Canadian National Railway Co (CNR) Q3 2026 Earnings Call Transcript

Good morning. My name is Krista, and I will be your operator today. All participants are now in a listen-only mode. After the speaker's remarks, there will be a question-and-answer session, during which time we ask that you kindly limit yourself to one question. At this time, I would like to turn the call over to Jamie Lockwood, CN's Vice President of Investor Relations and Special Projects. Ladies and gentlemen, Mr. Lockwood.

Thank you, Krista. Bonjour à tous, et merci de vous joindre à notre appel de conférence sur les résultats du troisième trimestre, 2026 du CN. Welcome, everyone. Thank you for joining us for CN's third quarter, 2026 Financial and Operating Results Conference Call. Joining us on the call today are Tracy Robinson, our President and CEO, Pat Whitehead, our Chief Operations Officer, Janet Drysdale, our Chief Commercial Officer, and Gilles Langeud, our Chief Financial Officer. You can turn to page two of the presentation, which includes our forward-looking statements and non-GAAP definitions for your reference. These forward-looking statements reflect our current information and educated assumptions and include estimates, goals, and expectations about the future. These involve risks and uncertainties, and actual results may differ from what we expect. As a reminder, forward-looking statements are not guarantees, and factors such as economic conditions, competition, fuel prices, and regulatory changes could impact actual outcomes. It is now my pleasure to turn the call over to CN's President and Chief Executive Officer, Tracy Robinson.

Merci, Janice. Merci à tous et à tous de participer à notre repère. Thanks, everyone, for joining our call today. Now, before I turn to the quarter, I want to take a moment on the announcement that you will have seen come out yesterday. After nearly three decades at CN, Gislaine has decided to retire. Now, he's been a very close partner to me over the past five years and to our leadership team, and I know to many of you on this call as well. And the financial discipline that he has built here is a large part of the CN that we are today. Now, he's not gone yet, That just continues as CFO through February 1st, taking us through our full-year results. And after that, we'll remain with CN as an advisor until his retirement at the end of And Jamie Lockwood, who many of you know, will succeed just then as our Chief Financial Officer on February 1st. And Jamie's been with CN for nearly 20 years. He's worked across finance, strategy, supply chain, and operations. And he's been part of shaping our financial and our corporate strategy. We're excited about Jamie moving into the role, and for now, I just want to thank Jiz for his partnership over these last five years and to congratulate both of you as you move into your next role. Now on to the business. This was another solid quarter. We moved more freight while maintaining a fluid network and translated that volume growth into higher earnings and free cash flow. EPS for 18% on 4% volume growth. Looking at the balance of the year, we're reaffirming our guidance for mid-to-high single-digit EPS growth based on a low single-digit RTM growth. And as we sit here today, one month into the quarter, I can say we're tracking more towards the upper end of that range. And we remain focused on running the railroad safely and efficiently, converting commercial opportunities, driving structural productivity, and maintaining financial discipline. This focus is producing results. Now, let me highlight three key messages from the quarter. The first thing, the team continues to execute well. Now, it all starts with safety. We delivered our best third-quarter accident and injury performance in the last decade While handling more volume and maintaining reliable service across the network, we improved the productivity of our people and assets and delivered record third-quarter fuel efficiency. Now, these are structural gains which reflect changes to how to size and deploy our resources and run our network. FastTrack has delivered about $120 million year-to-date, and that run rate carries into next year. These results demonstrate the strength of our team and our operating model and the leverage inherent in our network, given the capacity investments we've made over the last several years. We're well positioned to accommodate additional volume while maintaining our current level of capital intensity. And secondly, our commercial strategy is delivering broad-based growth. Our teams remain focused on opportunities that fit our network and generate value for the The close alignment between operations and sales is driving results. Reliable service gives Janet and her team the confidence to pursue new business and the price for the value of the service we deliver. The commercial team is moving with speed and agility to convert these opportunities. Now, our boots on the ground efforts have contributed approximately $300 million in new revenues so far this year. And thirdly, we continue to exercise financial discipline. Year-to-date, free cash flow has increased 25%, driven by our strong commercial and operating performance and disciplined capital spending. This, in turn, has allowed greater flexibility with our balance sheet, and we've continued to execute our share repurchase program to return cash to shareholders. So the railroad's operating well, service is reliable, productivity continues to improve, and we have the capacity and resources in place to support our customers as opportunities develop. Now, looking beyond the quarter, we remain excited about CN's long-term prospects. But a year ago, we updated you on some important changes being made at the company around investment spending, productivity drivers, and a continued commitment to driving shareholder value. We remain focused on what we control, and over the past year, we've developed enhanced capabilities and culture to drive execution. As we plan for 2027 and beyond, we're pushing further to ensure that we set the agenda for CN, and there's a lot to be excited about. The opportunity set ahead of us continues to expand. The positive final investment decisions for Phase 2 of LNG Canada and Coastal GasLink reinforced the long-term outlook for the Montney development, And additionally, our soon-to-be finalized agreement with the Union Pacific Railroad to extend CN's reach into Mexico positions us to compete for a larger share of the approximately 45 billion U.S. dollars in annual Canada-to-Mexico trade, much of which is tied to Eastern Canada. It creates an opportunity to market directly for additional cross-border traffic. Now, importantly, these opportunities are supported by a network with available capacity. We've completed much of the heavy investment required to support growth. And as additional business comes onto the railroad, we can improve asset utilization, lower unit costs, and generate higher earnings and free cash flow without a proportional increase in resources or capital. And to be clear, capital intensity is normalized to a range in line with our North American peers. An additional volume on the network will continue to drive operating leverage in our model. The railroad is more productive than it was a year ago, and the opportunity set in front of us is larger. We are delivering on our commitments and have a network that's built to convert broad-based growth into earnings and free cash flow. With that, I'll turn it to you, Had.

