022. Doug will talk about the customers' perspective of our service in a minute, but the metric I keep a close eye on is our local service commitment performance, or LSCP. This means getting the customers the right cars on the right day and in the right service window. Our fourth quarter LSCP was nearing all-time highs. I am confident the team will continue to execute and keep it at or above our 90% goal as we go through 2024. Incremental metric improvement is a continuous journey looking for every gain we can through process and execution. The team is always looking for any types of operational efficiencies in everything they do. Some of our recent performance, as it used to say, has hit the sweet spot for this network. Our focus is to have balance in our metrics, not focus solely on one to the detriment of the other and always being mindful of cost versus benefits. Now I will turn it over to Doug.

Thanks, Derek. Tracy already touched on the transition later this year with Remi, who is out in the field, getting his boots dirty and seeing the operations up close. I got ahead of Derek and Pat and the whole operating team who continue to deliver top-notch service. The feedback from customers is that we're continuing to hit the right spot and make adjustments where needed. We continue to deliver core pricing ahead of CN's cost inflation. Turning to Slide 11 now. Fourth quarter revenues were down 2% versus last year on lower intermodal storage fees and a lower applicable fuel surcharge, partially offset by volumes and solid same-store pricing. RTMs, which we view as the best measure of volume, were up 2% in the quarter, driven by record potash movements, strong propane, Canadian met coal exports, and refined petroleum products. We've seen sequential volume improvement since we hit the trial in July, as we said on our last call. Our volumes for Potash were up 12% in the quarter. With the exception of crude oil, all segments were up on a year-over-year basis. We are handling record propane exports and in line with the CN-specific growth initiatives laid out at Investor Day. We also saw increased gas and diesel shipments out of Alberta and a modest recovery for chemicals and plastics feedstocks. Metals & Minerals RTMs were up 3% with positive growth across all segments, including frac sand, scrap steel, and aluminum, except for iron ore where cars were up, and RTMs were down due to a shift back to more short-haul domestic shipments. To finish off on merchandise, forest products volumes were down 5%, driven by softer market conditions. For bulk, starting with fertilizers, RTMs were up 85%. We handle incremental domestic and record potash exports using our available capacity in the eastern and southern regions. Coal was up 1%, with Canadian coal up 5% due to strong export met coal from Northern BC and U.S. coal down 9% due to an operational issue at one of our customers' mines. Canadian grain shippers did not use all of the available supply chain capacity in Q4. Weaker global commodity pricing led to a holdback in grain, shifting volumes into H1 2024. Our Q4 U.S. grain exports were tempered by lower demand in China and increased global supply. Automotive RTMs were up 22%, continuing the strong trend that started in early 2023 with dealer inventory restocking. Turning to Intermodal. International was down 11%, mainly due to the lingering effect of the port strike, particularly for Prince Rupert traffic. However, imports of both West Coast ports returned to pre-ILWU strike levels by December. We are encouraged by the sequential uptick in volume in the fourth quarter and with our ongoing discussions with Steamship Line customers. Domestic was down 3%, mainly in our retail segment. Our efforts in the CN-specific initiatives like Falcon and EMP produced volumes, mitigating some of the overall market softness. Moving to the outlook on Slide 12. As Tracy said, we will benefit from a more favorable economy, but more importantly, our CN-specific growth initiatives are starting to deliver. We see lumber and panels coming back gradually in 2024. There is optimism in the economy about interest rates coming down, which should help stimulate new construction permits and there is still a shortage of approximately 6 million homes in the U.S. We project more frac sand and LPG shipments due to increased drilling in Northeast BC, and this will be supported by the new siding near Fort St. John, as mentioned in our Investor Day initiatives. In 2023, crude shipments were at an almost 5-year low, but driven — given the forecast for Canadian crude production, along with the delay in the start-up of the Trans Mountain pipeline, we see opportunities to handle incremental crude business in 2024. The CN Fuels facility in our MacMillan Yard will begin wet commissioning this month and will start producing carloads and ramping up through Q1. We have now sold-out capacity in Phase 2 of this project and construction is underway. For potash exports, we expect to see a year-over-year headwind starting in Q1 related to the business we picked up in 2023 while the Portland terminal was down. We continue to get strong ratable volumes with our premium service and utilizing our available capacity in Eastern Canada. In Canadian coal, we have met coal production capacity coming online in the back half of the year related to the new Valerie mine and the Quintette restart in Q4. As mentioned earlier, this year's Canadian harvest is down versus last year, but we are expecting a normal crop for the 2024-25 crop year and a better Q4 than what we just saw. We call that this year's inflation index for regulated grain movement is 12% and will receive our 2024-2025 pricing determination in the spring. U.S. grain will benefit from the acquisition of the IANR, pending STB approval, which we anticipate being completed sometime by next fall. We are projecting automotive demand to remain strong and volumes roughly on par with 2023, even with some outages related to retooling for EV production. For International Intermodal, we continue to work on filling up Prince Rupert and building on recent momentum in Vancouver. We also expect growth in our southern ports in the Gulf, driven by new service offerings into the Midwest. Overall, we see a gradual return to pre-COVID volume levels over the next few quarters. Domestic growth will come from our new interline partnerships, specifically targeting truck volumes. We have capacity on the network, in our terminals, and with our fleet to grow volumes as the economy improves. In summary, we've rotated through some of the headwinds which challenged us in 2023. We have good momentum, CN's customer service is excellent, and our CN-specific growth projects are delivering. With that, I'll pass it over to Ghislain and go through the numbers.

