Canadian National Railway pany(CNI) - 2025 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a 2% adjusted EPS growth for Q2 2025, with revenues down 1% year over year on a 1% decrease in RTMs and flat carloads [4][27][40] - Operating ratio improved by 50 basis points to 61.7% compared to last year's adjusted operating ratio of 62.2% [40] - Free cash flow generated was over $1.5 billion, up 5% year over year, primarily due to lower capital expenditures [42] Business Line Data and Key Metrics Changes - Bulk volumes were strong, reflecting the company's advantage in the agricultural sector, while merchandise and intermodal segments faced challenges due to tariffs and a weaker industrial economy [5][12] - Petroleum and chemicals experienced lower volumes due to refinery turnarounds, while grain and fertilizers saw a 12% increase in revenues, with grain volumes up 6% in Canada and nearly 30% in the U.S. [32][28] - Intermodal volumes were mixed, with a 4% decline in units through Vancouver but a 14% increase in Prince Rupert units [33] Market Data and Key Metrics Changes - The company noted ongoing uncertainty in the tariff and trade environment, particularly affecting forest products, metals, and automotive sectors [8][10] - The Canadian carbon tax repeal impacted revenues by approximately $70 million in Q2, expected to continue affecting the next three quarters [28] - Foreign exchange provided a slight tailwind to revenue of less than 1% [28] Company Strategy and Development Direction - The company is focused on leveraging its diversified book of business and maintaining strong partnerships with customers to navigate the uncertain environment [10][11] - Efforts are underway to enhance access to global markets, particularly in the energy sector, and to mitigate tariff impacts by finding alternative routes for affected commodities [11][12] - The company is adjusting its expectations for the remainder of the year to low single-digit RTM growth due to the current economic environment [13][44] Management's Comments on Operating Environment and Future Outlook - Management expressed caution regarding the second half of the year, citing broader ranges of outcomes and persistent softness in certain sectors [10][13] - The company remains committed to controlling costs and maintaining operational efficiency despite external challenges [15][22] - Management believes that the fundamentals of growth remain intact, with expectations for a rebound in volumes as tariff situations stabilize [59][85] Other Important Information - The company ended the quarter with 8,000 system cars in storage, which is double the amount at the end of Q1, allowing for flexibility in response to volume changes [22] - Locomotive availability improved to 92.5%, with an 8% reduction in locomotive unit costs year over year [23] - The company is revising its guidance for mid to high single-digit EPS growth in 2025, reflecting the impact of tariffs and economic conditions [44] Q&A Session Summary Question: Progress on U.S.-bound international intermodal traffic through Prince Rupert - Management noted that overseas intermodal via Canada to the U.S. represents less than 5% of total revenues, with good progress at Prince Rupert but challenges at Vancouver due to tariff deadlines [51][52] Question: Challenges or changes in optimism around company-specific initiatives - Management affirmed that company-specific initiatives remain intact, with a focus on leveraging network advantages despite current tariff uncertainties [58] Question: RTM guidance for the second half of the year - Management expects volumes to accelerate as refinery outages resolve and anticipates a ramp-up in grain crop shipments in September [66] Question: Proactive changes in response to volume mix - Management highlighted strong bulk volumes and the need to manage costs tightly, with a focus on maintaining operational efficiency [70][72] Question: CapEx and competitive access in potential merger scenarios - Management is closely monitoring CapEx and has reduced the budget while ensuring investments are aligned with growth opportunities [78][80] Question: Confidence in achieving volume growth in 2026 - Management expressed uncertainty regarding tariff resolutions but remains focused on maintaining strong growth fundamentals [85]