Thank you, Tracy. The team delivered another solid quarter, safely moving more freight while maintaining a fluid and reliable network. I want to thank our entire team of professional railroaders across the system for their continued focus, discipline, and commitment to our customers. As always, it starts with safety. Safety is the foundation of everything we do. We remain focused on reinforcing our operating discipline and ensuring that trains run safely and that every member of our team goes home safely at the end of the day. I'm pleased to report that we have had the best third-quarter accident and injury ratios in the last 10 years. This is encouraging progress, but we are never satisfied, and we will continue to push to improve. Now turning to operations. We entered the quarter with a clear plan centered on network fluidity, service reliability, and productivity. The team executed that plan, and the results continue to demonstrate the strength of our team, our operating model, and the capacity available across the network. We handled 4% more volume in the quarter while maintaining strong operating metrics. That combination is important. It shows that we can absorb growth, protect service, and make better use of our existing assets and resources. Locomotive productivity improved 5% in the quarter. Employee productivity improved 7%. This is the seventh consecutive quarter with year-over-year improvement. These are not simply operating statistics. They translate directly into the cost structure by allowing us to move more freight without a proportional increase in locomotives or employees. Fuel efficiency is another area where the team continues to raise the bar. We achieved record third quarter fuel efficiency, including our best month ever in September, further reinforcing CM's position as the industry leader. We are the most fuel-efficient railroad in the industry, and we are setting new records every quarter, beating ourselves. This performance reflects disciplined train handling, improved locomotive utilization, and the continued refinement of our operating practices. Together, these efforts generated approximately $15 million in fuel savings during the quarter. Focusing on our western region, gross ton miles increased 4% while car velocity improved 3%. We moved record volumes of grain while also moving more refined products, metals, NGLs, automotives, and improving service metrics. And we have capacity in place to do more. We currently have over 200 stored locomotives, and we have available network capacity, including in the west. This gives us the ability to respond as additional business comes onto the network without adding resources at the same rate as volume. As we grow into that capacity, we improve asset utilization, lower our unit costs, and create operating leverage. FastTrack remains an important part of how we run this railroad. We have now realized approximately $120 million in benefits, up $20 million from last quarter. The work began with our major yards and terminals, but the mindset extends well beyond those locations. We continue to challenge how we use our facilities, vehicle fleet, and other assets, and how we manage processes and purchase services across the operation. FastTrack is not a one-time initiative. It is a continuous improvement discipline built into our scheduled operating model. We are pleased with the progress, and we are not done. The takeaway from the quarter is straightforward. We remain committed to safety as the foundation upon which we build this organization. The network is running well. We handle more volume, maintain strong fluidity and service, and improve the productivity of our assets and workforce. We have the capacity and resources to accommodate additional growth efficiently. The team remains focused on executing the plan and what is under our control. Janet, over to you.