Turning to Slide 14, we saw a 2% year-over-year increase in RTM volumes, although our revenues declined by about 2%. Our operating income was approximately $1.8 billion, which is a 5% reduction from last year, with an operating ratio of 59.3%, up 140 basis points from last year. There were two non-recurring items below the line. This quarter, we executed a tax reorganization that generated around $700 million in one-time income. As a result, our overall tax status in both Canada and the U.S. remains largely unchanged, and our effective tax rate is projected to be about 25% for 2024, which is roughly 50 basis points higher than in 2023. Cash taxes will account for about 80% of our overall effective tax, consistent with prior years. Additionally, we monetized a surplus right of way in Ontario for about $130 million. On a reported basis, our EPS was $3.29, marking a 57% increase from last year. However, when excluding the one-time items, our adjusted EPS was $2.02, a decrease of 4% year-over-year. In terms of expenses, labor costs were up 12% compared to last year, influenced by a 5% increase in average headcount and general wage raises. Fuel expenses were over $100 million lower than during the same period last year, primarily due to a 17% drop in fuel prices. Looking at our full-year results on Slide 15, our adjusted EPS was 2% lower than last year, aligning with our revised guidance. Our full-year operating ratio stood at 60.8%, an increase of 90 basis points on an adjusted basis from last year, despite facing significant disruptions in the second and third quarters from forest fires, flooding, and the West Coast port strike, which negatively impacted EPS by around $0.17. We generated nearly $3.9 billion in free cash flow for the year. Our disciplined capital expenditures amounted to $3.1 billion, excluding amounts recoverable from customers, representing about 18.5% of revenues. We are investing in our rail car fleet and steadily maintaining tracks, while also expanding capacity in line with our customers' demands and maintaining a focus on capital efficiency. Our ROIC came in slightly below 15%, as it is very sensitive to income fluctuations. Moving to Slide 16, we anticipate a more positive economic environment for 2024 compared to 2023, with slight growth in industrial production and stabilizing interest rates. The consensus view on the risk of an economic recession seems to be decreasing. Nonetheless, the landscape remains volatile with ongoing monetary policy changes and geopolitical risks. Some sectors, especially Intermodal International and forest products, are showing sequential improvements and are expected to stabilize back to pre-pandemic levels. We forecast that Canadian grain will return to a three-year average in the latter half of the year. Considering this and our CN-specific growth initiatives, we expect RTM volumes to grow in the mid-single-digit range. As volumes rebound, we should experience the benefits of our operating leverage, particularly in the merchandise business, where we currently have train capacity and can accommodate additional volumes at low incremental costs. However, we face about $200 million in cost pressures, mainly from depreciation, incentive compensation, and pensions. We estimate foreign exchange at around $0.75 and WTI of $70 to $80 per barrel for the year. Under these conditions, we anticipate approximately 10% EPS growth in 2024 compared to 2023. Our CapEx for 2024 is projected at around $3.5 billion after accounting for customer contributions, with expected ROIC between 15% and 17%, which aligns with the target range we provided at our Investor Day. Regarding shareholder distributions, we are happy to announce that our Board of Directors has approved a 7% dividend increase for 2024, marking the 28th consecutive year of dividend increases since our IPO in 1995. The Board has also approved a new share buyback program for up to 32 million shares, amounting to approximately $4 billion, through a normal course issuer bid from February 1, 2024, to January 31, 2025, consistent with our previous budget before its increase last October. In conclusion, I want to highlight a few key points. We have achieved seven consecutive quarters of exceptional operating performance, providing excellent customer service while navigating significant external challenges to deliver strong financial results. While we remain aware of ongoing economic and geopolitical uncertainties, we are optimistic about a recovery in 2024. Specifically, we expect Intermodal International to return to pre-COVID levels and for forest products to gradually increase over the next 18 months. Our growth strategy is actively progressing, and assuming a favorable economic backdrop, we are targeting approximately 10% EPS growth compared to 2023, supported by mid-single-digit volume growth. Our balance sheet is strong, and we intend to leverage our financial flexibility to seize upcoming opportunities. I will now turn it back over to Tracy.

