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

Financial Data and Key Metrics Changes - The company reported adjusted EPS growth of 2% for Q2 2025, reaching $1.87 compared to $1.84 in the previous year [41] - Revenues decreased by 1% year over year, attributed to a 1% reduction in RTMs and flat carloads [29][41] - Operating ratio improved by 50 basis points to 61.7% from 62.2% in the previous year [41] Business Line Data and Key Metrics Changes - Bulk volumes showed strong performance, while merchandise and intermodal segments faced challenges due to tariffs and a weaker industrial economy [8][12] - Petroleum and chemicals experienced lower volumes due to refinery turnarounds, impacting overall performance [31] - Grain and fertilizers were a bright spot, with revenues increasing by 12%, driven by higher grain shipments [34] Market Data and Key Metrics Changes - The company noted a shift in traffic mix, with less merchandise business impacting revenues and margins [8][30] - International intermodal traffic through Prince Rupert showed good progress, while Vancouver faced challenges [52] - The tariff environment has created uncertainty, particularly affecting forest products and metals [11][36] Company Strategy and Development Direction - The company is focused on leveraging its diversified book of business and maintaining strong partnerships with customers [12][15] - Efforts are underway to develop better access to global markets, particularly in the energy sector [12] - The company is adjusting its expectations for low single-digit RTM growth for the remainder of the year due to ongoing uncertainties [15][45] Management's Comments on Operating Environment and Future Outlook - Management expressed concerns over the tariff and trade environment, indicating that uncertainty may persist in the near term [11][15] - The company is proactively managing costs and resources to maintain margins amid changing volumes [19][41] - There is optimism about the potential for growth in the second half of the year, particularly in intermodal and bulk segments [36][47] Other Important Information - The Canadian carbon tax surcharge repeal impacted revenues by approximately $70 million in Q2 [30] - The company generated over $1.5 billion in free cash flow, up 5% year over year, primarily due to lower capital expenditures [43] - The company is revising its full-year volume assumption to low single-digit RTM growth due to the current macroeconomic environment [45] 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 [52] Question: Challenges or changes in optimism around company-specific initiatives - Management affirmed that company-specific initiatives remain intact, with growth fundamentals strong despite current tariff uncertainties [60][61] Question: RTM guidance for the second half of the year - Management expects volumes to accelerate as refinery outages resolve and anticipates a seasonal uptick in grain shipments [68][69] Question: Proactive changes in response to mix - Management highlighted strong bulk volumes and the need to manage costs tightly in response to volume shifts, with a focus on maintaining operational efficiency [73][78] Question: CapEx management and competitive access in potential mergers - Management is closely monitoring CapEx, reducing it by $50 million, while ensuring competitive access is defended in any merger discussions [82][84]