Thank you, Pat. Good morning, everyone. I am extremely pleased with our performance in the third quarter, which highlights the growth opportunities enabled by CN's unique network reach and the resiliency that comes from our diversified portfolio. Revenues were up 15% in Q3. Revenue ton miles increased 4%. Same-store pricing continues to come in ahead of our rail cost inflation. However, in the quarter, it was partly offset by mix and lower pricing on regulated grain. Our boots-on-the-ground efforts, business development work, and our pipeline of CN-specific growth initiatives continues to produce. In Q3, we increased NGL exports through Prince Rupert, moved the first cars from the new Wolf Midstream Fractionator, continued the ramp-up of Phase 2 of our GTA fuel terminal, brought on additional canola crush capacity, Shipped the first unit train from a newly expanded grain elevator in Illinois, and we celebrated the opening of the CAN export transload facility at Prince Rupert. We are also continuing to leverage transload capabilities. We shipped the first cars into a new facility in New Brunswick, broke ground on a facility expansion in Nova Scotia, and increased transload capacity in Wisconsin. These are great examples of our media efforts and boots on the ground. Now, near term, energy continues to be a key growth driver. Over the medium and longer term, we expect growth between Mexico and Canada, and between Canada and the world. Our agreement with UP provides CN with direct access to Mexico's high-growth manufacturing corridor, complementing our existing access to central and southern Mexico via the CG Rail Ferry. We are also very well positioned to benefit from increasing investment in Canadian industrial and resource projects, including the recently announced $2 billion of federal and provincial level investment to develop Ontario's critical minerals in the vast ring of fire. The progress we are seeing across the portfolio gives us confidence in our ability to continue to create value for many years to come. Now let me walk you through the key Q3 highlights. Grain and fertilizer RTMs were up 12%, supported by record crop production and robust export demand. Petroleum and chemicals RTMs were up 5%, driven by continued growth in shipments of refined products, mainly gasoline and diesel, as well as increased crude shipments to the Gulf Coast. In metals and minerals, growth was driven by strong, long-haul steel movements within Canada, as well as higher scrap iron and aluminum shipments. Frack sand reflected a mixed change as growth in shipments to northeast BC and within the U.S. replaced volumes destined for Alberta. The positive automotive results reflect continued share gains and a shift towards longer haul import traffic. Coal RTMs declined in the quarter due to production challenges impacting West Coast volumes. In forest, product volumes were impacted by ongoing market challenges. In intermodal, domestic volumes were impacted by wildfire-related disruptions, while overseas performance reflected the demarketing of certain shipments and weather-related disruptions in Asia affecting customer supply chains. Moving now to slide 9 and turning to the fourth quarter. Petroleum and chemicals is expected to benefit from new crude business, including the expansion of Strathcona's Miota facility, fractionator expansions by Pembina and Wolf, and continued growth in NGLs and refined products. In coal, we expect steady demand for U.S. exports. Canadian coal shipments will depend on mine Long-level production, as well as operational conditions, including at Prince Rupert, where labor disruption at the terminal continues to impact volume throughput. In metals and minerals, demand for steel and aluminum remain constructive through the remainder of the year, as does demand for frag sand in northeast BC. In grain and fertilizers, growth is expected to moderate, as we last, last year's record performance. There's no change to our forest products outlook. Turning to intermodal, we expect domestic performance to strengthen in Q4, supported by recent commercial gains and additional opportunities for truck-to-rail conversion. In overseas, we expect volumes to be weaker than prior year levels, but we're encouraged by CMA-CGM's Indomex service expansion to Halifax. The first vessel, expected to arrive late November, enhances coverage between Canada and the Mediterranean and India. In automotive, we expect the trend towards higher offshore imports to continue. So let me wrap up. Our third quarter results demonstrate both the strength of our franchise today and the opportunity that lies ahead. Our foundation is solid. We have a great franchise, available capacity, and we're delivering operational and service excellence. We are built for growth, with multi-year, multi-commodity growth prospects across our network, a new connection to Mexico, and increasing investment in Canadian industrial and resource projects. I remain confident in and very proud of the commercial team's commitment to find new opportunities, Capture the volumes that best fit our network and maintain our pricing discipline. Juselyn, c'est à toi.

Merci, Janet, et bon matin à tous. Je te plaisir de parler de nos excellents résultats de ce troisième trimestre. Third quarter reported by l'UDPS was $2, up 9% from last year, which included a one-time expense of $118 million in asset impairments and $14 million in advisor fees related to industry consolidation. The impairment is a non-cash charge and is related to the discontinued development of portions of certain technology projects before completion. It does not change our commitment to using technology where it improves safety, customer service, or the efficiency of the railroad. $0.15 up 18% from last year or $2.14, 17% higher on an exchange-adjusted basis. The quarter was impacted by higher year-over-year fuel prices, which had a diluted impact on operating ratio of 60 basis points. Excluding the impact of fuel, our adjusted OR would have been 60.4%. This demonstrates the value of the productivity initiatives across the business and our ability to generate operating leverage as volumes grow. Free cash flow for the first nine months was $2.9 billion, an increase of 25% compared with the same period last year. The improvement reflects disciplined capital expenditures. The version is now 80% year-to-date at the end of Q3. $2 million shares for approximately $675 million. Our adjusted debt to adjusted The dividend value ratio was about 2.6 times at the end of the quarter, and with strong operating performance for this year, we now expect the leverage ratio to come back to around 2.5 times by the end of the year instead of in 2027, to the end of the current program framework. Slide 12, let me review the quarter's key operating expense categories adjusted for foreign exchange. Driven by general wage increases and an approximately $35 million increase in incentive compensation versus last year, which were partially offset by 3% lower average headcount and strong labor productivity. 11% driven by higher trucking and vessel costs, mostly due to stronger volumes and higher material and advisory costs. Capital credits from our lower capital program had an approximately $15 million impact on operating expenses, mainly affecting purchase services and material and labor expenses. 35 million dollars higher on a year-over-year due to higher fuel prices with the impact of higher volumes offset by record fuel effects of 14 cents on EPS in the quarter. However, as noted, it had 60 basis point dilutive impact on operating ratio. Expect an EPS tailwind of approximately 10 cents with 100 to 150 basis point headwind to the operating ratio. Prices were largely flat year-over-year. Thank you. Moving to slide 13, let me provide some visibility for the balance of the year. Confirming our guidance for mid- to high-single-digit growth in adjusted WDPS based on the low-single-digit RTM growth, and we're currently tracking more towards the upper end of that range. Year-over-year comparison in the fourth quarter, which is reflected in our outlook. Approximately $2.8 billion of capital investment in 2026, net of customer reimbursements, and we have capacity available across the network. We continue to match resources to demand and maintain our focus on productivity, pricing discipline, and cost control. We continue to demonstrate the operating leverage and cash generation potential of the business when we combine profitable growth with strong execution and financial discipline. With that, I will turn it back to Tracy.