Thanks, Ghislain. Well said. Operator, we'll now go to questions.

Our first question will come from Chris Wetherbee from Citi.

Maybe starting on the '24 guide, if we could maybe unpack some of the moving parts a little bit. So RTM guide, mid-single digits. And then, I think, Ghislain, you talked about maybe $200 million of some cost headwinds there. You have about 5% coming below the line. So I just want to make sure I understand sort of the operating leverage of the business. Is it mostly offset by the $200 million? Or maybe we can kind of think about how you should be able to generate incremental margins on that mid-single-digit RTM growth?

Chris, this is Tracy. Let me address this. We are forecasting a 10% EPS. The volume forecast assumes a gradual economic recovery as we progress through the year, along with the customer-specific growth initiatives Doug mentioned. Regarding margins, as volumes increase, we expect to benefit from our operating leverage. We've seen volumes decline, and as they rise again, we anticipate improvement, particularly in the merchandise sector where we have available train capacity. Moreover, in terms of pricing, looking back at the last 18 months, we have consistently delivered and expect to maintain pricing above rail inflation. This is encouraging news. While we do face some headwinds mentioned by Ghislain, these will be mitigated, helping us achieve the 10% growth on the bottom line. Does that make sense?

It does. So just the way to think about it is, there still is the sort of normal operating leverage on the revenue growth, mostly offset by those incremental costs that kind of gets you to kind of core growth before the buyback in line with RTM growth? Is that roughly the right way to think about it?

Yes. You got it pretty much.

Our next question comes from Cherilyn Radbourne from TD Cowen.

I wanted to explore the International Intermodal segment a bit more. You mentioned that the Canadian West Coast market share returned to pre-strike levels in December. I'm curious about the current situation in the Red Sea and the Panama Canal. Are you noticing any inquiries that could add to that market share? How likely are those volumes to be stable?

Thanks, Cherilyn, it's Doug. No, it's a great question. It's obviously an ever-changing environment out there. So we spend a lot of time talking with customers about it. We are seeing, obviously, some capacity come out of the vessel market with them having to go around Africa now. So we see some tightening overall. And with that, we're starting to hear with the different problems at both the Panama and the Suez Canal, that the West Coast is looking like a more viable option moving forward. We haven't seen those volumes come in yet, but we're expecting them to gradually ramp up if they do come forward. But so far, so good. We've been able to maintain our pre-COVID levels now for the last, I'll say, almost 8 weeks, and we see that continuing moving forward on both Prince Rupert and Vancouver.

Our next question comes from Ken Hoexter from Bank of America.

