Core Viewpoint - Canadian National Railway (CNI) reported disappointing second-quarter 2025 earnings, missing both earnings and revenue estimates, leading to concerns about its future performance and potential for recovery [2][10]. Financial Performance - CNI's earnings for Q2 2025 were $1.35 per share (C$1.87), missing the Zacks Consensus Estimate of $1.37, and remained flat year-over-year [2]. - Revenues for Q2 2025 were $3.09 billion (C$4.3 billion), missing the Zacks Consensus Estimate of $3.16 billion and declining 2.4% year-over-year [2]. - Revenue ton-miles (RTMs) decreased by 1% year-over-year, while carloads dropped by 0.4% [3]. - Operating expenses fell by 5.2% year-over-year due to cost-cutting efforts [3]. Segment Performance - Freight revenues, which accounted for 95.7% of total revenues, decreased by 1.5% year-over-year, with declines in petroleum and chemicals (5%), metals and minerals (7%), forest products (8%), intermodal (3%), and automotive (6%) [5]. - Revenues from grain and fertilizers rose by 13% compared to 2024 figures, while coal segment revenues remained flat [5][6]. Liquidity and Share Repurchase - CNI ended Q2 with cash and cash equivalents of C$216 million, down from C$232 million in the previous quarter, and long-term debt increased to C$19.3 billion from C$18.9 billion [7]. - CNI generated C$1.75 billion from operating activities and reported free cash flow of C$922 million [7]. - The company repurchased 13.9 million common shares under its previous Normal Course Issuer Bid (NCIB) and has plans to repurchase up to 20 million common shares under the current NCIB [8]. Future Outlook - For full-year 2025, CNI anticipates mid to high-single-digit adjusted earnings per share (EPS) growth, revised down from a previous guidance of 10%-15%, and plans to invest approximately C$3.4 billion in its capital program [10]. - CNI has withdrawn its financial outlook for the 2024-2026 period due to ongoing macroeconomic uncertainty and volatility [10]. - Estimates for the stock have trended downward, indicating a potential for continued underperformance [11][13].

Financial Data and Key Metrics Changes - The company reported second quarter earnings per share of $3.15, with adjusted earnings per share at $3.30, reflecting a 12% increase compared to last year's adjusted results [5][12] - Operating revenue reached $6.2 billion, a 2% improvement year-over-year, while freight revenue set a record at $5.8 billion, increasing by 4% [8][12] - The adjusted operating ratio improved to 58.1%, a 230 basis point enhancement from the previous year [5][12] Business Line Data and Key Metrics Changes - Bulk segment revenue increased by 10% with an 11% rise in volume, driven by strong coal demand and export shipments [18] - Industrial segment revenue grew by 4% on a 3% increase in volume, with solid rock shipments and industrial chemicals, although forest products remained soft [19] - Premium revenue decreased by 4% despite a 1% increase in volume, attributed to a mix impact from international intermodal shipments [19] Market Data and Key Metrics Changes - The company experienced a surge in coal shipments, with a 30% increase in coal and renewable shipments handled efficiently [27] - Intermodal volumes showed year-over-year growth, although automotive volumes declined due to reduced OEM production [20] - The company anticipates continued softness in the autos market and lower asset sales impacting other revenue in the upcoming quarters [14] Company Strategy and Development Direction - The company remains committed to operational excellence, safety, and service, aiming to maintain industry leadership through productivity improvements and strategic pricing [5][15] - A focus on capital deployment strategy remains unchanged, with ongoing investments in intermodal capabilities and infrastructure [15][25] - The company is exploring growth opportunities in various segments, including coal and industrial markets, while adapting to market changes [20][21] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving high single to low double-digit EPS growth consistent with three-year targets [15][37] - The company is prepared to handle potential volume moderation in the second half of 2025, while maintaining a focus on operational efficiency and customer service [14][81] - Management highlighted the importance of adapting to external pressures, including tariff implications and market uncertainties, while leveraging internal