Thanks, Sid. So if you heard today, this was another strong quarter and a clear demonstration of what the team can deliver. So, operator, over to you. We're ready to take questions.

Thank you. We will now begin the question and answer session. As previously mentioned, we ask that you kindly limit yourself to one question. The first question comes from the line of Brian Ossenbeck with J.P. Morgan. Please go ahead.

Hey, good morning. Thanks for taking the question. And Ghislaine, it's been a pleasure working with you. Congrats on the retirement. And Jamie, congrats on your promotion as well. Maybe just a couple quick things to start. It's great to hear the update on the fast track from Pat. Maybe a little bit more details if that's 120 million run rate so far, or if it's actually realized in net, or if that's a gross number. So a little bit more clarity on that. And then just from a competitive dynamic, we saw the headlines of the Elk Valley Coal Agreement. So I just wanted to hear how that would affect the rest of the year, if anything, and if there's any sort of operational changes they need to make on that front when it starts to transition. Thanks very much.

Okay, and I'll start with the FastTrack, and that is $120 million realized. And to be clear, I want to make sure this is clear, FastTrack is not a one-time initiative. This is how we run the place, and it's about bringing the discipline and the urgency to execution. This is about challenging how we work and making continuous improvement in the day-to-day operations. So we're excited about this. We're excited about what we've accomplished in 2026 and how we take that momentum into 2027. Janet, over to you.

Thanks, Pat, and thanks, Brian, for the question. And I think the topic was discussed earlier this week, but I do appreciate the opportunity to take a minute and share my perspective. So under the existing contract, EVR's traffic to Neptune moves on CPKC from the mines in southern BC to the Kamloops interchange, at which point CN will then take the train and move it into the terminal. Starting on January 1st, about half of the volumes will continue in that manner. The other half of the volumes will move, I would say, a little bit further down the rail line before interchanging with CN, and we will, again, complete the delivery of the train into the terminal. So, one handoff under the current operating model, and one handoff under the future operating model. I will quantify it for all of you. The impact of this is about three cents of EPS to us in 2027. But I want to assure you that the commercial team is laser focused on backfilling those contribution dollars with other opportunities, and I have full confidence in the team. We're going to tackle that challenge head on, you know, in the same way that we've overcome the $350 million of tariff headwinds from last year. More broadly, we're going to continue to focus on selling the value of our service and pricing ahead of our rail cost inflation. Thanks, Brian.

Your next question comes from the line of Fadi Chowman with BMO Capital Markets. Please go ahead.

Thank you. Good morning. Kisla and Jamie, congrats both on the retirement and the promotion. Kisla, thank you for all the good conversation over the years. I appreciate that.

Thanks, Fadi. It's appreciated.

Janet, maybe kind of just following up on the volume question, I guess, and the call question, like, you know, your RTM are probably tracking year-to-date, if I exclude grain and first category, somewhere in that 1% range. But it seems from your commentary, you highlighted a lot of kind of opportunities on the energy side and maybe metals and sand. And I just wanted to kind of get your perspective, like as we go into 27, does this kind of non-grain business accelerate? What are the kind of the key driver of what you see potentially accelerating your growth there, right? I know grain will have a bit of a tough comp. Maybe there's an opportunity on potash later in the year, but just trying to get some perspective on that non-grain business and some of these opportunities that you're talking about as we go to 27, if we see an acceleration from the level you're at today or not. Thanks.

To get me into the detail, I'll give you a little bit of high level on that one. We've been talking a lot about energy. I hope folks have been listening. This is a great multi-commodity, multi-year opportunity for us. And so when we look ahead to 27, we see, you know, continued strength in the refined products into our GTA fuel terminal. We see growth of NGLs going into Prince Rupert, and that's backed up by new fractionation capacity with Pembina and Wolf coming online. We have incremental crude business that's coming online. We see strength in plastics. So that overall kind of energy franchise under our petroleum and chemicals banner, we see a lot of good growth. We see continued growth in automotive. We have two plants that had been down for retooling, one in Canada and one in the U.S., and those are coming back online. So one of them has started up already. The other one is more kind of an end of March timeline, but that's going to support continued growth in automotive. You know, I think at this point, Forest Products has kind of lapped the worst of its issues. So while we don't see growth there, we don't see, you know, significant risk either. We're excited about the BHP facility coming online in the second half of the year. And we think, you know, our boots on the ground effort, you know, that kind of every one carload counts, carloads that we can service well on our network, you know, that has been producing We've seen pretty close to 100 million a quarter, as Tracy referred to, and so, you know, we're going to keep the team focused on growing, and of course, we also have, you know, this new Mexican opportunity, and maybe it's worth I take a minute or two more on that one. So we're pretty excited about it. Tracy kind of gave you a high-level sense of, you know, kind of the trade between Canada and Mexico, over 45 million U.S. in trade that moves between those two countries, and the majority of that is actually moving towards eastern Canada. So we think we're really well-positioned there. I would think about that opportunity maybe in three buckets. There's an immediate opportunity to extend our length of haul with the new Memphis Gateway, and so we capture incremental revenue on those movements. Second, we see an opportunity to compete for rail traffic already moving, and we're confident in our ability to offer customers a compelling service. And third, there's a longer-term opportunity there to convert truck to rail, and I think, as you all know, there's a pretty substantial truck market between Mexico and Canada, and we believe our network, together with Ferimex, gives us a really great platform to pursue this business. So what I really love I love about this deal. It allows us to extend our reach by leveraging our existing network while partnering with a really strong Mexican rail operator. So, we have the network, we've got the customer relationships, and we're excited to drive that growth. Hopefully, that gives you a bit of context for next year. Appreciate the question.