Tracy or Ghislain, regarding the EPS target of 10%, you're aiming for long-term growth to reach 10% to 15%. I want to clarify the acceleration you mentioned about hiring. Are you currently pre-resourced due to the changes in work rules, or are you planning to speed up hiring? I'm interested in understanding the cost implications in relation to your growth targets.

Well, I'll start with that one, Ken. So we've been hiring through the year to offset attrition, and that's the lever we're using right now to manage our workforce size, is hiring relative to attrition. And as we look forward, you'll see our hiring ramp up to match the volumes as we see them coming back. We've got great line of sight on a number of the areas, Doug kind of took you through them. And so we're getting ready for those.

Our next question will come from Scott Group from Wolfe Research.

So when you talk about price above inflation, I'm just wondering, do you see that spread widening or moderating this year? And then just near term, any way to quantify the weather impact we're seeing in Q1? And then, any update you can give us on the labor front just with the conductors in Canada?

There were quite a few questions. I'll quickly go through them based on my recollection, and then the team can follow up. One question was about pricing. It's clear that the pricing environment is a bit tighter than we've experienced previously. However, the team has provided Doug with a strong customer service product to sell, which has allowed us to consistently achieve pricing above inflation. The margin above inflation will vary across different commodities and regions, but we have no reason to believe this trend won’t continue. What was the next question?

It's on the weather.

The winter weather, and I can take that one. So we had a very cold snap of minus 40 to minus 50 Celsius about 1 week. We did see some disruption during that period of time as we had difficulty moving throughout that period. But I will say this, to speak to the strength, the resiliency of our disciplined scheduled operating plan, just as we saw as we recovered from the ILWU strike, the wildfires, and the flooding last year in 2023, the way we run the network, and we're always working back to the plan. But that's our north star. We are able to get our legs back under us, get the operation moving again, and we're regaining our momentum, getting our speed and our velocity back. Metrics are improving already.

David? Or who's next?

Our next question comes from David Vernon from Bernstein.

So Doug, regarding the mid-single-digit RTM expectations, can you provide some insight into the larger elements and when we can expect them to start coming in? We're seeing a slightly weaker start to the year, and I’m trying to understand the ramp you have more detailed information on. Could you share when we might see the inflection in the sequential volumes?

Thank you, David. Slide 12 is a strong indicator for us, as we anticipate a gradual increase throughout the year in areas like forest products, which we expect to recover slowly. This won’t be a linear progression. We are aware of this trend, and it applies to most of the products listed. Many of these will be closely linked to the economy. The gradual recovery Tracy mentioned aligns with our expectations. Thus, we expect to see more progress in the latter half of the year compared to the first half, and we are collaborating with our customers to facilitate this as swiftly as possible. Additionally, we mentioned the two coal mines coming online, which will also happen in the second half of the year. Furthermore, regarding International Intermodal, we have seen positive developments since last December. Therefore, we anticipate that momentum will begin to build immediately, and we expect a gradual recovery in the domestic market. And then, the labor costs for accommodating the work rule changes. Has that been sort of seasoned now? Or are we kind of running it at the right level as far as kind of staffing and resourcing? Or are we still kind of figuring out how to make the schedules work with the new hours of service regulations?

Sorry, David, we're only taking one per person.

Our next question comes from Fadi Chamoun from BMO.

Just one clarification first. The comment around volume back to 2019 level. Is that for total RTM? Or are you talking about intermodal specifically as well? And then, my main question is really, if you can extend kind of the outlook that you talked about mid-single-digit RTM? Like if we take that into revenues, what are the moving parts? Like from a mix perspective, I'm guessing pricing incremental to that 5% that gets you high single-digit. But what's your thought on mix? And how should we think about all these moving pieces from a revenue perspective?

That was quite a lengthy couple of questions, but the second one is the key. We do not provide revenue forecasts, Fadi. However, we anticipate that the mid-single digits will continue in our typical manner. We expect the average dollars per car to remain applicable, and you can determine the calculations from there. Overall, we are satisfied with the forecast.

And with respect to the comment around 2019 level or pre-COVID level, is that an Intermodal forecast for volume that could be back to 2019...

Yes. I think that was your one question, and you can go to the Investor Relations team after the call for the other one.