strengths [23][53] Other Important Information - The company announced advanced discussions regarding a potential business combination with Norfolk Southern, with no further comments until an agreement is reached [38] - The company has returned $4.3 billion to shareholders through share repurchases and dividends, marking the nineteenth consecutive year of annual increases [13] Q&A Session Summary Question: Concerns about potential distractions from organic momentum due to discussions of a business combination - Management emphasized the importance of adapting to industry changes and maintaining operational efficiency, viewing the discussions as a strategic opportunity rather than a distraction [41][44] Question: Thoughts on reciprocal switching and giving shippers more options - Management reiterated the commitment to providing high-level service and innovative solutions to meet diverse customer needs, regardless of industry changes [50][53] Question: Feedback from shippers regarding potential consolidation - Management refrained from discussing specific shipper feedback during ongoing negotiations, emphasizing the importance of confidentiality [90] Question: Progress on automation and regulatory changes - Management noted positive momentum in discussions with the FRA regarding automation and safety technologies, highlighting ongoing efforts to improve operational efficiency [115][116] Question: Insights on coal market sustainability and customer sentiment - Management acknowledged the current strength in coal demand driven by natural gas prices, while remaining cautious about long-term market shifts [132][133]

Core Viewpoint - Canadian National Railway Company (CNI) reported mixed financial results for the first quarter of 2025, with earnings per share exceeding estimates while revenues fell short of expectations and declined year-over-year [1][2]. Financial Performance - CNI's earnings for Q1 2025 were $1.29 per share (C$1.85), surpassing the Zacks Consensus Estimate of $1.26 and showing a 0.7% year-over-year improvement [1]. - Revenues for the same period were $3.06 billion (C$4.40 billion), missing the Zacks Consensus Estimate of $3.11 billion and declining by 2.6% year-over-year [1]. - Operating income grew by 4.1% compared to Q1 2024, while the operating ratio worsened slightly to 63.4% from 63.6% [3]. Revenue and Volume Metrics - Revenue ton-miles (RTMs) increased by 1% year-over-year, while carloads decreased by 2% [2]. - Freight revenue per RTM rose by 3% year-over-year [2]. - Freight revenues, which accounted for 97.3% of total revenues, increased by 4% year-over-year, with notable growth in petroleum and chemicals (7%), coal (11%), grain and fertilizers (11%), and automotive (1%) [4]. Segment Performance - Carloads in petroleum and chemicals, metals and minerals, forest products, and intermodal segments saw decreases of 1%, 11%, 6%, and 2%, respectively [5]. - In contrast, carloads in coal, grain and fertilizers, and automotive segments increased by 5%, 4%, and 2% year-over-year [5]. Liquidity and Capital Management - CNI ended Q1 2025 with cash and cash equivalents of C$232 million, down from C$389 million at the end of the previous quarter [6]. - Long-term debt decreased to C$18.9 billion from C$19.7 billion [6]. - CNI generated C$1.16 billion from operating activities, with free cash flow reported at C$626 million [6]. Share Repurchase Program - Under its current Normal Course Issuer Bid (NCIB), CNI may repurchase up to 20 million common shares from February 4, 2025, to February 3, 2026, but had not repurchased any shares as of March 31, 2025 [7]. - CNI repurchased 13.9 million common shares under its previous NCIB, including 0.6 million in Q1 2025 [7]. Outlook - For the full year 2025, CNI anticipates adjusted earnings per share (EPS) growth of 10%-15% and plans to invest approximately C$3.4 billion in its capital program [8]. - CNI expects slightly positive growth in North American industrial production in 2025, adjusting from a prior expectation of 1% [8]. - The company continues to project RTM growth in the low to mid-single-digit range and assumes the Canadian dollar will be valued at approximately $0.70 in U.S. currency [9]. Long-term Projections - CNI aims for compounded annual adjusted diluted EPS growth in the high single-digit range from 2024 to 2026 [10]. - The company continues to expect North American industrial production to increase by nearly 1% CAGR over the 2024-2026 period [11].