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

Great. Thanks. Good morning, everyone. And this is Len and Jamie. Congratulations as well. Tracy, big picture question for you. It's been a year since your reset of sorts on the guidance and the communications. You said in the topic of your remarks that the focus is producing results. The machine is working well. You have your team in place. What's the next leg of the story here beyond just waiting for the upcycle? And have you considered maybe having an investor day in 2027 or something to tell us what the next seven years look like?

Hey, Ravi. Good morning. Yeah, we've gone through, you know, as we've discussed before, there was an early evolution where it was obvious that we needed to make some investments in the network and in our locomotive fleet to get us where we needed to go. And so we went through that. To your point, we got to a point last year, middle of the year, where we brought that down to a more, you know, what we would call a more industry level or sustainable level, but it gave us the capacity that we need largely in the West and locomotive fleet for Pat to respond to the opportunities that Janet is creating. Since then, the focus has been to lean in on quarter over quarter, more efficiently running the operation. As Pat has leaned into that, we've kind of named it Fast Track, but as he said, it's just the way that we're going to operate this business, and you're going to see more of that. And we are now executing that well, and you're seeing the results from the execution of that. We also, as we put Janet on this job about now, how long ago, Janet, a year and a bit? A year and a bit, yeah. It was a renewed focus, boots on the ground, get in front of our customers. It was at a time when it was a pretty volatile environment, especially on the Canadian side with the impact of tariffs. She was very successful through that process in not only providing solutions for our customers, but also in replacing that $350 million of tariff impact. We've largely cycled through that. So we've got now the network that we need, that we've got the extension into Mexico we're finalizing. We've got the capacity that we need, and we're continuing to invest in bits and pieces on that. So yeah, we're turning our attention to growth, and as a railroad, without a doubt, we rise and fall a little bit on the strengths of the economy, and we'll operate in whatever economy kind of presents itself. But we have some kind of unique asymmetric growth opportunities. Janet took you through them. We have the benefit of being the railroad of the north up in the energy sector and the benefit of having new access to Mexico. But we also are the beneficiary of a renewed Canadian administration focused on getting natural resources and other kind of industries ramped up. So the Carney administration has leaned into creating a more positive environment for investment, whether it be the tax changes that they've made, whether it be the permitting changes they announced a couple of months ago on the one project, one permit, one year, and some of the regulatory changes that they're making. So this is a very constructive environment, and it's focused on getting Canada's natural resources, which are in high demand, to markets across the continent and around the world. And CN is uniquely positioned for that, both, you know, with our connections into North America and our partnerships with the other railroads, as well as with, you know, a pretty unparalleled port access into global markets on both the western and the eastern sides of the country. So we see as we look forward, it'll take some time for some of this to manifest. Janet took you through some of the near-term things we see in 2027, but she's also involved in a tremendous number of dialogues with industry around other plants as this environment gets better and better. So we do think we'll ride and fall with the economy. We're really well positioned to do that. We've been delivering, you know, the productivity that it takes to kind of handle the ups and downs and that and the commercial flexibility. But we'll also be looking to capitalize on those, you know, unique opportunities that this network and this time kind of presents us. But we are thinking through when we do the next investor day. I think we'll, you know, we're thinking through whether it'll be next year or shortly after. We'll want a couple things to settle, maybe a little more clarity on the final stages of the tariff kind of environment that we may be in and the impact of that. And we'll see where the merger kind of discussion settles out. But it won't be too long, Robbie.

Your next question comes from the line of Sherilyn Radborn with TD Cowan. Please go ahead.

Thanks very much and good morning. And I also wanted to start just by extending congratulations to Julien and Jamie. My question is whether you could give us some perspective on your sense of the state of U.S.-Canada trade negotiations, talk about some of the shifting trade patterns you've seen as a result of the tariff regime, and whether you think some of those would stick even once we get a resolution. Thank you.

Thanks, Cheryl. Well, listen, it's been a journey, hasn't it? And I don't think that journey is over. We saw a very, very kind of volatile year last year with the tariffs, a big tariff announcement. I think we've all managed that particularly well. There are some, this is a sectoral story. So, you know, I think 85% of the goods, I think that's the case, maybe it's fallen a little bit with the 338 of the goods between Canada and the U.S. travel across the border with no tariff. But there are some sectors that are disproportionately and uniquely impacted. And we've been, Jan has been working with our steel customers, with their automotive customers, with their forest parks customers. And there are some adjustments that have been made there around the kinds of markets that they're shipping into. And the question is, if we get a resolution, how much of that continues, or do we revert back to the U.S.? We'll be nimble in working with our customers on that as well. It appears that there are some dialogues going on again after, you know, there was a near-miss in August on a USMCA extension or a deal. So we'll see where that takes us. But without a doubt, this has driven two things. A level in kind of resilience and nimbleness on our company and how we manage through the volatility that things like this bring us. And secondly, and as I just mentioned, a renewed focus in Canada to create the conditions under which industry and natural resources growth takes place. And we are very supportive of that, as I said, and I think uniquely positioned to both help that and benefit from it.