Our next question comes from Ravi Shanker from Morgan Stanley.

Tracy or Doug, can you give us an update on the Falcon service, please? What's the operational rollout been like after the first few months? What's it been like selling the product to customers, et cetera?

Well, that's a good question. I'll have Derek start off on the operational side.

Yes. No, it's been a very exciting product we've had with our partners at the FXE and the Union Pacific. It is acting as one seamless service. We're consistently delivering on the published transit time with our customers. And we look forward to continuing to grow that here in 2024. So solid momentum in 2023, and I see that partnership between the 3 of us only continuing to grow in '24.

Yes. And on the revenues, listen, we told everyone, it's going to be a very slow growth off the truck market, and that's what it is. But that's okay, right? We're expecting it, where both the UP and FXE and us are working hand-in-hand to grow that. The big bid cycle is really only starting up in Q1 where we'll be going after truck business that's out there, and we hope to see some solid growth moving into the rest of the year.

Our next question comes from Walter Spracklin from RBC Capital Markets.

I wanted to focus on the first quarter. I understand you typically don’t provide quarterly guidance, but considering last year was such a challenging comparison and this year has started off difficult due to the weather, could you see any growth in the first quarter when looking at the 10% on a quarterly basis? Is it likely that most of this growth is back-end loaded for the 10%?

Thanks, Walter. Maybe I'll just start, and I'll hand it over to Ghislain. But I'll start by saying it is going to be a tough compare. We had a big quarter last year and some very different weather than the way we've started off this year. But Ghislain, did you want to make any comments on that?

No, that's correct. We have communicated to the market at various conferences that the first quarter would be a challenging comparison. Last year, our earnings per share increased by 38% and our operating results were at 61%, which isn't typical for winter conditions. We are aware of this and have incorporated it into our forecast, which supports our 10% growth projection. As Pat mentioned, we experienced 7 days of deep freeze in the West, but we hope that is behind us now. Looking ahead to February, we are optimistic about avoiding sustained cold weather. We acknowledge that the first quarter will be a difficult comparison, but this has been taken into account in our expectation of 10% earnings per share growth for the year. Thank you for the question, Walter.

Our next question comes from Konark Gupta from Scotiabank.

Best wishes to Doug and Remi for their respective roles. A question for Pat. You said destination performance is improving. But what's your realistic target there, Pat? And what's required from your interchange partners to get to that level?

Konark, thank you for the question. We desire to continue to squeeze that delta between launch and land. We look to get another few percentage points out of that squeeze, that gap between how we launch trains and how we arrive them into terminals. We originate, terminate the majority of our traffic on our own line, so we're not as dependent on the other carriers for that metric. And that's where I talked a bit about reducing train meet delays online, which is a product of getting trains out on time, train schedules, make the train meets and making timely crew swaps. So that's really our focus to continue to squeeze that delta between launch and land. Thank you very much for the question.

Our next question comes from Brandon Oglenski from Barclays.

Ghislain, I was hoping you could update us here on the change in the dividend. And obviously, if you were to go to that full repurchase this year, that'd be quite a bit of cash flow out the door. So where are you seeing leverage in the near term and especially in the context of that 10% to 15% plan over the next 3 years? Would you be willing to take it up higher right now?

Yes. So as we said, we're looking at the targeted leverage over time of 2.5%. I mean, if you look at this year, we finished at 2.25%. We typically grow our dividends in line with earnings growth. You'll see that we're slightly below because we do that over time. And if you remember in 2023, our dividends were up 8%, and our earnings are down 2%. So we have a long-term view on these 2 things. I think that, as we said in Investor Day, our leverage will be 2.5% over time if economic conditions warrant. So that's why we went back and toned back a little bit of our share buyback to $4 billion. Last year we wanted to be opportunistic due to the stock price and where it was. And again, I think in terms of dividend, I'm very proud to say that it's the 28th year that we've increased our dividend, and that's very good. So that's what we're thinking, and we're thinking long-term and without any jerky reaction. Thanks for the question, Brandon.

Our next question comes from Tom Wadewitz from UBS.