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

Hey, great. Good morning, and I'll echo it. Congrats, Ghislaine, on your retirement. It's been a great decade working with you. I appreciate all the help and discussions over time, and Jamie, certainly congrats on the new role. It's been a great start working with you in your prior role, so looking forward to it. Janet, I guess I'll jump over to Intermodal. Intermodal, right? This is the rails and CN cyclical opportunity to take share. But you mentioned international demarketing lanes, congestion in Asia, the impact of Rupert's labor disruption. Yet the West Coast U.S. ports are posting some of the best levels ever. And domestic, you noted some wildfires. Maybe talk a bit about the opportunity for a rebound. Talk about the windback and backfill and the timeframe for that. And then just a side note, Trace, I don't know if you want to mention what tech projects were canceled. That was such a large charge.

Okay, Ken, I'll try and take it kind of one at a time there. Just for clarification, the Prince Rupert labor disruption is related to a coal terminal, so there's no issue there currently in terms of a container side. The wildfires did disrupt us a little bit, and that impacted mainly domestic, but it also impacted a little bit on the overseas side. We're past that now. You know, Pat and his team, frankly, did a phenomenal job kind of delivering the service recovery on that. And, you know, prior to that, we had a really solid kind of run rate performance on domestic growth, and I fully expect that to continue. And so it's not quite as robust, I would say, the kind of truck market in Canada as it is in the U.S., so we haven't had as much of the capacity reductions on the Canadian side, and that's where we're more exposed on the domestic side. But certainly the service that Pat and his team are providing is enabling us to get more of that truck-to-rail conversion, to get more market share wins. And that is something we see continuing in the fourth quarter and certainly into next year. On the international side, I guess I would say we're going to sell to the value of our service, first and foremost. You know, we have some opportunities that we're chasing down there across a number of the port terminals. We believe in the value of Prince Rupert. We're excited about the incremental value that we have at Prince Rupert with the CanExport facility opening. We went up there and celebrated that opening in August, and we have InterModex that's actually coming on, And that brings new capability for import transloading, and that's going to support, I think, more stickiness with the customers. So stay tuned on that one, but we're optimistic about intermodal over the nearer term, maybe just not in the first half of next year. Hope that gives you a bit more color.

Ken, on the IT systems, let me just take your second question there. Listen, I've got to tell you that I and this team find this completely unacceptable, that we would find ourselves in a position where we're taking this action, but it was a necessary one. There was a couple of systems that between us and the vendors that we had chosen, we had some failures. One was the dispatch system with PDS, and that was just, you know, so we've regrouped on that. We're being careful about our vendor selection as we go forward, And I'll talk a little bit more about the governance on this as we go forward. The second was a reorientation of our SAP 4 HANA as it hit a couple of the operating areas. We had originally undertaken a greenfield approach. We've reverted back to a brownfield approach. We think that that's appropriate, which meant a small portion of that work needed to be set aside. So this is, you know, we take our capital execution very, very seriously in this organization, And this has caused us to relook at our governance right up to me in the LT level to reconsider our vendor selection and how we manage vendors and our internal processes. So as we refocus on these areas, you know, you'll see different outcomes as we go forward. I'll leave it at that, Jizz, unless you want to add anything.

No, I think you covered it very well.

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

Yeah, thanks very much, Operator. And again, congrats to Jamie and Giseline on your retirement, Giseline, and your promotion, Jamie. That's great. Question for Janet here. I have been speaking to your customers in the last few weeks, quite a few of your customers. I know you love that, Janet. My question, though, is on the potential headwind we might see next year from the success you had this year, and I call it market share normalization. A bunch of your customers are telling me that in 26, you had opened up a lot of good capacity, and that allowed you to take volume that CP either ceded to you or diverted to you. So my question is for how much of that gain in 26 do you see as sticky and will not revert back, or conversely, how much of that is at risk of going back to CP and therefore a headwind in 27?

To a bit of a long question, you know, we have gained business this year because we have provided a great service. And, you know, I'm looking at Pat across the table here, and I feel very confident that he's going to continue to provide our customers a great service into next year. And that's the short answer. Thank you.

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

Hey, good morning, and I'll echo the congratulations to the team. So, Tracy, the Bill C-39 seems like it's a bit of a mixed bag for real. There's some good stuff in there around labor and investment. There's some potential headwinds in there around inter-switching. Can you tell us kind of what you're thinking about in the bill and what could move, and more importantly, maybe frame, if it were to go forward with inter-switching, what kind of headwind that might be for 2027?

Thanks, David. Yeah, you're paying attention to Canadian legislation. That's fantastic. We have Bill C-39 was introduced, and the government is working its way through government, and they intend to bring it into law by the end of the year is the current target, and it contains, as you say, quite a number of provisions. One of them is permitting, around permitting. So this is the one permit, one approval, one year, which is a dramatic improvement in the kind of industrial policy in Canada and has caught the attention of many of our resource customers and industries across the country. And I think you're going to see an uptick in behavior coming out of that and confidence. And, you know, it will feed some of what Prime Minister Carney's aspirations and targets on around investment and around getting the economy going. So that, I think, is very, very positive. It does also have a strong labor focus, and I think it kind of characterizes what we all believe, which is collective bargaining is one of our core values, and it's critical to the way that we think about our relationships with labor. We support that strongly. Certainly, it also recognizes the critical importance of labor in supporting the economic strength and growth and the reliability of Canada's supply chain. And so we think that the discussions going on on that are particularly important. And I think you had a third one, David, that you wanted me to comment on. Was there a third piece in there? The inner switching?

Oh, the inner switching.

Thank you. Thank you.

Yeah, the inter-switching is just an extension of what the government has put in place before on an extended inter-switching. You know, we're not keen on this one, but I would tell you that we've had two pilots on it so far, and we haven't had any business move any differently because of it. So we disagree with the principle of it, of course, but it has not had a real impact on the volumes, nor do I expect it to have an impact on the volumes going forward. If you service your customers well, then these kinds of provisions, you know, are not really, you know, impactful.

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

Thanks, operator. Good morning. Echo wishes to both Jess and Jamie, and Jess, thanks for the years of support you provided this week. And Jimmy, welcome to the noodles. First question on capacity. You know, I mean, Tracy, Pat, the team, you guys mentioned about, you know, how much capacity you have built over the years, and, you know, you're not looking to invest a lot more. I'm just wondering, like, how much growth can you bring to the current network before evaluating more investment opportunities down the road?

So, let me answer that one at a high level, and I'm going to give it to Pat so you can get into the details. So, we look at, on the forward-looking view, we look at the volume growth that we think we can generate here, and then we size our capacity and our resources and able to accommodate that growth. The effort that we undertook over three years was largely focused on, A, the locomotive fleet and the reliability of the locomotive fleet to do what we needed to do, And B, on the expansion of the Western Corridor. So we lifted the capacity of the Western Corridor by, in effect, 25%, and have got two-thirds of the Edson sub-double-tracked, which is, you know, we believe, no-regret capital, given the growth that's going on in the Western part of the network. As to when we hit the next capacity limits, it's going to depend on what growth and where it comes on in the network. But I would look forward to the time when we're starting to hit up against some of the capacity that Pat has put in place. But Pat, do you want to make any comments on that?

Yeah, I would say that we've talked about it many times. The east and the south have plenty of capacity. We are looking to Janet to help us fill that up. We're excited to fill that capacity. I would say this about our western corridor. We've been asked the question before, is there enough capacity in the West? It's a historic pinch point. If you go back to 2017, 2018, the crude boom, I would say this, our investment strategy of focusing on the Western Corridor, Edson Sub, specifically west of Edmonton, to Tracy's point, we built 25% capacity, and the story is proving itself. We moved record grain in the Western Corridor with improved service metrics, both speed, velocity. We have fewer locomotives. We have over 220 locomotives stored. We still have employees furloughed. So we are handling more volume in the Western Corridor with more capacity to grow, and we are moving faster than we have in the past. So I think the investment strategy has proved itself, and it's paying dividends.

And let me just add one thing. We are, like, I don't want to lead you to believe we're not investing anymore. Within our current capital framework, we're still investing. Pat has work underway outside Vancouver, up at Rupert, and so it's just we've come out of the big investment cycle. As we look forward, we believe that our growth is manageable within, you know, a more industry-normalized level of capital. Thanks, Connor.

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

Hey, good morning, and congrats to Jamie and Ghislaine as well, and Ghislaine, enjoy some time on the golf course. And maybe I'll just follow up on the capital question there. Pat, you did say, you know, fast track, you have more to come on, you know, incremental efficiencies. How contingent is that on getting volume growth within the network, especially as Janet is telling you, you know, we need incremental service to keep winning incremental share?

I would say this. We're going to challenge everything that we do. My job is to make sure that we're right-sizing resources to volume. So regardless of that volume, we're going to, you know, volume is our North Star, and we will continue to be more productive. We are seven quarters in a row with year-over-year productivity improvement. Our cost for GTM this year is down 3%. Look, it's my job and this operations team's job to wring out cost and waste, and we're going to continue to focus on productivity and right-size all of our resources to the volume that presents itself.

And it's my job to make sure he's well-challenged in that regard.

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

Yeah, hey, thanks. Good morning, guys. And yeah, congrats to Ghislaine and Jamie. I guess I want to see maybe we could pull it all together. There's some really optimistic stuff happening on the revenue side, which is exciting. And it sounds like you got a lot of productivity kind of building here. You know, comps are going to be a little bit challenging, I think. And obviously, there's fuel that you need to sort of see how it works out. But I guess when we pull this together, thinking either 27 or bigger picture beyond that, does it sort of seem like the setup to return to double digit EPS growth is kind of on the horizon? I just want to get a sense. Obviously, the last couple of quarters have been very good, and in line with that, I want to get a sense of how sustainable you think that is as we look out to 27 or maybe sort of bigger picture.