I wanted to ask you about train lengths and how you see that opportunity. It seems your current lengths are a bit lower than what you've achieved in the past. Do you anticipate any expansion, perhaps reaching 8,200 or 8,300 feet? If you achieve that, could it potentially enhance your margins compared to your guidance?

It's Derek. I think, when you look at it, right now, we can grow at a lower incremental cost with our manifest business because we can add the traffic on existing trains. Part of the scheduled operation is remaining balanced and turning and splitting the assets. Now when you look at it from an Intermodal point of view, that is something that's been down, that's coming back. That will actually help our train length out as that grows throughout the year. So overall, we're well-positioned to grow at a low incremental cost, and that's the key as we look at it going forward.

Thanks for the question.

Our next question comes from Amit Mehrotra from Deutsche Bank.

I guess my one question would just be on yield. Obviously, there's a pricing component yield, there's a mix component, there's a fuel component. I think fuel was a pretty nice benefit, at least on a lag basis in the fourth quarter. And Ghislain, could you just talk about like, does yield take a step down when you adjust for that fuel? And when do we actually see like the pricing benefit in the yield number? Obviously, mix adjusted or not adjusted for mix because the concern, I guess, I have at least is the yield comes down in the first quarter as these fuel surcharges lag. And I'm just trying to understand what the outlook of cadence of that yield improvement is as you progress through the year?

So I can open up and then I can let Doug talk more a little bit about yield. But on fuel, Amit, I think when you look at the lag in the fourth quarter, it was around $0.04, $0.05 favorable in the quarter and on a year-over-year basis it was as well. So it wasn't a big deal. And I can turn it over to you, Doug, for the mix piece.

Our traffic remains fairly stable, although there will always be some variation depending on the specific product line, which can lead to differing impacts. I won't go into all the details on the call, but we can discuss them later. Additionally, I want to emphasize that we shouldn't expect any changes to the container storage fees moving into Q1 and beyond, as that will have a significant influence.

Thanks for the question.

Our next question comes from Brian Ossenbeck from JPMorgan.

Doug, just wanted to ask if you can give us an update on the CN-specific projects which you quantified at the Investor Day? It sounds like maybe some of them are moving a little bit forward faster than you thought. But how does that shape look like in 2024? Is it back half weighted, like some of the broader economy stuff that you've been highlighting? And I think in the past, you've also given some visibility to how much of that is sort of contracted or spoken for in terms of those carloads. So an update there would be helpful.

Thanks, Brian. I have the presentation with me since I often receive this question. Regarding bulk commodities, much of it will come from the new Canola Crush and the new mines starting up. For instance, we expect to see some volumes from BHP, but that won’t happen until 2026. The Canola Crush also seems to have been slightly delayed, so it will be more weighted towards the back end of 2026. In terms of renewables, we’re observing some activity with crush plants and some ethanol projects starting, although those will also be more back-ended, except we anticipate some ethanol synergies this year. A significant advancement is our agreement with AltaGas for LPG export, which has already helped us hit our target of 40,000 carloads at the lower end of our forecast thanks to that contract—a major achievement for us. The Toronto Fuel facility has completed Phase 1 construction, but we deferred start-up since Phase 2 is entirely sold out and we’re incorporating its construction prior to launching operations, which is expected in Q1. This is excellent news for us. With respect to the EV supply chains, there's some uncertainty. We moved about 800 carloads from the lithium mines in Northern Quebec for export, but with some delays in the EV sector due to recent announcements, we expect some timelines to shift. Nonetheless, all battery plants along our route are still progressing, and some projects remain under NDA, so we can’t discuss them. Lastly, our Northern BC projects, including a siding we added last year, are seeing growth in frac sand and propane shipments. Our Intermodal expansion is also progressing as volume begins to recover. We are actively engaging with customers across our ports, including Halifax, Montreal, St. John, Prince Rupert, and Vancouver, and we’ve initiated a new service in Gulfport. Overall, things are moving in a positive direction, and while I can't provide specific numbers since we're still in talks with our customers, I trust this answer provides a comprehensive update.

Yes. No need for a second.

Our next question comes from Justin Long from Stephens.

You mentioned earlier the $200 million of cost headwinds this year, but could you break that out in a little bit more detail across the 3 different buckets that you mentioned? And does the guidance assume that you can improve the OR year-over-year despite these cost headwinds? Or will that be challenging?

Yes, thanks, Justin. The $200 million can be broken down into about $100 million for depreciation, with the other $100 million split evenly between incentive compensation and pension. Despite these cost challenges, we still believe we will enhance our margins. As Tracy pointed out, margins can be affected when volumes are low. However, when volume increases, we have the capacity to add more traffic on some of our trains, particularly the merchandise trains. Therefore, we are confident that we will improve margins in 2024.

Let me just add to that, Justin. I have to say that I have been really pleased with our operational cost performance over the past 2 years, especially in light of some of the headwinds that we've had over that time. I think our record speaks pretty positively there. And we just spoke to you around how we think it will play out this year. But we'll be managing costs closely, and we expect that our margin leverage is going to continue to grow over time as the volumes strengthen. So that would be the way to think about it.

Thanks for the question, Justin.

Our next question comes from Jon Chappell from Evercore ISI.

Doug, I want to go back to Rupert. You noted back to pre-COVID levels, but you also mentioned a little bit later you're continuing to work to fill Rupert. So is there any way to quantify what capacity is available in Rupert right now, and how much International Intermodal can grow if the economy does the hard landing and maybe Rupert gets up to the full capacity you envisioned?

That's a great question. Rupert is a key asset for us. We're not only expanding our Intermodal operations, but also our propane export franchise and our coal shipments. Additionally, we're seeing growth in wood pulp as well. While our International Intermodal volume did dip to just over 0.5 million TEUs, the terminal can handle a capacity of just over 1 million TEUs, with potential to go up to 1.2 million. We aim to reach that capacity with our partner, DP World, and are actively working with customers to optimize utilization. We're being methodical in this process, especially considering the changes occurring with the Red Sea, Suez Canal, and Panama Canal, which are generating increased interest. We want to ensure that our operations are efficient, maintaining terminal dwell times under three days, which is our target, especially when contracting with customers.

Our last question will come from Michael Caprio from Capital Markets.

Your fourth quarter grain volumes were down 13%, and you had mentioned earlier that maybe some of the grain farmers decide to hold back on some volume through the end of the year. Do you have an idea of what percentage of this grain you expect to be carried over and recouped in the first half? And maybe an update on the discussion with the farmers and the current grain dynamics, I believe?

Sure. I'll start with the Canadian grain before moving on to the U.S. grain. The prices for farmers have been strong over the past couple of years, so they are accustomed to good market prices. This year, however, there is a significant surplus from other countries due to good crops, which has led to a decline in prices. As a result, Canadian farmers are opting to hold on to their grain in hopes of achieving better prices. We've seen one of the lowest demands in Q4 that I've experienced in my time at the company. Nevertheless, the farmers still need to sell, and they have inventory on hand. Any grain that wasn't sold in Q4 will carry over into Q1 and Q2. I believe we can expect the unsold grain from last year to be moved further into the future. While I won’t share exact numbers, I do think we had a fairly good crop this year, with Stats Can estimating it at 67 million metric tons, which is a solid yield—though not as strong as last year. A lot of the crop performed well within our network, meaning we have plenty of grain to transport. We anticipate being quite active for the remainder of Q1 with Pat and Derek, and I believe we will have a strong transition into Q2. Thank you for your question.

This concludes the question-and-answer session. I would like to turn the call back over to Tracy Robinson.

Thanks, Julianne. So a strong finish to 2023 by capping off 7 quarters now of operational and service excellence and a great setup as we started to 2024. So our plan is working. Our make the plan, run the plan, sell the plan approach is driving the right results. And this railroad right now is running as well as ever. And I like the team that we have. Our growth initiatives are ramping up. I'm really excited about the momentum and the opportunities we have over the next quarters. I want to thank you all for being here with us today, and we look forward to talking again very soon. Thank you.

The conference call has now ended. Thank you for your participation. You may now disconnect your lines.