Listen, what we've been focusing on is getting really good at the things that we control, and I think we've got a lot of great building blocks in place for that. We took care of the capacity constraints that we had. We're continuing to work away on that. We've got a new kind of very focused boots-on-the-ground approach to the marketplace that has us in a position to be nimble and to provide solutions to our customers in any economic environment. And Pat, as he said, has leaned in pretty heavily on the productivity side. We're getting more out of our resources every quarter and every day. And we're focused on executing, and that has, as you say, been translating into results. And that productivity creates the room for us to grow. It creates operating leverage in the business, and it creates a growing free cash profile, and we're very happy with that momentum. As we look forward, none of that changes. It's all going to continue. We have some headwinds as we look into 2027 from a growth perspective, just lapping the big grain crop. We had a record grain movement through almost all of the last grain cycle, but those are the things that come and go and change. We can't control that. What we can control is where we have those idiosyncratic growth opportunities and leveraging our network to go get them. I think we've done a good deal process of clothing with the UP on Mexico that does two things. It mitigates the risk of the merger to our network and our business, but it also creates opportunities. We've got a unique opportunity in the natural resource space up here in the north, and so we'll be looking to leverage those. So if you look through cycles, what we're looking to do is to build resilience in our business such that we can produce in any economic cycle, you know, the kinds of results that you and we would expect and, you know, the high single digit, low double digit kind of EPS growth over time. We're getting better and better at reacting to what's happening around us, and we're getting really disciplined about pulling the levers internally on what we can control. So we're very optimistic about the future. Lots going on out there. It's still a volatile environment, but we're focused, and we're going to stay disciplined.

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

Yes. Good morning, everyone, and congratulations, Giseline and Jamie, for your new role. Yeah, just looking on energy, Janet, you mentioned quite a lot of great opportunities going forward with respect to LNG, FRAXAN, even some potential crude by rail opportunities longer term. I'm just wondering whether petroleum and chemicals, RTM growth could be kind, and could we see a double-digit volume growth for 2027? And maybe, Tracy, if you could share an update on the discussion with the TCRC as the labor agreement is maturing in December 2026, if you could talk about some potential outcomes or mitigation factor you might consider, that would be great. Thank you.

Thanks, Benoit, for the question. I love the pointedness of it and the desire to extract a little more detailed information. I think, you know, we've talked a lot about energy. It's a multi-year, multi-commodity opportunity. You know, I think we're going to see the kind of steady pace of growth. What's exciting to me is more kind of a rateable, steady growth through this year, through 27. You know, when we get into mid-2028, we've got the ACE Terminal coming online. When we get into late-2029, we have the Dow Path to Zero project coming online. So I'm pretty happy with the way I see that growth coming on, our ability to handle the growth. And I love that it's kind of a range of commodities under the big energy umbrella. So it doesn't quite get to your specific answer, but that's all I'm going to say at this point. Tracy, I'll pass it back to you.

Benoit, on the labor front, listen, we believe in the process of collective bargaining, and we think it's an important process with our employees. It's important for our company, obviously important for our customers, and, you know, for Canada when it comes to the TCRC. So we're very focused on what we'd like to do, and that is to get a very constructive and productive agreement at the table. As you noted, this collective agreement that we're under now expires at the end of the year. We are engaged with the TCRC now, and we have discussions underway. Obviously, you know, our focus is on getting a deal across the line. And so, I'll leave it at that for now, but it is one of our key priorities.

We have time for one more question, and that question comes from the line of Kevin Chiang with CIBC. Please go ahead.

Hi, thanks for fitting me in here, and again, congrats, Aziz Lane and Jamie. Maybe, Jan, just to clarify, so it sounds like it's the Trigon terminal you're referencing in terms of some of the, I guess, the coal headwinds out in Prince Rupert. It seems like there's some concern this could impact propane volumes as well, just given, I guess, what AltaGas said this week. Just wondering how that might impact your near-term P&C outlook as you close out 2026.

Yes, to go a little higher level on this one. And let me start by saying that the federal government has been very seized with this issue. I think fully recognizing the broader issue of labor stability is really a fundamental tenant of Canada's ambitions around trade growth and trade diversification. So their support is really important in how this plays out. To your point, from a CN perspective, you've seen the impact in the weekly volume numbers, mainly around coal and petroleum coke. There has been a small impact so far on the NGL. Some of that can be diverted to another terminal, so that's helped to mitigate some of the impact. We'll see how this plays out, the duration of how it plays out, and how resources get deployed between moving coal and moving NGL. So that's something that may evolve if this, you know, continues in the coming days and weeks. We have taken these impacts into consideration when we kind of reiterated our expectation for full-year low single-digit RTM growth, and, of course, as it relates to the full-year guidance. So, you know, this is a short-term issue. You know, the future on this is very bright. We're very excited about the opening of the reef facility, which we expect towards the end of the first quarter next year. So, again, a little bit of a near-term transient issue, if you will, and continue to be really excited about energy overall going forward. Thanks for your question. Good.

Okay. Thank you all. Listen, we appreciate your time this morning. Let me just say this as we close. As I look about the momentum we have, how the railroad is performing, I'm really proud of this team. I know we all are in how we're executing, and I remain excited about our prospects. I look forward to talking to you all more.

The conference call has now ended. Thank you for your participation, and you may now disconnect your line.